- Increased concerns amongst property investors on interest rate trends
- More and more investors will not realise expected growth
Investor confidence in Dutch property has remained strong since Q3 of 2015. The main concern of investors is the scarcity of high-quality investment product in all segments of the commercial property market. That is the main reason why the realised portfolio growth of investors remains behind expectations. This is reflected by the SentimentBarometer of Cushman & Wakefield, a quarterly monitor on investor confidence in the Dutch property market that expresses sentiment amongst investors.
The most recent barometer – up to and including the fourth quarter of 2016 - shows a growing concern among property investors about interest rate trends. Frank van der Sluys, Head of Research Cushman & Wakefield: “It appears from our barometer that investors have since early 2016 worried very little about the financeability of property. Current investor confidence is influenced mainly by the shortage of high-quality investment product and increasingly by interest trends. Although our survey does not directly enquire into the influence of political developments, it is very well possible that the election of President Trump in the United States, the pending Brexit in the United Kingdom and the Dutch elections are indirectly fuelling concerns about interest development.”
As in the fourth quarter of 2016, 85% of property investors also expect to see their property portfolio grow in the first quarter of 2017. Only 15% is less positive. 63% of investors actually realised growth in the fourth quarter of 2016, significantly less than the group that anticipated growth during that period. Cushman & Wakefield expects that - as a result of the structural shortage of suitable investment product - investors will increasingly fail to realise the anticipated growth. This trend is strengthened by the risk of higher interest rates, driven by political developments as well as the announced slowdown in quantitative easing by the European Central Bank after March of this year, which is reflected by a cautious rise in interest rates on 10-year government bonds.
Spring 2014 marked the switch in sentiment of property investors from predominantly negative to prominently positive. Investor confidence has since the third quarter of 2015 been above the pre-crisis record. Cushman & Wakefield views this upturn as being, in part, the direct result of the Quantitative Easing programme that was started by the European Central Bank in January 2015. Although interest rates on 10-year government bonds already started dropping before 2014, this downward movement was reinforced once the bond purchase programme got into full swing in 2015. With financing costs remaining at a low level, this positive sentiment among investors has in recent years translated into higher investment volumes. At the end of 2016, 75% of investors were positive about the Dutch property market as compared with 25% who were not, resulting in a SentimentBarometer score of +50% at the end of the year.
The Sentimentbarometer of Cushman & Wakefield asks investors about their current portfolio development over the past quarter and the expected portfolio development in the following quarter. This provides insight into the development of investor confidence over time. It is clearly visible that the expected growth of investment portfolios in the years leading up to 2012 was higher than the realised growth. The following years, from 2012 to 2014, showed significant fluctuations, while since 2015 the expected portfolio growth is once again higher than the realised growth.
Mathijs Flierman, Head of Capital Markets Cushman & Wakefield: “In the years before 2012, property investors regarded vacancy and rental development as the main risks for the property investment market. That view has changed since 2015, with investors now naming the shortage of suitable investment product and yield development as the primary risk factors. What we see is that when sentiment is negative, developments in the user market or the actual economy are viewed as risk. If sentiment is positive, however, developments in the investor market or the financial markets are highlighted as risk.