Temporary halt to Amsterdam office rental growth - Capital Economics
European Commercial Property

Temporary halt to Amsterdam office rental growth

European Commercial Property Update
Written by Amy Wood
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Following the decline in 2020, we think prime office rents in Amsterdam will hold steady this year. But rental growth should pick up thereafter, supported by continued growth in the information and communication sector, comparatively low rents and the already flexible nature of the market.

  • Following the decline in 2020, we think prime office rents in Amsterdam will hold steady this year. But rental growth should pick up thereafter, supported by continued growth in the information and communication sector, comparatively low rents and the already flexible nature of the market.
  • Prime office rental growth in Amsterdam surprised on the downside in 2020, falling by almost 3% y/y compared to our expectation that rents would hold steady. Although supply conditions remained tight, occupier demand was weaker than might have been expected given the relative resilience of the Dutch economy. Indeed, take-up was around 40% lower than 2019 levels, causing the vacancy rate to rise to around 5%. And given the expected slowdown in economic activity in Q1 2021, we expect rents to be under more downward pressure in the near term.
  • However, the economic drivers of occupier demand point to an improvement further ahead. Indeed, the Dutch economy is forecast to return to pre-virus levels of activity sooner than most others in the euro-zone. As such, following a stabilisation in 2021, we think that employment could grow by a solid 2.5% y/y in 2022. And importantly, employment in the information and communication sector, which has been faster growing in recent years and has become an increasingly important driver of take-up, came away relatively unscathed from the pandemic last year. (See Chart 1.)
  • What’s more, although rents in Amsterdam have risen in recent years, they are still low compared to other large cities. (See Chart 2.) And as outlined in an Update, we think that occupiers increasingly questioning their space requirements means that cities like Amsterdam, with a larger share of flexible office space, stand to benefit as the recovery gets underway. We expect these factors will continue to be a draw card for firms to locate in Amsterdam.
  • Admittedly, supply is also expected to continue to increase, with office developments forecast to account for around 1.5% of stock per year over next three years. But given the office stock has reduced substantially over the past decade, we think much of this should be absorbed. In addition, we don’t expect subleasing to increase by as much as in other markets since remote working was already common before the pandemic, so we think there will be less need for firms to adjust their space requirements. In fact, Savills data show that tenant-controlled sublet space only rose by 9,000 sqm in 2020 to just 0.6% of total stock.
  • On balance, we now think that rents will hold steady in 2021, a slight downgrade on our previous forecast for a small rise. Thereafter, we continue to expect rents to grow by around 2% p.a., outperforming most other euro-zone markets.

Chart 1: Netherlands Office-Type Employment Growth

(Q4 2020, % y/y)

Chart 2: Euro-zone Real Prime Office Rents (Q4 2020)

Source: Refinitiv

Sources: Refinitiv, Capital Economics


Amy Wood, Property Economist, amy.wood@capitaleconomics.com