High tenant demand for sustainable, affordable housing, healthcare and retail property in sought-after Dutch locations offers institutional real estate investors real perspective in the coming years, as long as interest rates don’t rise, according to a new report by Holland Metropole partner Achmea Real Estate.

The Outlook 2024-2026 report says that “strong fundamentals” in the Dutch market continue to offer opportunities for institutionals, and that government plans to overhaul the pensions sector will not affect real estate’s relevance as an investment.

Real estate markets have had a “turbulent year” partly following European Central Bank interest rate rises to cool the economy and cut inflation, said Casper Hesp, director of investment management at Achmea Real Estate. 

Inflation under control

“In the year to September 2023, around 13% of the Dutch real estate market value evaporated, and that is a rare occurrence,” he said. “Now that inflation is under control, the ECB has the time to stabilise interest rates and then perhaps cut them in the second half of 2024. Lower interest rates will help the property market further stabilise and open up opportunities again for institutional investors.”

Interest in sustainable housing, healthcare real estate and retail premises is still high, Hesp said, adding that investors are becoming more demanding in terms of quality and location.

In particular, demand for affordable housing in the Netherlands is still strong, which makes it an interesting and low risk asset class. Mid 2023, the vacancy rate in this sector experienced by institutional investors was just 2%, a historic low. And this, the report said, is only likely to continue as the population grows in the coming years. 

A focus on ESG

At the same time, Hesp said, ESG is of increasing importance, from both a social and a financial perspective. The current pace towards meeting sustainability targets in the Netherlands means the terms of the Paris climate agreement won’t be met, he said. 

Achmea expects both tenants and policymakers will increase their focus on sustainability issues in the coming years. Institutional investors will have to not only invest in sustainable new build, but in making their existing policy more energy efficient. This is also essential to make sure investors are not left with stranded assets that cannot be leased or sold.

“EU legislation in this area is also becoming increasingly stringent and the value of sustainable real estate as opposed to unsustainable property will diverge,” said Hesp. “Real estate is an asset class with which pension funds can really make a difference.”