The stranded assets of the Dutch office market

The Dutch office market is becoming increasingly polarised. High-quality properties, which have good accessibility by (public) transport and have strong environmental credentials are in high demand. The divergence in office demand is further illustrated by office vacancy rates, with as much as 16% of total vacancy clustered in 1% of office buildings in the Netherlands. Polarisation is driving up rental values, as an increase in demand coincides with a nationwide shortage of this type of building.

A closer examination of Dutch office vacancy reveals links between the level of office vacancy and structural characteristics, such as building age, location, and ESG-credentials. Properties constructed between 1990 and 2010 have the highest vacancy rates.  Structurally higher vacancy may be explained by this age group of properties enjoying fewer major refurbishments, often being in secondary- and tertiary locations, and not reflecting modern occupier demands.

Office vacancy is concentrated in surprisingly few buildings with 86% of empty space in just 10% of buildings. A large proportion of these buildings do not meet current occupier demands. The buildings are mostly old, with 76% constructed before 2000. About 55% has either no EPC Label or an EPC Label B or lower. In terms of BREEAM-Certification, only about 4% is BREEAM ‘Very Good’ or better certified. Similarly, 73% of these buildings are located outside of the largest five (G5) cities.

Intuitively, one might expect a straightforward correlation between EPC Labels and vacancy levels., However, digging deeper into the data suggests that EPC should not be seen as the only determinant of vacancy rates. Location and building age are equally important. Younger buildings with better EPC labels or BREEAM-Certified have lower vacancy rates. Only 4.6% of vacant space is in offices with an EPC Label A or higher, or BREEAM ‘Very Good’ or better certification, and a construction year after 2010. In other words, 5.0% of the total Dutch office supply, and 0.68% of the total Dutch office stock. In the G5 cities, vacancy rates for these kind of properties is even lower (4.3% of supply).

The low availability of high-quality office space has driven up rents in recent years. Savills' rental analysis reveals that, on average, the rental difference for offices with an EPC Label A or better or a BREEAM ‘Very Good’ or better certification, is between 3% - 7% nationwide for newly leased office space. In the largest five Dutch cities (G5), the average difference is even higher, between 5% - 17%. 

This analysis suggests that there is a danger that a significant portion of the Dutch office stock is at risk of being “stranded”. Older buildings with poorer environmental credentials, in secondary locations not only demand lower rents but are at greater risk of becoming vacant. A tougher economic backdrop is limiting the development of modern buildings, leaving the market to deal with extremely low vacancy rates for high quality, ‘Paris Proof’ office buildings. Consequently, Savills, expects further rent increases for these properties, as supply cannot keep up with the projected demand.

About the report

Savills very first Summer Special explores three main disrupters of Dutch Real Estate evolution: Decarbonisation, Demographics, and Digitalisation. This press release is about chapter 1 - decarbonisation. Click here to read the full report.