Investment market

Review of 2024

Compared to 2023, initial yields gradually became more attractive for investors to re-enter the market in 2024. Inflation decreased, monetary policy shifted, and the outlook for capital value growth improved. These factors enhanced liquidity in the commercial real estate market month by month. Additionally, the reduction and predictability of the capital market interest rates provided greater deal certainty during transaction processes. With rising capital values on the horizon, more and more investors realised throughout the year that the shift in policy rates presented a good entry point. Consequently, we often saw an increase in the number of bids per bidding process after the summer, along with heightened competition in the investment market.

However, there were clear differences in the recovery. For instance, the core investment segment showed limited improvement in the office, living, and retail markets, and to a lesser extent in the logistics market. Moreover, it is noteworthy that the number of forced sales due to refinancing issues or redemption requests from end investor remained relatively low. The primary purchasing activity initially came from private investors across nearly all segments, followed by  significant activity from French SCPI funds financed with retail capital. Foreign institutions were virtually inactive in 2024.

Ultimately, the increasing dynamics in 2024 led to an investment volume of €11.3 billion in 2024, which represents a 38% increase compared to the previous year. This marks a clear recovery, particularly driven by the living investment market, which saw a 99% increase in activity. This improvement can largely be attributed to the high popularity of privatisation strategies, both among local private investors and international private equity firms.

The main allocation of capital went to the living market (37%), followed by the logistics sector (27%). The allocation of capital to the office market reached a historic low at 14.9%. The retail market shows a stable picture, with an investment volume of 10.4% of the total.

Local and private investors are hitting their stride

As mentioned, last year the momentum primarily came from private investors and Dutch institutional parties. While previously 58% of the investment volume stemmed from abroad, that share dropped to just 35% last year. This indicates that investors are retreating to their home countries during turbulent and unpredictable times. In addition, the deteriorating and sometimes uncertain investment climate in the Netherlands has also not helped in retaining international investors. Nevertheless, it can be concluded that with the increase in activity of local private investors, the trend in the commercial real estate market has shifted.

Recovery also visible in larger volumes

However, we also see that the number of active parties for larger investment transactions has been increasing since the beginning of the summer. In the second half of 2024, this led to a solid increase in investment dynamics in this segment. The share of transaction volume with a purchase price above €100 million had been declining, reaching 15% of the total in 2023. Meanwhile, this figure has risen again to 27% of the volume, aligning with the average over the past few years (33%). For the time being, this increase in dynamics in the Netherlands is primarily occurring in the logistics market, where core investors are becoming increasingly active again. In the living investment market, we have observed several larger (existing) privatisation strategy portfolios changing hands, in addition to some large-scale new construction developments acquired by Dutch institutional parties.

Office market recovers, but lags slightly behind

In the office market, momentum lagged somewhat subdued - although the willingness to bid on larger transactions is now increasing. This led to significant sales volumes with the sales of Cross Towers, Carrefour, and EDGE Eindhoven, in contrast to 2023, when we did not see such volumes in the office market. The buyer group in 2024 was still limited to Dutch investors and a few foreign investors, such as French SCPIs.

The European office market is also recovering. This is evident in the increasing momentum of investments above €100 million, which rose by 22%, accounting for a 39% share of the total volume^[3]. Compared to the European dynamics, the Dutch office market still lags slightly behind. Despite the rental growth potential appearing to favour investment here – particularly given the low vacancy rate in the top segment, the rental growth potential, and the limited new construction – the Dutch recovery is still somewhat delayed. This can be partly attributed to the high transfer tax and the unstable fiscal policy; investors prefer other countries where they can more easily achieve the required returns.

2025 turning point in the investment market

The monthly improving dynamics in the investment market can be directly attributed to three factors. Firstly, private investors and SCPIs have been entering the market for some time now because they have liquidity available and can obtain good and stable rental income in the tight Dutch user markets.

Secondly, the initial real estate yields inspire confidence. After two and a half years of declining capital values, more and more investors believe that the bottom for capital value has been reached. Changes in the policy rate reinforce this conviction. Meanwhile, prices for the vast majority of portfolios have also adjusted to reflect the decline in value, which enhances purchase certainty. From a return perspective, this presents an optimal entry point for private equity, among others.

The final reason concerns the healthier spread between real estate yields and government bond yields. This normalisation ensures that we will also see more capital being allocated to the real estate sector in the coming year, thereby providing core investors with more liquidity to become active in the market again.

Note: For the cumulative property yields, the prime yield series of residential, office, logistics, hotel and high street retail were used.

The improved liquidity is also confirmed by the development of initial yields, which fell for the first time last year. This decline is attributed to a sharply increased spread between government bond yields and initial yields, providing investors with more room to bid aggressively in the housing investment market. In the coming months, the first yield compression is to be expected in other sectors.

Outlook 2025

Start of a new investment cycle

The Dutch commercial real estate market is on the brink of a new investment cycle. This arises from the first yield compression in our market, combined with moderate to strong rental growth across various property categories. For each category, it is expected that the capital value of prime products will begin to rise from now on, driven by both rental growth and yield compression.

The current market conditions appear to indicate an ideal entry point. However, CBRE does not expect that every type of capital to be equally active in the investment market. Some (particularly international) institutional parties are still facing a net outflow of capital, resulting in reduced liquidity. Moreover, some funds – particularly certain German open-ended real estate funds - are experiencing a relatively substantial capital outflow. In the short term, this may mean that a portion of these funds will need to be liquidated to meet redemption requests from underlying investors. This situation is primarily observed in the office market and, to a lesser extent, among Dutch institutional investors in the living market. Where urgent, we have already seen various steps taken at the European level over the past year.

CBRE expects that the primary activity in the office market will still be driven by private investors and SCPIs – similar to last year, supplemented by domestic core capital and family offices. Additionally, activity among more private equity investors is anticipated to increase again in 2025. Furthermore, we expect to see a return of foreign core capital to real estate later this year, particularly due to a shift in investment allocation.

The increasing spread between the ten-year government bond yield and top initial yields is leading to a resurgence in the allocation to real estate within ALM analyses. In recent years, there has often been over-allocation by pension funds and insurers in real estate, which resulted in redemption requests from various funds. The decline in the value of real estate portfolios, combined with rising stock prices, indicates that in 2025 we will shift from over-allocation to slight under-allocation in real estate.

This shift is also confirmed by the results of our 2025 Investor Intention Survey, in which we asked, among others, pension funds and insurers about their real estate allocation. It shows that across the board, an average of 46% expect an increase in investment allocation to real estate - up from last year's 26%. This gradually suggests an overall increase in inflows into the real estate market in 2025, which also improves liquidity among core investors.

Allocation shift leads to momentum

The growth in inflows and improved liquidity increases investment opportunities. CBRE expects to see this reflected much more in 2025 in the logistics and living markets, where a clear increase in the allocation of funds within the real estate sector is evident. This trend, which has been visible for a few years, thus continues. In the office market, yield assumptions have now also significantly improved, but there has been a much sharper value correction than in other asset classes. Therefore, capital inflows into the office market at the beginning of the year are likely still slightly negative. Nonetheless, we expect that the significantly higher return expectations will eventually attract more capital here as well.

Thanks to the allocation shift between sectors, more product can come to the market. This is particularly true in the office segment, where there may still be a net outflow of capital. As substantial amounts of money are withdrawn from the funds, parts of the funds will be liquidated in 2025. This will result in a size that better matches the demand from end investors for office real estate.

Moreover, more parties outside the office investment market seem willing to sell in the upcoming year. This is similar to previous years; however, back then, the difference in price levels did not lead to a transfer of ownership. This appears to be occurring much less frequently now, partly due to a significant increase in bidding density among investors. This enhances transaction certainty.

Due to the large capital influx into the logistics market and the declining new construction pipeline in the Netherlands, not all capital will find its way into logistics real estate. Over the course of the year, this may lead to sharper initial yields during the year. From a European perspective, there is a strong increase in the capital flow in the living market. However, in the Netherlands, we only see this reflected in a few segments: primarily in student housing and existing residential complexes. Private equity mainly sees the opportunity to privatise rental properties in the owner-occupied housing market. From an international perspective, the appeal of new builds remains very limited, partly due to the deteriorating competitive position of the Dutch investment market compared to other European countries.

Cheaper euro may lead to more capital from America

The expectation of rising protectionism in the United States has already resulted in a significant depreciation of the euro against the U.S. dollar recently, with a decrease of as much has 13% compared to early 2021. This makes it attractive for American investors to invest in European, and thus also Dutch, real estate. This strategy anticipates an improvement in the euro’s position in the medium term, which could particularly lead to more overseas investments in Europe.

Investment volume increases due to more private equity and core investment capital

Overall, recovery is expected to become noticeable throughout the year across the entire market. While there was a strong reluctance in the core segment in 2024, dynamics in this area will also increase throughout 2025: the outflow of capital will turn into an inflow.

The total investment volume is expected to reach €12.5 billion in 2025, an increase of 10.6% compared to the investment volume of 2024. As in the past year, the primary allocation will be directed towards the living investment market. Here, the living investment market will continue to benefit from the privatisation strategy momentum, while the new construction volume purchased by investors will increase only slightly, while the volume of new builds purchased by investors will only increase to a limited extent. What is expected to rise more significantly due to demand is the investment volume in the student housing, likely resulting in an investment volume of approximately €4.5 billion in the living investment market.

The industrial and logistics real estate market is expected to experience a similar volume year as in 2024. However, due to increasing vacancy rates - and consequently a decline in new construction – the focus is shifting towards investments in existing buildings. This is anticipated to be the starting point for the coming years. The impact of e-commerce on the logistics investment market is largely behind us, as is the significant wave of new construction. Despite a different composition of investments, the investment volume in this sector is likely to reach around €3.1 billion.

The retail investment market shows a strong improvement after two comparable years, with an expected volume growth of about 20% to €1.4 billion. Private investors, in particular, are shifting their allocation to the retail investment market, partly due to a significant decline in yields in the living investment market. Additionally, the number of international investors is slightly increasing. Recent periods have demonstrated that the retail market is resilient. While there are virtually no expansion plans, the amount of retail space - excluding supermarkets – has actually decreased in recent years due to transformations. This makes the user market more robust. Many investors – potentially including institutional investors in the longer term – are therefore returning to their old love: the retail market.

The healthcare real estate market has seen a significant decline in volume over the past few years. However, it seems to be somewhat recovering in 2025, partly due to a broadening of investment interest in the cure market. Nevertheless, the potential remains much greater than the expected investment volume of €800 million suggests. This confirms that the expansion and sustainability of senior housing continues to lag behind this year.

Despite the enormous potential and demand from users, the highly sought-after data centre market remains relatively quiet. With almost no new stock being added in the Netherlands, there is little investment product available. Consequently, investment volume is limited to €100 million.

In the hotel market, the dynamics for the coming year are not expected to differ much from those of 2024, with an investment volume of around €475 million. While there is interest, supply remains lacking. Furthermore, the increase in VAT on overnight stays presents an additional operational risk that could affect confidence in the market.

Although dynamics in the office market lagged the most in the past year, it is gradually emerging from its investment slump. The substantial value correction and deteriorated risk perception led to caution among investors. Slowly, confidence is returning, and the number of investors is steadily increasing. Additionally, the allocation of real estate is shifting: from offices to, for example, residential properties and logistics. This results in more investment offerings entering the market, leading to a slight increase in investment volume to €2 billion.

Opportunities for ESG value-add strategy in office market are increasing

The Dutch office market currently experiences historically low vacancy rates and a very limited new construction pipeline. Nevertheless, core investors have tightened their investment criteria over the past two years – particularly with regard to ESG ambitions and the impact of hybrid working. As a result, they are unwilling to make significant concessions when it comes to location, quality and thus, office sustainability features. Many of these core investors therefore adopt strict sustainability ambitions in their fund strategies. This includes setting a maximum energy consumption per square metre or limiting CO2 emissions – in other words, the net zero ambition, which they aim to achieve by phasing out gas and purchasing green electricity.

Investors aim to meet these objectives between 2040 and 2050, or at least remain below the thresholds established by the Carbon Risk Real Estate Monitor reduction pathways. It is noteworthy that different parties use various methodologies. For instance, many investors adopt the internationally recognized SBTi^[4] aligned with the Carbon Risk Real Estate Monitor (CRREM). However, there are also investors steering towards the Dutch Paris Proof 2040 end standards, developed by the Dutch Green Building Council.

In practice, however, it appears that these sustainability ambitions are not always achievable for many core investors. While in previous years, they could still pick the low-hanging fruit, increasingly thorough CapEx interventions in installations, facades, and glazing are now required. This is particularly true when a Paris Proof ambition has been established according to the standards of the Dutch Green Building Council (DGBC). This means that the measured energy intensity must remain below the end standard of 70 kilowatt hours per square metre per year, and that for new builds, energy neutrality applies. Even when extensive renovations are technically feasible, it is not easy to temporarily relocate tenants elsewhere due to the current tight office market. Moreover, it is challenging to undertake renovations without temporarily impacting value and cash flow.

Furthermore, large-scale investments are putting such pressure on the returns of core investors that divesting form such buildings - whether encouraged by end investors or not - is becoming an increasingly realistic scenario. Can a building that requires such substantial investments still be considered ‘core’?

For this reason, core investors are currently limiting themselves to the most sustainable and best-located properties, whose specifications align with the significantly changed user demand, namely: the need for hybrid working. Buildings that do not meet these requirements can expect little liquidity given the current lack of core plus capital. Private equity firms, family offices and SCPIs are willing to purchase them at much higher gross initial yields. This creates a gap of 150 to 300 base points between core and other office products.

The polarisation in the office market – which has been evident in the user market for several years – is now also clearly reflected in property values for the first time. This presents opportunities for venture investors to qualitatively improve and make buildings more sustainable.

However, many investors remain hesitant to purchase such offices. This is mainly due to uncertainty regarding the exit yield in five to seven years: to what extent will these buildings need to be made more sustainable by then, and what will the user market look like at that time? We do not share this uncertainty. As long as investors can cater to the quality and sustainability requirements of users, a favourable exit yield is likely. This is without even considering the expected yield compression, the persistently tight user market, and the rental prices that will continue to rise as a result.

It is indeed important to make sharp choices among the various sustainability ambitions. It is crucial to recognise that the European Commission is steering towards zero Emission Buildings in the new legislation for sustainable buildings and energy labels (EPBD). This means that the Dutch energy label system must be revised by 2029 so that the highest label classification (label A) is only awarded to energy-efficient, fossil-free buildings. This is a key indicator for having CO2 neutrality as a central ambition, especially for investors who report on their percentage of EU Taxonomy-aligned investments, and for value-add investors looking to exit to core investors in five to seven years.

It is advisable to get ensure three key aspects are well managed when planning renovations. First, the plans must fit with what future tenants will want in terms of workplace concepts and sustainability ambitions over the next five to ten years. Additionally, there need to be a plan for temporarily relocating current tenants. Finally, the power supply must be sufficient to support sustainable installations and provide enough charging stations.

Steady return to full dynamism

Overall, we can state that we are making progress towards a fully dynamic commercial real estate market by 2025. However, we do not expect a complete recovery until 2026, when allocation to real estate has also fully recovered. This year, the effects of past few years are still strongly felt, and we are only beginning to see capital inflows into core investors again over the coming months. It is a promising year for parties with substantial liquidity, as the number of purchasing parties has not yet reached the levels expected in 2026.