Utrecht, 17 March 2010
FGH Real Estate Bulletin 2010: ‘Focus on a new reality’
Today’s market requires a different vision for real estate
‘The real estate sector has to realise that the trend in growth we have known for so long no longer exists. The real estate market has irretrievably changed, and real estate players will have to forge a new path’.
‘For FGH Bank, the quality of the real estate and the underlying value of the bricks and mortar are still foremost, but the times of unbridled credit extension are now over. In the new reality, such lending would simply be irresponsible.’
These are the important conclusions from the FGH Real Estate Bulletin 2010. This annual market report provides a complete overview of the trends and developments in the commercial real estate market and FGH Bank’s views on them. On Tuesday 16 March, Mr. B. Staal, Chairman of the Association of Dutch Banks, received the first copy from Mr P.C. Keur, Chairman of the Management Board of FGH Bank.
Like so many sectors, construction and real estate were hit hard by the recession. The number of completed new dwellings declined, as did the selling prices. The decline in the number of new dwellings is however largely a temporary effect, according to FGH Bank, because need still exists in the market.
The situation is different for non-residential construction. In absolute terms, the quantity of offices, business real estate and even shops seems to have reached a peak. The saturation of these markets has translated into an increase in vacancy levels. High vacancy levels and the moderate economic climate have led to a substantial decline in new building production. The consequence is that the new building market will remain relatively slow in most segments, even in the longer term, and this will ensure increasing competition and added pressure on the sector. Now, more than ever, there is a need for entrepreneurship.
Market embraces sustainability
In a saturated new building market, real estate developers will have to seek products that are distinctive, certainly with regard to the existing stock. Sustainability is currently a recognisable feature but will ultimately become the norm. To maximise sustainability, rapid action will be required, and end users will also play an important role here. They will increasingly expect new buildings to be created sustainably. As a result, the new building sector will be challenged to draw from its innovative capacity.
Hold-on investors are slowly returning
Due to write-offs, the value of portfolios has substantially declined for most investors, which has ensured that they are returning to existing, trusted markets. The demand for liquid forms of investment is growing, certainly with institutional investors.
The input of own capital has been reduced to healthier proportions for the market. This has taken place because, among other reasons, it is expected that banks will have to maintain larger buffers and will consequently have limited opportunities for growth. This will result in limited latitude for the provision of credit for banks. Furthermore, due to this, decreased real estate value will play a role as scope for providing relatively high loans will almost no longer be present. Ultimately, this will produce a level of investment that complies with a responsible risk profile. Initial yields have been stabilising in the readily marketable part of the market since the third quarter of 2009. Based on current market knowledge, a further decline in this segment is not expected. This makes it interesting for investors to switch to buying.
Automatic profit does not exist in real estate
According to FGH Bank, the most important lesson for the real estate sector is that automatic profit does not exist in real estate. The sector has in recent years relied too much on the results achieved in the past and has not focussed sufficiently on the approaching problem. In the first instance, investment requires a vision of the future. The creation of one’s own playing field and specific departure points for doing business are essential.
“Real estate players will therefore have to focus sharply on the market, the product and above all on the added value that they can provide for their clients,” says Peter Keur, Chairman of the Board of FGH Bank. He asserts, “The sector must have clearly in its sights where its own added value lies and how this added value can be given form and content. This requires a different approach and focus than before.”
FGH Bank
FGH Bank, part of the Rabo Real Estate Group, specialises in the financing of commercial real estate. The bank therefore possesses a great deal of expertise in this field. The client base comprises primarily project developers and professional real estate investors. With its head office in Utrecht and branches in the important real estate regions, FGH Bank is represented throughout the Netherlands and has a strong connection with local markets. FGH Bank also has a branch in Frankfurt (Germany).