A tipping point for the office investment market

Elevated interest rates have caused major shifts in the office capital markets dynamics. CBD properties remain extremely popular for tenants, thanks to good accessibility, copious amenities and sustainable, high-quality spaces. However, this is currently not true for investors; high interest rates make desired yields and returns challenging to obtain, especially for investors dependent on financing.

 Sellers did not feel the pressure to sell as their properties still have a few years of strong cashflows remaining, which has kept and will keep them financially stable. This also means sellers are not willing to let these properties go within the current weakened market. Additionally, these strong cash flows have also allowed some investors who needed to refinance their properties to do so but in still relatively favorable conditions. All of these developments have come through in the office investment market volumes.

 The three most important changes we have seen in the Dutch office investment market are:

1. Larger and / or core deals have become scarce in the market. Since the beginning of the rate hiking cycle (Q3 2022), transactions > 100 mil EUR have decreased by 14% of the total market share. Transactions in the 50-100 mil EUR range have also fallen 10%, while conversely, deals 20-50 mil EUR have increased their share of total office investment volume by 6%. Value add properties in good locations in the 5 main cities (Amsterdam, Rotterdam, The Hague, Utrecht and Eindhoven) as well as the next 5 largest cities have become increasingly interesting for investors. Not all tenants are willing and / or able to rent in prime locations (eg: startups). This means that non-core and / or value add properties remain popular with tenants, and, if these properties have good cashflows, they remain attractive to investors. French SCPI’s in particular have become interested in this part of the market over the previous quarters.

2. Deals in CBD regions of the Netherlands have fallen by approx. 11% since 2021. However two notable CBD transactions occurred in 2024; the Crosstowers property in the popular Zuidas district of Amsterdam for approx. 150 mil EUR and the Edge development in Eindhoven for approx. 100 mil EUR. Deals in suburban and business parks have both risen 6% since the rate hiking cycle; these regions are popular for tenants, as they often have reasonable connectivity and good quality buildings with amenities nearby (eg: The Bijlmer region of Amsterdam), but come at a much lower price than in CBD regions.

3. The active investor pool within the office market has also shifted; more and more properties are being purchased by local (Dutch) investors. From 2015-2022, 25% of properties were purchased by Dutch investors, in 2023 and 2024 this share has jumped to 83%.

Things are beginning to change

Interest in the office market has risen again over the past few months, as more and more investors are actively looking for deals. Investors have become much more critical in their activities, often opting to compare multiple rather than few properties in order to find the best fit for them. Some core deals are coming to market, notably in the canal belt of Amsterdam; these will be sharply watched by all parties in order to see the general attention received as well as attainable bids and yields within the current climate. Importantly, banks, both foreign and Dutch, are willing to finance investments again, which is a welcome sign for the Dutch office market.