Icon currently owns a portfolio of high-quality buildings representing over 220,000 square meters and an estimated stabilized value of c. €7001 million, making it one of the largest and most active real estate operations focused on high quality assets in the Benelux area.
Icon has focused on quality in all aspects of its real estate – over 90% of properties are located within the Amsterdam region and Brussels, 72% are prime properties and 78% of tenants are companies with over €500m in revenues.
Investors today are faced with difficult choices. Near-zero – and in some cases negative – interest rates are not real options for investors requiring return. The volatility of some investment alternatives and lack of return of others have increasingly attracted investors to asset classes such as real estate. As a result, prices in certain areas have increased significantly.
One area that continues to provide highly attractive absolute and risk-adjusted returns is real estate in the Benelux area. The unique combination of higher yields, a stable environment with positive fundamentals and a lack of new development make this a highly attractive proposition providing not only attractive entry yields but also the potential for growth.
Prime yields in the Benelux region, at c. 5.5% are currently highly attractive compared with the “trophy” locations such as Zurich, Paris, Munich and London (c. 3.75%), providing nearly 50% better returns. Even compared to the riskier periphery capitals (c. 5.2%) the yields are still more attractive.
The Benelux area is notable for its positive fundamentals across a number of macroeconomic measures. All three countries are triple-A rated6, collectively have the highest GDP per capita in the Eurozone, and low unemployment. The low and decreasing unemployment despite an increasing labor force participation, a pragmatic approach to politics and pro-business policies create an environment conducive to growth and recovery.
Since the financial crisis, new development has ground nearly to a halt in the Benelux area. Indeed the level of construction over the past five-years has been a fraction of the long-term average. This lack of new supply is already causing significant rental increases in the best areas and helping drive a broad-based real estate recovery in all areas. Although development will return, the lag time for projects to come to fruition means rental levels and therefore running yields, will continue to increase, in some cases quite substantially.
Some investors are willing to accept very low returns offered by trophy cities in exchange for perceived security. Others have been attracted to periphery countries on the expectation of recovery. While both strategies may in the end do well, we believe that on an absolute and particularly on a risk-adjusted basis, the investment environment in Benelux real estate is second to none.