The Netherlands – Winter 2021

City Special Rotterdam 2021: Widening economy and quality improvements deliver the goods in Rotterdam office market

CITY SPECIALS

Savills Research


Rotterdam is the Netherlands’ second most important office market.

Occupiers of offices there have traditionally had links to the port and commercial services. The Industry, Transport and Trade sectors account for a larger proportion of Rotterdam employment (27%) compared to the average for the G4 cities (17%).

However, this traditional view of Rotterdam no longer reflects the reality. In recent years, there have been changes and improvements in terms of Rotterdam’s ability to attract businesses as a result of:

These developments have enabled start-ups, scale-ups and fast-growing companies like Mendix and Coolblue to recruit staff while also upgrading to more suitable offices. Before the pandemic, these changes also led to an increase in demand for offices in Rotterdam. However, postponed decisions on business accommodation and economic uncertainty caused by Covid-19 led to muted dynamism among occupiers on the office market during the pandemic, in a similar way to other cities in the Netherlands.

The demand for offices is expected to see a gradual improvement, not only as a result of economic recovery, but also because of the three factors mentioned above. So, to what extent have the more favourable conditions for business had an effect on demand for offices in Rotterdam? And is the supply of offices in Rotterdam capable of meeting this demand?

To what extent have the more favourable conditions for business had an effect on demand for offices in Rotterdam? And is the supply of offices in Rotterdam capable of meeting this demand?

Economy

Widening Rotterdam economy thanks to growth in ICT

Since Rotterdam is home to Europe’s largest port, the maritime and trade industry play an important role in its economy. However, recent years have seen the launch of many more businesses in Rotterdam, focusing on software, digital platforms and algorithms. In addition to Coolblue and Mendix, companies like Shypple, Helloprint and Quantib are driving the Rotterdam tech ecosystem.

The number of technological start-ups is increasing rapidly: Rotterdam had 800 start-ups in 2019 and this figure has now increased to 1,728. In addition to the growth in the number of start-ups, the value of the Rotterdam tech ecosystem has seen explosive growth in recent years. It even grew faster in relative terms than Amsterdam, the city with one of Europe’s largest tech ecosystems. Because of this, ICT is gradually becoming an increasingly important sector for Rotterdam’s economy.

Although Rotterdam cannot compete with Amsterdam’s tech ecosystem in terms of its size, it has a lot to offer as a city.

The city has access to talent from the technology sector (Delft University of Technology) and the business community (Erasmus University), which are important ingredients when it comes to establishing start-ups. In addition to talent, Rotterdam also benefits from an oversaturated Amsterdam that has seen such an increase in demand – for residential properties and office space – that Rotterdam has become an attractive alternative for both students and start-ups.

This raises the question of whether these improvements for start-up (tech) companies have been visibly reflected in Rotterdam’s occupier market. What differences have there been in the occupier market between 2020 and 2015, when ICT still accounted for only a limited share of the Rotterdam economy?

Occupier market

Widening of economy visible in Rotterdam occupier market to a limited extent

Trade, Industry, Transport and commercial services are the sectors in which companies continue to dominate in 2020, as they did in 2015. The main changes have been in ICT and the leasing of flexible offices.

Between 2015 and 2020, the ICT sector doubled its share of the economy.

Youwe Concept B.V, LiveChat Service B.V, eServiceware.com B.V and Quyntess, Capptions B.V are all examples of ICT companies that took up office space in 2020. In 2021 YTD, ICT accounts for only a modest proportion of the total take-up (7.8%). This is because these companies are generally in the start-up phase and usually do not require any more than 1,000 sq. m. of office space.

In recent years, this increase in the number of start-up (tech) companies has caused demand for flexible office space to grow. This is also shown by the significant proportion accounted for by that sector (Real Estate in the figure above) in 2015. However, this fell in 2020.

The decline was not caused by a drop in the number of start-up companies, but by the pandemic. The restrictions introduced during the pandemic, such as the advice to work from home, brought a temporary halt to the expansionary trend among flexible office providers.

ICT gained ground between 2015 and 2020 while government, financial services and flexible office providers saw a decline in their share of the market. So, did these changes also have an impact on the total demand for office space during the pandemic?

Working from home

Fall in demand during the pandemic

In 2020, take-up fell by 10% compared to 2019. Take-up stagnated further in the first half of 2021 compared to the same period of 2020, although this was not as significant as the situation in the other G4 cities (-28%).

Dura Vermeer (6,254 sq. m.) and Microlab (7,500 sq. m.) are examples of companies that leased large properties in 2021. It is worth noting that Microlab (flexible office provider) expanded in 2021. Flexible office providers were hesitant about renting additional space during 2020. The occupation of flexible office space has increased in Rotterdam (90%) in part as a result of demand from start-up (tech) companies.

In addition to Microlab, other flexible office providers announcing plans for expansion included The Next Web, which focuses exclusively on tech companies (15,000 sq. m.) and Workspot (927 sq. m.). This drive to expand represents a positive outlook for growth in the Rotterdam tech ecosystem since start-up companies often have a demand for flexible office space.

The anticipated continued growth of the tech ecosystem will also create a lot of potential for growth in the Rotterdam flexible office market in the years ahead.

A parallel can be drawn with Amsterdam in this context. Amsterdam’s (flexible) office market has grown in recent years partly as a result of the growth in tech. If the growth in start-ups in Rotterdam continues in the years ahead, this will have a positive impact on demand for flexible office space. Flexible office stock in Rotterdam are relatively limited in size compared to Amsterdam. In view of the expected growth outlined, there is still a lot of room for manoeuvre in the Rotterdam flexible office market.

Compared to other office markets in the G4, vacancy rates are relatively high in Rotterdam. These available offices could have potential for flexible office providers.

The anticipated continued growth of the tech ecosystem will also create a lot of potential for growth in the Rotterdam flexible office market in the years ahead.

Vacancy

Rotterdam still has a relatively high vacancy rate

Rotterdam has a relatively high vacancy rate (10.9%) compared to the other G4 cities, such as Amsterdam (5.5%), The Hague (4.9%) and Utrecht (6.1%). This high vacancy rate is partly due to the relatively old stock and the limited availability of new offices. Around 32% of current stock are more than forty years old. In Amsterdam, The Hague and Utrecht, this percentage is generally lower (24%, 32% and 15% respectively). Besides, stock in Amsterdam and Utrecht are relatively young, with 10% and 11% of stock built after 2010. In The Hague and Rotterdam, that figure is much lower at 3%.

Differences in sub-areas

Although Rotterdam has a relatively high vacancy rate compared to the other G4 cities, there are significant variations in terms of quality, even in sub-areas.

For example, Kop van Zuid has the most sustainable stock. Vacancy rates are low and the stock all meet the Label C requirement. However, the Central Business District (CBD) requires substantial improvements in terms of sustainability (8% meet the Label C requirement) and has a relatively high vacancy rate (10%).

Although the CBD still has some way to go, the area has seen numerous improvements in recent years. Stocks have reduced by 10% as a result of the conversion of old offices into residential properties, hotels and schools. Numerous hospitality venues and leisure functions have also been added to the mix. Indeed, Rotterdam CBD has the highest density of retail and hospitality outlets.

Thanks to these improvements, CBD currently scores well above average in terms of mixed use compared to other areas of Rotterdam. This can be seen from an analysis of the Savills Market Indicator.

Map Quality differences in Rotterdam office areas

45 indicators and 6 pillars

The Savills Market Indicator collects data from 45 internal and external sources concerning six key areas and makes a comparison in order to determine how attractive a specific area is. This makes it possible to use statistics to compare and rand various categories, in this liveability. This provides a quantitative interpretation of the potential of an area. The following parameters are part of the liveability category:

Low criminality

Growth in house stock

Very urban in character

High percantage of high-rise buildings

Large number of cafes, hotels and restaurants

Large number of supermarkets and other daily grocery stores

Map Rotterdam CBD ranks highest for mixed use

Even wider mixed use

It is also easy to map the quality of other areas using this Savills Market Indicator. This reveals that such areas as Katendrecht and Rijnhaven, to the south of the office area Kop van Zuid, are currently ranked only slightly above average. However, these rankings are expected to improve as a result of the improvements in quality. Katendrecht and Rijnhaven can expect to see the addition of 2,500 homes, retail, restaurants and cultural amenities. In view of this volume and rapid growth, Kop van Zuid is expected to become further embedded in a high-quality urban environment, similar to the CBD.

The same applies to Brainpark and Alexander. In the upcoming period, there will be major investments focusing on aspects in which these areas are currently underperforming.

This will include significant efforts towards mixed use by means of conversion, mainly into housing. The following are a few examples of housing developments in Alexander: Grote Beer and Oosterflank. These housing developments are expected to be completed in 2024. Brainpark will also see its fair share of office conversions. These positive developments will not only improve Rotterdam as a place for (start-up) companies to set up business, but also for Rotterdam’s residents.

Despite these boosts in quality, investors have been hesitant to acquire offices in Rotterdam.

Covid-19

Effects of Covid-19 on the investment market become clearly visible in 2021

Activity among investors in the Rotterdam office market saw a significant drop as a result of Covid-19. The Rotterdam office market is not unique in this.

Despite this reduced dynamism, one particular investment deal is worthy of note: mixed-use new-build development Tree House, acquired by ASR. A tenant has also been found for the office programme, in the form of flexible office provider The Next Web. There will also be space for hospitality, culture and 160 homes. This acquisition and development are an indication that Rotterdam CBD is set to become even more mixed in terms of use and that investors are realising the further potential of this area.

Expectations are that the investment market will pick up in the period ahead, based on transactions currently in the pipeline. This is partly because the risks of working from home are now easier to quantify and also because the effect on vacancy rates in areas such as Kop van Zuid, Alexander and Rotterdam CBD has remained relatively limited.

Outlook

Rotterdam’s position as Europe’s largest port is clearly attractive to maritime and logistics companies and the most important foreign investments are in these sectors.

However, there are also strong signs of economic expansion outside these sectors, with ICT seeing particular growth in recent years.

This sector is expected to continue its growth in the years ahead and will have a positive impact on demand for office space. Rotterdam is a very suitable city for start-up companies to set up business not only because of the availability of talent, a facilitating City Council and an increase in flexible office space, but also in view of the availability of affordable homes. Where Rotterdam used to struggle because of a drain on talent, this trend has now shifted the other way. Increasing mixed-use and conversions into residential properties will have a positive impact on vacancy rates and in terms of renewing stock. All of these developments present a positive outlook for occupiers and investors alike, not only for the short term, but also for the longer term.

"Where Rotterdam used to struggle because of a drain on talent, this trend has now shifted the other way."

Key Findings

The Industry, Transport and Trade sectors account for a large portion of Rotterdam employment (27%) compared to the average for the G4 cities (20%). However, ICT is becoming increasingly important, as a result of the growth in the tech ecosystem between 2015 and 2021 (+1375%).

Signs of the widening of the economy can be seen in the Rotterdam occupier market. The share of the market held by ICT doubled between 2015 and 2020, but still accounts for only a modest proportion of the total occupier market (10%).

The years ahead show a lot of potential for the flexible offices market, in view of the expected further growth of start-ups and relatively limited size of flexible stock (2.2%) compared to Amsterdam (5.9%).

There are relatively large differences between the Rotterdam office areas in terms of vacancy rates and mixed use. The conversion of vacant offices and the addition of different functions is expected to improve the ranking of office areas in terms of mixed use according to the Savills Market Indicator.

During the pandemic, the investment market performed relatively less well and almost ground to a halt in 2021. Investors are increasingly in search of the core product, placing even further pressure on initial yields.

Rotterdam is a very suitable city for start-up companies to set up business not only because of the availability of talent, a facilitating City Council and an increase in flexible office space, but also in view of the availability of affordable homes. This presents a positive outlook in the future both for occupiers and investors.

Sources Brainbay Database, BAG, Vastgoedmarkt, Netherlands Enterprise Agency (RVO), City of Rotterdam, CBS, ERV Rotterdam, Dealroom, Dutch Association of Real Estate Brokers and Real Estate Experts (NVM)


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



Ellen Waals

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Reinier Wegman

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Justin Kruseman Aretz

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Martijn Onderstal

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Scato de Smit

Junior Research Consultant

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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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