THE PROPERTY PERSPETIVE September 2017
BRABANT S OFFIE MARKET AT A GLANE The office markets in Eindhoven, Breda and s-hertogenbosch share two common features: central locations are popular and, broadly speaking, not enough good-quality space is available. On the whole, vacant offices in this region meet few or none of potential tenants wishes and requirements. Open-plan spaces allowing for flexible working and optimum internal communication rarely come onto the market. Developments supporting new, healthy workplace concepts are still in their infancy. All in all, there is a substantial quality deficit to be made up. Positive signs The province of Noord-Brabant has a strong economic base, and the region s potential is increasingly reflected in its distinctive innovative strength. It is no coincidence that the province has more successful campuses than any other in the Netherlands. In terms of employment, the High-Tech ampus Eindhoven is the national number one. But Pivot Park in Oss, the Automotive ampus in Helmond and the Science Park in the grounds of Eindhoven Technical University Eindhoven are all growing. A number of other campus initiatives are in their early stages. This solid economic activity translates into an expanding market for commercial property, and the forecasts for next few years remain favourable in this respect. According to figures from Oxford Economics, office-based employment in Eindhoven and Breda, in particular, is expected to keep rising until 2025 in fact, even faster than the average in Amsterdam, Rotterdam, The Hague and Utrecht. 3% student housing 80% residential 15% other 226,000 sq m office space transformed in Eindhoven, Breda and s-hertogenbosch 2% education Time for action The market situation described above offers exciting opportunities for owners and developers conscious of Brabant s potential, especially that of Eindhoven, and willing to invest in the future. They can respond now to the increasing demand for high-quality premises in central locations. If the shortage of good office space persists, then Eindhoven in particular could find itself in much the same situation as Amsterdam. There, scarcity has pushed up rents substantially. In Noord-Brabant s three main cities, office users in the technology, media and telecoms (TMT) sector and business services are especially keen to base themselves in multifunctional central locations. But the property there has to meet their stringent expectations. 2017 BRE Research
VAANY BREDA Second life To counter structural non-occupancy in Noord-Brabant, the government and the market have initiated a variety of transformation projects in recent years. Relatively speaking, in the past five years Eindhoven has converted the largest proportion of its redundant office stock 11%, or 160,000 sq m to other uses, primarily housing. Almost three-quarters of these premises were previously used by Philips (source: Stedplan). In s-hertogenbosch, approximately 45,000 sq m have been transformed. In Breda, the figure is about 21,000 sq m. Given the ongoing demand for new homes, BRE expects this trend to continue especially at suitable, well-sited locations. Top-end rents increased from 175 per sq m in Q3 2016 to 185 per sq m in Q1 2017 Popular city centres Thanks to economic growth, increasing demand and transformation projects, nonoccupancy rates in Eindhoven, Breda and s-hertogenbosch have fallen. In their popular city centres, that fall has been quite dramatic. With their good public-transport links and relatively lively atmosphere, these are preferred locations for many tenants. By contrast, monofunctional peripheral locations are far less popular and still characterised by high non-occupancy rates. We strongly advise the government and owners to look critically at property in such areas, and to bolster the quality of both the buildings and their surroundings. For example, by improving local public-transport services and encouraging the opening of cafés, restaurants and other ancillary services. reating homes also adds to the quality of such an area, by generating a dynamic mix of living and working, shopping and other consumer activities. In practice, we find that these are the principal requirements expressed by tenants when considering potential locations. Meanwhile, the shortage of space in all the city centres is only expected to increase further. Declining non-occupancy is making it more and more difficult for office users to find highquality alternative accommodation. In Eindhoven especially, we expect significant scarcity caused by a combination of growing demand, limited new construction and the ongoing withdrawal from the market of structurally unoccupied premises. Non-occupancy figures of 6-7% the so-called frictional vacancy rate normally result in upward pressure on rents. We therefore expect the price of high-quality city-centre property to increase, and the availability of incentives to decrease. 11% VAANY S-HERTOGENBOSH 9% 12% E N T 5% E N T R E I R E E N T 5% E N T R E I R E VAANY EINDHOVEN 7% 6-7% is the minimum frictional vacancy rate needed to give users sufficient choice. E N T E N T R E I R E 2016 2017 BRE Research
The Property Perspective Rotterdam Increase office-based employment +11% +7% +8% +8% EINDHOVEN BREDA G4 AVERAGE 'S-HERTOGENBOSH 2005 2010 2017 2019 2021 2023 2025 An extra 150,000 sq m The past three to four years have seen strong economic growth in Eindhoven, s-hertogenbosch and Breda, with a concomitant rise in office-based employment. Between now and 2025, Oxford Economics expects this to continue in Eindhoven and Breda in particular. Assuming that the net space required per employee remains stable, this means that an additional 150,000 sq m will be needed across the region. To meet this increasing demand, dated existing offices in central locations will have to be improved. A renovation or upgrade can enable owners to satisfy the requirements of the modern office user. It is now essential that quality be raised, both within buildings and in their surroundings. More and more users today are looking specifically for sustainable, healthy, flexible premises in lively city-centre locations. Healthy Offices People are more actively interested than ever before in their personal health and well-being, and they expect their workplace to accommodate that concern. At our own head office, BRE recently conducted a seven-month study of 120 members of staff, in conjunction with the University of Twente, looking at the relationship between attention to occupational health and employee effectiveness. Dubbed Healthy Offices, this found that participants not only felt better working in healthy surroundings, but also performed 10% better on average. onsidering health aspects when selecting an office location should therefore be regarded as normal behaviour. And these factors should definitely be taken into account when improving existing office buildings and developing innovative new ones. Good returns Investors and developers who recognise Brabant s potential and want to invest in its future are doing good business. They are in a position to plug the gap in the current market by adding distinctive contemporary property to it or upgrading existing premises, and so responding to current demand for buildings in which people are able perform to the best of their ability. Our expectation is that growing demand and rising rents will result in good returns on their investments. At present, there is a substantial discrepancy between initial yields in prime areas such as the Randstad conurbation and the yields in the G3-cities in Southern Netherlands. In the past two years, the demand for office property from both domestic and international investors has focused very much upon the prime locations in the Randstad conurbation, which has put downward pressure on initial yields there. These parties are currently in the market to buy property and areas like Eindhoven s central business district, with its good fundamental qualities, are of particular interest to this kind of investor. Offices can still be acquired relatively cheaply there, and current market forecasts indicate that investments in premises at attractive locations have the potential to grow in value. 2016 2017 BRE Research
Eindhoven leads the way In 2016, Eindhoven had the highest office take-up figure of any local-authority area in the Netherlands apart from Amsterdam, Rotterdam and Utrecht. A substantial proportion of this was accounted for by Fontys University of Applied Sciences, which signed a contract to rent 24,000 sq m The majority of take-up is concentrated in the city centre: 35% in 2015 and 60% in 2016. The developments outlined here are expected to put substantial pressure upon city-centre property markets, especially in Eindhoven but also in Breda and s-hertogenbosch. Although rents in Eindhoven had stabilised for several years, they have increased recently. And in the city centre they are set to keep on rising due to improving market conditions and the quality deficit on the supply side. Offices as selling points Our advice to office users in the region is to think early about the location and quality of your next premises, and to enquire widely about the possibilities. The quality of your working environment is increasingly becoming a selling point in the jobs market and the search for good, well-educated talent. With office-based employment set to continue increasing, so too will the pressure on the labour market in Brabant. For employers, this represents an opportunity. Like your brand and company culture, an appealing location can be a decisive factor in the war for talent. onsider, for example, a building with distinctive architecture, a unique hospitality concept or amenities like sports facilities and restaurant business. A strategic approach to office accommodation is becoming more and more important for employers. Expiry forecast Looking at those leases with known expiry dates, in theory a large amount of seeking office users in Eindhoven, s-hertogenbosch and Breda will come back onto the market between 2018 and 2020. Eindhoven again leads the way here. All tenants with lease expiration within 5 years together account for 292,000 m² of office space. It's clear that tenants will go in search of new opportunities when their present leases expire. Whilst those already in high-quality accommodation are more likely to extend and stay put, we expect many users of ageing buildings to go in search of better alternatives. Given the current supply of office space, and its quality, it is clear that property owners and local authorities are going to have to make a real effect to retain or attract these tenants for example, by creating new building or renovating existing ones. Volume of known expiring leases, by year and by region sq m 120,000 100,000 80,000 s-hertogenbosch Eindhoven 60,000 40,000 Breda 20,000 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2017 BRE Research
The Property Perspective ontact Walter Dielemans Regional Director E walter.dielemans@cbre.com M +31 (0)6 50 24 39 37 Eric Harmsen Associate Director E eric.harmsen@cbre.com M +31 (0)6 11 37 81 65 BRE Eindhoven Lichttoren 32 5611 BJ Eindhoven T +31 (0)40 30 300 60 @BRENederland linkedin.com/company/cbre-nederland cbre.nl/eindhoven Would you like to know more about Healthy Offices? cbre.nl/healthy Disclaimer Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by BRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of BRE. BRE To learn more about BRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway or visit www.cbre.nl. Photography istock, Paleiskwartier Makelaars (Riva). 2016 BRE Research