Bouwinvest’s diversification strategy successful again

Dutch institutional real estate investment manager Bouwinvest achieved a record total investment return of 12.1% in 2016, surpassing the 10.6% seen in the previous year. The annual results were boosted by a very strong performance in the €4 billion domestic residential portfolio and Bouwinvest’s total assets under management also rose 13% to €8.5 billion last year over 2015.

Bouwinvest CEO Dick van Hal said: “Bouwinvest has been steadily increasing its investments in high quality and sustainable rental residential developments, to meet the growing shortfall in housing supply as people flock to the major Dutch cities and the number of single and elderly households rise. We achieved our highest ever overall return last year, so this residential strategy and our investments in other property sectors, particularly retail in the Netherlands, is also paying off for our pension fund investors and the pensioners that depend on them.”

Dutch Residential Fund

The Bouwinvest Dutch Institutional Residential Fund produced a 20.5% total return in 2016, outperforming the MSCI Netherlands All Property market benchmark index by 650 basis points. Like-for-like rental growth increased by 3.2% over the same period and the average financial occupancy rate stood at 97.7% at year-end. Bouwinvest added €307 million to the portfolio last year, including the high profile Stadionplein development of 100 apartments in Amsterdam’s Old South district. The fund also acquired 11 new projects, comprising 1,257 units, for a total of €255 million and its secured forward supply pipeline now stands at €634 million. Six new Dutch institutional investors committed to the Residential Fund in 2016.

Dutch Retail Fund

Bouwinvest’s Dutch Institutional Retail Fund almost doubled its total investment return to 8.4% in 2016, compared with the previous year, outperforming the MSCI Netherlands Index by 550 basis points. The €824 million AUM fund benefitted from new and extended lease contracts totalling 72,977 m², with an annual rental value of €16.6 million, last year. The average financial occupancy rate in the retail portfolio stands at 94.7%.Three new investors entered the fund and were fully invested by the end of 2016. The highlight portfolio addition of the year was the completion of the 27,500 m² iconic Nowadays value retail redevelopment on Amsterdam’s central Damrak thoroughfare. It incorporates the Beurspassage pedestrian arcade, decorated with stunning modern artwork, which was a gift to the City of Amsterdam from Bouwinvest. This project was shortlisted for the prestigious MIPIM International Urban Redevelopment Prize in 2017.

Dutch Office Fund

The ongoing portfolio optimisation programme of the €503 million AUM Bouwinvest Dutch Institutional Office Fund is expected to substantially improve performance in coming years, but weighed on its results in 2016 with the total return at 5.5% some 270 basis points below the MSCI Dutch market index benchmark.

The average financial occupancy of the portfolio stood at 81.3% at the end of last year due mainly to redevelopments such as the Olympic 1931 and 1962 assets in Amsterdam and the WTCs in The Hague and Rotterdam. The acquisition of the distinctively-shaped and mixed-use Hourglass building in the Netherlands’ premier office market of Amsterdam’s South Axis financial district was a highlight of the fund’s activities last year.

International Portfolio

The Bouwinvest international real estate portfolio, managed under a separate mandate for our lead investor bpfBOUW (Dutch Construction Workers Pension Fund), delivered a total return performance of 5.3% in 2016 excluding currency factors, compared with 12.7% the previous year. This demonstrates the importance of sectoral and geographical portfolio diversification through investing in both domestic and international markets, as when one area is performing less well in a particular year, then others tend to pick up the slack.

The performance of listed real estate holdings, in particular, weighed on the international results, notably in Europe where the Brexit vote negatively affected the large UK market. But the prevailing volatility in European markets did create some excellent opportunities to make private equity investments at the low end of the cycle, for example in offices and retail in the Nordics, as well as in the gateway office sectors of main cities such as London, Paris, Berlin and Frankfurt.

In Asia-Pacific, real estate markets were hit by volatility in the early part of last year on fears of an economic slowdown in China. This largely offset improving fundamentals in markets such as Australia. Bouwinvest is, however, still very bullish on Asia-Pacific markets and expanded its portfolio in the region in 2016. We invested in the hotel sector, targeted at the huge increase in tourist travel, and in Australian student accommodation, through a joint venture with Scape and APG.

In contrast, the North American market delivered another strong performance due to solid underlying real estate market fundamentals, with rental growth above inflation and property yields still hovering around record lows. Current real estate prices are high, but these are largely justified by low interest rates and persistently strong investor demand.