The Netherlands – Winter 2021

Eindhoven is building its future

CITY SPECIALS

Savills Research


For many of us, Eindhoven means Philips. When this Dutch electronics company opened its first light bulb factory in the city, it laid the foundations for Eindhoven’s current status as the heart of the innovative technology region Brainport Eindhoven. The region is also famous for being the home base of the chip machine manufacturer ASML, a global high-tech player. At the same time Eindhoven is also seen as a city in which small and medium-sized enterprises (SMEs) flourish.

So Eindhoven has many faces and has been given all sorts of labels. Its many faces are expressed not just in its business diversity, but also in the differences between the city’s various office districts. It is not only the type of occupier which varies, but also the corresponding growth potential and opportunities for real estate investors. Eindhoven certainly does have opportunities for these investors, as we will show. This is because Eindhoven is energetically building its own future.

Eindhoven is energetically building its own future.

A closer look

The Eindhoven office market

Closer examination of the Eindhoven office market reveals that its various office districts can be divided into three main categories, according to the dominance of occupier type:

1. Innovative (technology) companies (mostly located on campuses) 2. Business service providers 3. SMEs

Map the Eindhoven office districts categorised according to type of occupier: business services, campuses, and SMEs

Firstly, the Eindhoven office market includes several campuses that are home to mostly innovative (technology) companies. High Tech Campus Eindhoven (HTCE) is probably the best-known of these campuses; Philips and the chip manufacturer NXP have offices there. The chip machine manufacturer ASML has its own campus at De Run in Veldhoven. The innovative (technology) sector in and around Eindhoven is not made up solely of long-established heavyweights in the high-tech manufacturing business, such as ASML and NXP; there are other innovative campuses, each with its own specialism. Companies at Automotive Campus in Helmond, for example, focus on smart and green mobility, while at TUe Science Park they focus on collaborations with the Technical University. Strijp-S can be typified as the creative, design and innovation campus.

The second type of office district concerns three locations housing large business service providers: Centrum (the town centre), Stationsgebied (the area around the train station) and Dorgelolaan. This is where accountants (KPMG and EY), law firms (Boels Zanders) and financial services providers (Deutsche Bank) have their offices.

Thirdly, there are various office districts, like Villapark and Eindhoven Airport, that house mostly SMEs such as small local administration offices, estate agents, coaching practices and insurance consultants. Finally, Flight Forum has a preponderance of business service providers (e.g. Mazars and Atos) as well as innovative technology companies.

The innovative (technology) sector as a catalyst of growth

Of these three typologies of office users in Eindhoven, we expect innovative (technology) companies in particular to continue to show strong growth.

This is in part a result of the success of Brainport Eindhoven, a partnership between 21 municipalities in south-east Brabant. In this ecosystem, companies, knowledge institutes and governments work together to promote cross-fertilization and innovation. It is a characteristic of this ecosystem, for instance, that companies are clustered on these campuses, each with its own specialism.

Of the top ten Dutch firms applying for European patents (2020, by number of applications), no less than five have locations at one of these campuses: Philips, Signify, ASML, NXP and TNO.

Moreover, Brainport Eindhoven invests more in R&D (not only in absolute, but also in relative terms) than any other region in the Netherlands. With R&D investments of €2.4 billion in 2018, the business community in south-east Brabant accounts for more than a fifth of all private R&D expenditure in the whole country.

The last decade’s economic growth figures of Brainport Eindhoven are considerably higher than the Dutch average. The 2.6% contraction in 2020 that was caused by the pandemic was also lower than the national average of 3.7%. According to Rabobank, economic growth in south-east Brabant is projected at about 5.5% in 2021. This, too, is a higher expected growth than the national average of about 4.5%.

The success of the innovative (technology) sector, in particular, has driven the rapid development of this region into one of the most important pillars of the Dutch economy. This has also translated into comparatively strong economic potential for the various Eindhoven campuses. According to our analysis using the Savills Market Indicator, almost all the Eindhoven campuses score above average for the dimension ‘economy’. This can be explained not just by the relatively large number of companies housed at these locations, but also by the ongoing growth of this number.

45 indicators and 6 pillars

The Savills Market Indicator collects data across six dimensions from 45 internal and external sources and compares this data to identify the attractiveness of a given area. Statistical methods are used to compare and rank the ‘economy’ dimension, providing a quantitative indication of an area’s potential. The following parameters fall within the ‘economy’ dimension:

Map Almost all the campuses score above average on economic dimensions

Other office districts can also benefit from this growth

Other office locations can, however, also benefit from the continued growth expected of the innovative sector in Brainport Eindhoven. Technology companies are also located in and around Stationsgebied, for instance, even though business services dominate there. For example, the digital mapmaker Here is not housed on a campus: since 2016 the firm has rented about 5600 sq. m. in the Kennedytoren located in Stationsgebied. Here is by no means an average tech company: in 2020 it was one of the top ten Dutch applicants for European patents (by number of applications).

Further, according to the Chamber of Commerce, many of the companies located in Eindhoven’s town centre have been amongst the 100 most innovative SMEs in the Netherlands. One example is Sendcloud, a shipping platform for online retailers. According to the annual Scaleup Dashboard, in 2020 Sendcloud was one of the 250 fastest growing companies in the country.

This development can be accounted for by the broadening nature of the innovative technology sector, in which innovation is extending beyond a production chain of high-quality technology products. For example, in contrast to ASML or Philips, Sendcloud is not an OEM (Original Equipment Manufacturer) surrounded by a cluster of suppliers delivering mechanical and other components. As advanced facilities such as cleanrooms and flexible production environments are not always needed, such innovative companies are not actually very different from other office occupiers. Stationsgebied and Centrum can therefore be perfectly suitable locations for these innovative companies.

Different dynamics per occupier type in Eindhoven

Not only innovative companies are keen to settle in Eindhoven’s city centre.

This location, with its abundance of business service companies, is still attracting interest from these companies. From Deloitte and AKD, for instance, two firms that have both sought to relocate for a long time to the city centre. Last year, they hired office space (4000 sq. m. and 2500 sq. m. respectively) in Edge Eindhoven, a mixed-use (office-residential) development in central Eindhoven, beside Central Station. Edge is expected to be delivered in 2023. These transactions may well point to corporate trust in the ongoing growth of the region.

The dynamics of occupiers in Eindhoven has developed with peaks and troughs over the past few years. Useful distinctions can be drawn between different types of occupiers. Firstly, SMEs have shown themselves to be stable occupiers in Eindhoven, as is shown by the demand for office space below 1000 sq. m. in recent years. Yearly take-up has been stable at around 25,000 sq. m. since 2017. After a slight dip in the first year of the pandemic, 2021 even saw an increase in take-up of office space by SMEs. This can probably be explained by the relatively rapid return to office amongst SME employees.

Looking at the overall take-up of office space, however, greater fluctuations in demand have been shown by business service and campus-based companies. In 2017 (127,000 sq. m.) and in 2019 (110,000 sq. m.), take-up was well above the long-term average (77,000 sq. m.); Philips (6800 sq. m. in 2019) and Ernst & Young (4900 sq. m. in 2017) are two examples of companies that hired additional office space in this period. In contrast to SMEs, however, business service demand for office space fell sharply in the first year of the pandemic. That said, the take-up did recover to the long-term average the next year, due to an increase in demand in the last quarter of 2021.

As mentioned, AKD and Deloitte for example hired additional office space during the pandemic (at Edge Eindhoven). They were even prepared to pay rents above €200/sq. m., a very high rate by Eindhoven standards. High-quality offices at easily accessible locations are therefore still clearly in demand, as has also been shown by the Savills Office FiT (2021).

Finally, campus users showed relatively little traction over the last two years. ASML, a company with mainly own use of its property, was an exception. Last year it announced a €1 billion investment plan to expand its campus in the coming years, in order to offer its 15,000 employees in the Eindhoven region more central accommodation. The other campuses showed less dynamism than before, which can largely be explained by the lack of suitable supply and the pandemic.

The dynamics of occupiers in Eindhoven has developed with peaks and troughs over the past few years.

Vacancy

Large differences in quality between the different Eindhoven office districts

Vacancy is low in the various campuses; there is a shortage of space. Moreover, the stock on campuses is generally relatively sustainable. This makes campuses atypical of most office districts in Eindhoven.

In the areas where mostly business service companies are established (Centrum, Stationsgebied and Dorgelolaan), the vacancy rate is also lower than the average in Eindhoven (8% as opposed to 10.9%). The reduction in demand caused by the pandemic is also somewhat visible in these districts. Before the pandemic the vacancy rate was actually even lower, at about 6%.

The high vacancy rate in office districts dominated by SMEs have pushed up Eindhoven’s average vacancy rate. In these districts, the vacancy rate has stayed above 10% in the last few years. Nevertheless, the demand-supply ratio in Eindhoven has clearly improved in recent years. After all, in 2014 the vacancy rate was about 15%. It is not only conversions which have caused this strong fall in vacancy rates: there has also been a rising intrinsic demand for office space.

Despite this improved demand-supply ratio, Eindhoven still has to meet a significant sustainability challenge. This follows from an analysis of the energy efficiency labels of its office stock. The energy label is a good indicator of the economic and technical condition of the stock. Office spaces in Eindhoven turn out to be economically and technically ‘less sustainable’ than those in the other G5 cities.

In Eindhoven, 15% of office properties do not meet Label C standards, a higher percentage than any of the other G5 cities. While TUe Science Park and Stationsgebied do fully meet these requirements, Villapark (27%), Kronehoefestraat (36%) and Centrum (20%) are facing a significant sustainability challenge. Investment in this non-sustainable stock is gradually growing, but the city risks experiencing a shortage of high-quality office space.

Building for expected demand

Eindhoven is responding to this challenge:

a variety of office developments are taking place at several easily accessible locations, near the train station and around the campuses.

Stationsgebied is set to undergo a metamorphosis over the next few years

Eindhoven city council intends to turn this location into a showcase for the Brabant technology region. To this end, Eindhoven is working together with the province and the state on the large-scale district development of Stationsgebied, a project entitled Internationale Knoop XL. Edge Eindhoven and Lichthoven are two more examples of current developments. High-quality office buildings are under development not just in Stationsgebied but also around the campuses. For instance, Bold Offices (at Strijp-S) and a landscape villa (at High Tech Campus) will be completed in 2022.

Eindhoven is therefore building for expected future demand in order to address its shortage of high-quality office space. In fact, Eindhoven, in relative terms, has the largest new-build pipeline of the G5: new construction developments in Eindhoven until 2024 will provide no less than around 126,000 sq. m. of new office space.

In absolute terms, too, this is many times the scale of current new-build developments in Rotterdam (43,000 sq. m.) and The Hague (20,000 sq. m.) and almost as much as in Utrecht (about 133,000 sq. m.).

In relative terms, these figures mean that the supply of office space in Eindhoven will grow by no less than 9.1% in the next few years – a considerably higher percentage than the rest of the G5.

Compared to the other G5 cities, Eindhoven’s office market is therefore expected to grow the fastest in the coming years. Given the evident interest in high-quality supply, and the low vacancy rates on the campuses and in/around Stationsgebied, this is a welcome expansion. We also expect that here, too, high-quality supply in the right location will generate demand. That, in the past, is what was missing in Eindhoven’s city centre.

"Eindhoven has the largest new-build pipeline of the G5. Office space will grow by no less than 9.1% in the next few years"

A growing, relatively low-risk office market is an interesting prospect for investors.

Certainly at the present moment, since suitable supply is limited. The Eindhoven office market is principally the domain of private Dutch investors. Although foreign investors are appraising Eindhoven with increasing discernment, they are seldom involved in actual transactions. The logical explanations for this are a lack of high-quality product, as well as unfamiliarity with and the scale of Eindhoven as an office city.

Kennedytoren, Kennedyplein 300, Bold Offices and HTCE are virtually the only office properties to have seen foreign acquisition in recent years.

All these buildings are comparatively sustainable and are located in or near Stationsgebied and the campuses.

Nevertheless, 2021 was a year in which foreign buyers were more active than ever. For instance, HTCE and Bold Offices were bought by Oaktree Capital/GIC and UBS respectively, at historically low initial yields. The sale of HTCE – for well over €1 billion – was also the largest campus deal in Dutch history.

So foreign investors do know how to get to Eindhoven, when enough suitable product is present. And that is exactly what Eindhoven is building right now.

Outlook

We expect the growth of the innovative (technology) sector in the region to continue, and this will very probably have a positive effect on the entire Eindhoven office market.

It is fair to say that Eindhoven will never become the office building epicentre of the Netherlands, but given the dynamism being exhibited by the region as a whole, Eindhoven has everything it needs to settle in as a real office player in the G5.

This applies not only to the various campuses, that are already teeming with innovative technology companies, but also to Eindhoven’s Stationsgebied and its environs, where several innovative companies have chosen to settle. The new-build pipeline of high-quality office space is also well filled, including in areas around the campuses and both within and around Stationsgebied. To add to all this, Eindhoven offices are more attractively priced compared to offices in the other G5 cities. This has already resulted in a rising number of active (international) investors.

"Eindhoven has everything it needs to settle in as a real office player in the G5."

Key Findings

Eindhoven’s office districts can be divided into 1) campuses, with mostly innovative (technology) companies; 2) districts housing mostly business service providers; and 3) districts housing mostly SMEs.

Although innovative (technology) companies are mostly located on the various campuses, they can also be found in and nearby Eindhoven’s Stationsgebied. For innovative companies that do not form part of an OEM production chain, Stationsgebied can offer a suitable home base.

Amongst business service providers and campus occupiers, demand for office space stagnated in 2020, but recovered well in 2021. High-quality office space at easily accessible locations remained popular with business service providers. The stagnation in demand amongst campus-based companies can be ascribed to the pandemic and the lack of suitable supply.

The average vacancy rate in Eindhoven has fallen sharply in recent years, from around 15% in 2014 to 10.9% at the present moment. Campus locations, especially, are showing comparatively low vacancy rates.

Eindhoven still has the greatest sustainability challenge of the G5: 15% of its office stock fails to meet the label C requirement. However, there are large differences between Eindhoven’s various office districts. Stationsgebied and the various campus locations are generally relatively sustainable.

Suitable office space is currently under active construction around the campuses and Stationsgebied. Relatively speaking, Eindhoven has the largest new-build pipeline of the G5: the city’s office stock is set to expand by no less than 9.1% in the next few years.

Sources Brainbay Database, BAG, Vastgoedmarkt, RVO, CBS, Eindhoven Municipality, Brainport Eindhoven, Omroep Brabant, European Patent Office, Eindhoven Chamber of Commerce, Erasmus Centre for Entrepreneurship, Rabobank, Savills Office FiT


Savills World Research We provide bespoke services for landowners, developers, occupiers and investors across the lifecycle of residential, commercial or mixed-use projects. We add value by providing our clients with research-backed advice and consultancy through our market-leading global research team



Jordy Diepeveen

Head of Acquisitions

+31 6 110 81528

jordy.diepeveen@savills.nl


Martijn Onderstal

Head of Valuation

+31 6 150 90363

martijn.onderstal@savills.nl


Irene van Esseveld

Associate Property Management

+31 6 11 69 10 22

irene.vanesseveld@savills.nl


Jordy Kleemans

Head of Research & Consultancy

+31 6 110 83654

jordy.kleemans@savills.nl


Win Yan Lam

Research Consultant

+31 6 2130 3175

winyan.lam@savills.nl


Scato de Smit

Research Consultant

+31 20 237 9949

scato.desmit@savills.nl


Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offices and associates throughout the Americas, the UK, continental Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. While every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.



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