05 April 2024 | 6 min.

Interview Pieter Vandeginste StiVAD about the office market

The pipeline for the development of new offices is virtually empty, while demand for sustainable offices at public transport hubs is high. In the years to come, there will continue to be scarcity on the office market, predicts Pieter Vandeginste of a.s.r. real estate. “Not all office sector colleagues are realising yet how big the impact of sustainability will be.”

The transaction volume in the office market decreased by just under 60 percent in comparison to the year before, while yields increased. Pieter Vandeginste, director of the ASR Dutch Mobility Office Fund of a.s.r. real estate, recognises the outcomes of an analysis of real estate data foundation StiVAD’s database. “This is due to the increased interest rate, which has made real estate less appealing to investors for a variety of reasons. This includes offices. Banks have to maintain extra buffers for the real estate financing they provide. This raises the cost of financing. And it means more parties have to go out and find alternative capital sources to refinance their real estate portfolios.”

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Pieter Vandeginste on construction site Wonderwoods

He has noticed how different the current dip in the real estate market is compared to the 2008 credit crisis. “Back then, the economy was heavily impacted when the financial crisis hit. The rental market responded immediately, performing very badly right away. This time around, the economy and the market are staying healthy – as far as I can see, building vacancy is hardly going up.” Particularly offices close to public transport hubs are very popular, observes Vandeginste. “That does lead to polarisation in the market: there’s a flight to quality. Offices on less popular locations are now bearing the negative consequences of this: vacancy and sharp declines in value.”

Vandeginste does see a bright spot for the current year: stabilising interest rates. Later in the year, this could turn into a slight decrease of interest rates. “I’m already seeing more activity in the office market, with investors anticipating falling interest rates. This would appear to hail the end of the decline in value of good offices.”

You already see lower returns for buildings with higher energy labels. It would be interesting to include a kWh/m2 value in the database at some point

Greenfield projects are a battlefield

When it comes to the development of new offices, there’s no recovery in sight. “It’s a battlefield. There are very few new developments, the pipeline is nearly empty. This means that the shortage of good offices will remain high in the years to come.” According to Vandeginste, the shortage of offices around public transport hubs actually demands good new supply and new construction. If the investment market really takes a turn for the better this year, everyone will want to buy new property there. “Market dynamics will increase,” he predicts.

Buildings that combine several functions under one roof are the foundation of the ASR Dutch Mobility Office Fund’s strategy. “This together with excellent accessibility by public transport. And the area around such an office building is important: a vibrant area is an important added value. The outlook for offices in such areas is very positive.” Vandeginste tells us about Wonderwoods, a mixed-use building with a green façade next to Utrecht Central Station, which will be delivered to a.s.r. real estate by developer G&S& in June. The building combines living, working and relaxing. The latter will be represented by a broad offer, with as highlight the wonderful art experience ‘Nowhere’. “This ‘immersive experience’ will be a spectacular new attraction powered by teamLab, a collective of Japanese light artists. Offices close to facilities and culture are expected to remain popular.”

The large shortage of good offices will continue in the years to come

Offices on their way to Paris Proof

In the years ahead, the office market will have an increased focus on making existing offices more sustainable, foresees Vandeginste. “All office buildings will eventually have to be Paris Proof. That’s not only something investors want, but tenants as well. A new development is that tenants want to commit to a maximum energy consumption. This requires offices to be technically modified. The mandatory minimum energy label C has made office users aware of their energy consumption. That’s a first step, of course. For us, an energy label of A or A+ is just basic hygiene.”

Vandeginste sees the awareness of tenants rising at an increasing rate. As of 1 July 2024, companies with more than 100 employees will have to report on their CO2 emissions. “This means it’s in the interest of tenants to have an energy-efficient office. We can help tenants with data on energy consumption, water consumption and waste streams. In so doing, we are providing the tenants with the groundwork for their reports.”

In the future, offices that are not only sustainable but also meet users’ demands when it comes to measuring and data will translate into a higher real estate value. “This will, in turn, be reflected in higher rental levels,” predicts Vandeginste. “Providing data will be a prerequisite; without data you won’t have an attractive proposition anymore.”

Lower gross initial yield for sustainable office

The higher value of sustainable office buildings will result in lower gross initial yields. Over time, this will be visible in the StiVAD figures. “You already see lower yields for buildings with better energy labels. Due to the introduction of international methods, like the Carbon Risk Real Estate Monitor (CRREM), building owners will have to start reporting on the energy consumption of office buildings. It would be interesting if StiVAD were to include a kWh/m2 value in the database at some point.

Vandeginste has noticed that some sector colleagues aren’t realising yet how big the impact of sustainability on the office market will be. The importance tenants attach to sustainable office space is increasing and they’ll start making choices based on this. His fund is anticipating this development with new construction projects such as Tree House at Rotterdam CS, The CubeHouse in Amsterdam’s Zuidas district and Wonderwoods at Utrecht CS. Vandeginste will talk to existing tenants about making their office space Paris Proof.

“With one of our larger tenants, the Dutch Railways (NS), we’re researching making the Katreinetoren at Utrecht CS Paris Proof. We’re hoping to keep the office open during the renovation. That shouldn’t be a problem: when the building was renovated ten years ago, everything above the ceilings was overhauled already. Now the façade needs replacing, but we can do that from the outside. As we’ll be working above the tracks, crash deck scaffolding will have to be installed.”