Dutch I&L: resilience and recovery in a post-rate hike era

Within The Netherlands, the logistics market was the quickest segment of the market to stabilize after the initial shocks around the rise in interest rates, albeit with different dynamics than before. In the first half of 2024, investment increased by 23% relative to the same period in 2023, as investor confidence flooded back into the sector. The ECB rate cuts, the beginning of sharpening yields and the narrowing of the buyer-seller price expectation gap will continue to drive y-o-y growth through the end of the year. Total investment volume in 2023 reached 1,2 billion EUR; for the first half of 2024 the volume has already reached approx. 1,0 billion EUR, further underscoring recovery in the market. Preliminary numbers for the third quarter also point towards recovery; Y-o-Y volumes for Q3 2024 are approx. 40% higher than for Q3 2023.

Dynamics of the logistics market during the rate-hike and subsequent elevated rate periods (Q3 2022 – Q1 2024) shifted, as investors looked more to Core+ properties, rather than Core. Core property values were the most heavily affected by the rate hikes, as desired yields were no longer attainable, and owners of these properties were stable enough that forced sales did not need to take place. Additionally, given the high property values within the Core segment of the market, it has long been buoyed by foreign capital rather than local capital; these foreign investors retreated to their home markets or from the market entirely. This was clear in the investment volumes; the share of total investment volume of properties > 100 million EUR transacted in 2023 was approx. 20% below the 2014-2022 average. Additionally, in this same period the share of properties transacted in the 20-50 million EUR range in 2023 was approx. 13% higher than in the 2014-2022.

Importantly, due to multiple factors, investor confidence in the market remained high even against difficult market conditions. A large share of tenants within Core+ properties have contracts expiring within the next 2-3 years; these properties have enormous rental growth potential as rents have increased every year across The Netherlands since the start of these contracts. Between 2022 Q2 and 2024 Q2, prime rents have risen on average by 25% (eg: Schiphol Aiport, Maasvlaakte Rotterdam and the Venray / Venlo region) and secondary rents have risen by 28% on average. This has led to extremely competitive bidding for Core+ properties; for example, one property in Tilburg rented to an excellent tenant received over 20 bids. Conversely, for some investors typically active in this market segment, this popularity has caused them to start looking at other markets, such as value add segment or at vacant properties, as they are no longer able to compete with larger and / or more liquid parties for these Core+ properties. Even with interest flowing back into Core properties, as well as more money being invested and made available for Core properties, it is expected that the attractiveness of Core+ properties will continue to drive investment within this market.

More Core properties will be coming to the market through the end of the year; many parties are interested to see how the market will react to these in terms of bidding, pricing, conditions and yields. While some international portfolio’s, which included a few Dutch assets, have been transacted over the past months, local (Dutch) portfolios have been absent from the market. These are now also returning to the market, further underscoring the recovery of the logistics market.

In September, the logistics real estate sector in The Netherlands experienced a slight yield compression of 5 basis points, signaling a potential turning point for the market. Historically, the logistics market has been quick to respond to market changes, and this sector is poised to lead the recovery. The beginning of interest rate cuts locally (ECB) and abroad (eg: Canada and The USA) and robust rental growth has helped further increase investor confidence, while limited new supply in the coming months and onward will help protect vacancy rates and sustain asset values and rental growth. Additionally, the growing focus on supply chain resilience and decarbonization continues to drive demand for high-quality logistics space. This modest yield compression may indicate the start of a broader stabilization in the logistics market, which is likely to further catalyze the increase in investment activity witnessed in 2024 over the coming months.