FGH Real Estate Bulletin 2011: ‘Sustainably meeting demand’
The Dutch economy is growing again, which for many is very reassuring. This growth in itself does not mean too much, however, as compared with the gloomy year of 2009, some degree of recovery was to be expected. In statistical terms, the economy is now somewhat better than a year ago. Despite this, Dutch trade and industry, consumers and governments have not yet actually recovered from the effects of the economic crisis. There is still a long way to go.
Debt restructuring by governments both within and outside Europe will continue to attract attention in the coming year. Against this background, room for economic growth and the recovery of consumer confidence remains moderate. These factors will impact the pace at which the demand for real estate will improve.
Expansive market
There is expansion in all real estate markets. Under current conditions, sufficient revenue will be generated only by players who are able to respond effectively to the changing needs of the end user. As user demand from companies, retailers and consumers will change radically in the coming years, the sector cannot afford to remain idle. In future, the most important task will concern city centre environments, which face a range of complex difficulties. In order to address them, input from all real estate professionals will be required, and demands will be placed on the innovative capacity and professionalism of the sector. Moreover, the need to make existing buildings more sustainable is increasing. While certain opportunities will be created by finding solutions for outdated properties, others will also emerge through developing ways to satisfy the changing nature of demand in which sustainability is playing an ever-increasing role.
New building, new style
The market for commercial real estate is faced with saturation in all sub-segments. The building volumes that we became accustomed to in previous years are therefore unlikely to return. Quality thinking will need to replace the quantity principle of old, which was almost exclusively driven by demand. The sector will consequently be faced with new strategic choices, where innovation is indispensable. Innovation can occur in many ways, not least by providing a more customer-oriented development product, with customisation and diversification. In addition, more efficiency can be achieved within the chain, where collaboration and project management can lead to greater efficacy and thus lower costs. Finally, large-scale new building based on large land positions will make way for companies that can and will operate flexibly. According to FGH Bank, these trends will bring about fundamental changes to the construction sector in the coming years.
Back to market balance
It will be necessary within the foreseeable future to return to a real estate supply that is appropriate for user demand within the market. The basic question of how much space businesses and consumers actually need remains unanswered. It is clear, however, that too much has been developed. This has been obvious for many years in terms of rising vacancy levels. Without fundamental interventions and changes, FGH Bank foresees a definite polarisation within the market, resulting in a dichotomy where part of the real estate will have hardly any chance at all. It is an illusion to suppose that economic recovery can end or break through this process. It can at most delay it. The necessity for intervention is clear, but no matter what solution is adopted, it will be felt somewhere in the market.
Central coordination, regional differentiation
The real estate sector needs help to restore equilibrium and requires more central coordination. The government must therefore assume a central role in organising market recovery, not by paying the bills but by stimulating change. Government involvement could lead to speedier transformation and, for example, could also play a crucial role in instituting a (local) restructuring fund. According to FGH Bank, national coordination is required, but regional market conditions must be accounted for and strategies adjusted accordingly.
Collaboration is required
The real estate sector is now faced with the immense task of reinventing itself. It must bring the market back into balance. Mutual collaboration is thereby required between market players and also with the government. Without collaboration, FGH Bank foresees further polarisation, with more losers than winners. Market players will each have their own responsibility, and long-term returns will need to take precedence over short-term profits. Furthermore, dynamics are required. If they are lacking, ‘real’ market recovery will not take place.