Businesses wanting to settle in The Netherlands are in luck. There’s a lot of free office space around – and prices are falling. Wonderful deals are there for the taking. But be careful. Behind this enticing front is a shaky real estate sector.
Up to a few years ago, the demand for offices in The Netherlands was sky high. Those were the golden times for real estate developers and investors. But then came the internet crisis, the financial crisis and the European debt crisis. In a few months time, demand plummeted. Now, about 15 percent of commercial space in the Netherlands is vacant.
These are old style offices, huge blocks, built in the nineteen-eighties and nineties. Grey, dark and not sustainable at all. Is there a future for these offices nobody wants to rent? It doesn’t look bright. First, the population is getting older. the labour force is decreasing, and with it the demand for working space. Secondly, because of outsourcing to third world countries and the popularity of working at home, the percentage of vacant offices will only grow. And finally, vacancy attracts vacancy. Nobody wants to hold office in a district that is full of empty blocks. Meanwhile it doesn’t seem very realistic that our economy will recover very soon. So something has to be done. But what?
Opportunities
New styles of working are part of the problem. More people work at home. But “new working” also includes small, sustainable and flexible working places. Employees want open spaces where people can meet and drink coffee together. They want flexible working environments, smart technologies, co-working spaces, natural light and materials, bright colours, external views, lounge rooms and cafes nearby. In fact, they want everything a huge block from the eighties doesn’t have. Here is an opportunity for the real estate owner. By adapting his old offices to this new “working style”, the number of companies showing interest will definitely increase. But it will cost money, a lot of money.
The fact that almost all Regus’ offices are occupied, is because of this commitment to the “new working” ethos. Regus is the world’s largest provider of flexible workspaces. ‘Flexibility is the key,’ says Eduard Schaepman, Vice President of Regus Benelux. It’s over with fixed rents and yearly contracts. Instead they want offices at their disposal “at any time, at any location”.
‘The same goes for employees,’ he adds. ‘They don’t want to spend their working days in one place any more. Most of us produce more when we are free to work wherever we want. At home or in some office. In open spaces or closed rooms. Near gas or railway stations or even in cafes or restaurants. This philosophy marks the end of the traditional office as we know it, with one desk per employee and the same walls surrounding him nine hours per day. Besides, flexibility is much cheaper than a yearly contract for one office block. In some cases, companies save 60 percent of their facility costs. With the financial crisis going on, that is a very convincing argument.’
Without Change
About one quarter of the empty working space in the Netherlands (2 million square metres) is considered to be ‘without any chance’. These are the old grey blocks nobody wants to work in. Demolition seems to be the only real option. Bankers might be willing to decrease their interest rates if owners demolish their useless property. Also, some government measures can ease the pain for real estate developers. One of these could be the promise to build one square metre elsewhere for every two square metres an owner takes off the ground. If the futureless offices survive, the Netherlands could easily face a new crisis, the so-called “real estate crisis”. The majority of the vacant offices are valued too high. To avoid a new crisis, real estate investors will have to devalue, according to some experts. But most investors are not ready to swallow their losses. Yet. They still believe the market will recover. The truth is that it only will recover when no new offices are built, “old” but still promising ones (near public transport facilities and shops, with enough parking space and an attractive design) are renovated and the bricks nobody cares for disappear.
Are real estate owners willing to renovate their traditional but well located blocks? Regus did in some cases. According to Schaepman there are three major reasons for businesses to choose for a location. Apart from flexibility those are accessibility and the presence of a “community”.
‘It has to be cosy,’ he says. ‘The sociability of a working place is important, especially for younger employees. Are there any cafes, terraces or restaurants? Are there any opportunities to do some shopping, to meet other people? These are important questions.’ Regus owns a Business Centre at Amstel Business Park. ‘Around us you will find many vacant offices. There is no Starbucks and there are no grand cafes or gyms here. There is no community. Except in our Business Centre. We took care of that. And by offering this community none of our offices are vacant.’
Cheap working space
When supply exceeds demand, price will fall. So if you are looking for cheap working space in the Netherlands, these are the times. Or not? It all depends on where you are looking. In general, prices are falling, but far from spectacularly. Last year, the average rental price in the Netherlands was € 143 per square metre. That is € 1 lower than in 2010. In Amsterdam and Rotterdam the average realized price even increased to respective € 208 (+ € 19) and € 139 (+ € 9) per square metre.
On the peripheries of the big cities, where there is an overload of empty offices, prices have fallen by 10 to 30 percent. But the closer you get to the city centre and the more companies can profit from public transport facilities and hospitality businesses, prices are pretty much the same as a few years ago.
According to Christiaan Huijg, Managing Director of World Trade Center Amsterdam, there might not be a better location in Amsterdam than the “Zuidas”, a large, rapidly developing business district in the south of the city.
‘Right now we have the lowest percentage of vacant offices in years,’ Huijg says. ‘Despite the economic setback, small companies are still growing and looking for bigger offices at good locations with plenty of facilities. WTC Amsterdam provides a business club, several cafes, a self service restaurant, a la carte restaurants and many other facilities. There are good connections to the city centre and Schiphol airport. One will also find many shops, restaurants and cafes near the Zuidas. This is why the World Trade Center is still very popular.’
Like Huijg, Jolande Huijers, Managing Director at Beurs-World Trade Center Rotterdam, has no reasons to complain. ‘Some companies wait a little longer before they decide to set up office here,’ she says. ‘Decision makers are keeping their options open, but most of the time Beurs-WTC Rotterdam seems to be the best option. We are located in the city centre of Rotterdam, close to the highway and all forms of public transport. Rotterdam-The Hague Airport is at a distance of 10 minutes. And we offer different sized offices. The smallest office is 34 square metres, which is quite unique. Most vacant offices are much bigger and don’t offer the same service level as we do. We offer architectural and technical services. As well as a business centre for administrative and secretarial services, a congress and event centre, 24 hours security, a parking, catering facilities with room service and restaurant ‘Staal’. In September we will start a new concept, which provides flexible workspace, always available and based on subscription. We are convinced that this concept will suit the current demand perfectly. Because of the wide range of supply, office renters are pickier than before. The only way to attract businesses is to offer all the service they want. And more. In doing so, Beurs-WTC Rotterdam is one of the positive expectations in a difficult market.’
Real estate crisis threatens
Real estate owners and government bodies have to take action if a looming crisis is to be averted, say experts in the commercial real estate sector. City authorities and developers must stop adding to the existing stock of commercial property. Instead, they have to divert vacant office buildings to alternative uses, and reduce the value of their building stock.
The National Bureau for the Building Industry estimated last year that, in The Netherlands, about 6.5 million square metres of office space is not being used (out of a total of 50 million). Two-thirds of this can be regarded as permanently empty. In 10 years, the quantity of empty office space has nearly quadrupled.
The main cause is the economic crisis, says real estate advisor, Gregor Van Heemskerk of the firm Twynstra Gudde. But the uncontrolled building policy of Dutch municipalities also plays a role. “Despite shrinking demand for office space, increased building is taking place mainly at local level,” he says.
“Nobody really wants to deal with the problem in the commercial real estate sector,” argued Cuno Van Steenhoven of DTZ Zadelhoff, the country’s largest real estate broker, at the end of last year. “You see municipalities continuing to develop plans for office complexes. They’re building for things to remain empty.”
Accept loss
Van Steenhoven and consultant Van Heemskerk are advising local governments to find new uses for their empty office buildings. In addition, they say all real-estate companies and municipalities need to drastically reduce the value of their properties. Because of the high vacancy rate, the book value of the office buildings is not realistic. If investors withdraw from the real estate sector due to inaccurate valuation the whole market could collapse, they warn. According to the DTZ Zadelhoff head, municipalities and real estate companies have to write off nearly five billion from the value of empty office blocks. Van Heemskerk, of Twynstra Gudde, estimates a total value write-off of ten billion.
Paulus Jansen, a Socialist Party MP, brought the issue of vacant offices to parliament early this year. He described it as financial time bomb – unless the real estate sector acted swiftly to reduce the book value of properties. He warned that the buildings were being valued on the books at seven billion euros more than they were worth. When you add the over-valuation of buildings that aren’t vacant, Jansen noted, you end up with a figure of at least 22 billion euros.
