Utrecht, 7 March 2011
FGH Real Estate Bulletin 2011: ‘Sustainably meeting demand’
The sector will be faced with new strategic choices
‘The market is too capacious, and sufficient returns will be generated only by players who are able to fulfil the needs of end users. As companies, retailers and consumers’ demands will change greatly in the coming years, the sector cannot remain idle. In future, city centre environments will pose the most significant challenge. They face complex difficulties with which all real estate professionals will have to address. In order to do so, the sector must optimise its innovative capacity and professionalism. Furthermore, the need to make existing buildings more sustainable will increase. While the coming period will in fact provide opportunities, in terms of finding solutions for outdated properties, the sector will also need to satisfy the changing nature of demand in which sustainability is playing an increasingly major role.’ These are the most important conclusions of the FGH Real Estate Bulletin 2011. This annual market report provides a comprehensive overview of trends and developments in the commercial real estate market and the views of FGH Bank on them. On Monday 7th of March, Mrs. Annemarie van Gaal accepted the first copy from Mr. P.C. Keur, Chairman of the Board of FGH Bank.
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.
FGH Bank
FGH Bank is part of the Rabobank Group and specialises in financing commercial real estate. Due to this specialisation, the bank has a great deal of expertise at its disposal. Our clientele comprises primarily project developers and professional real estate investors. With its head office in Utrecht and branches in the major real estate regions, FGH Bank is nationally represented and there is a strong connection with local markets. The real estate bank also has a branch in Frankfurt.