Dutch investor Bouwinvest is forecasting its Dutch sector funds to generate “slightly negative investment returns in 2020” due to the negative impact of the coronavirus pandemic across all sectors of real estate.
Bouwinvest, which manages pension money for the Dutch construction industry, made the prediction as it released performance numbers with its 2019 annual report, last week. The investor posted a total return of 11 percent from its investments in the year.
The investor said the impact of covid-19 on 2020 performance would differ significantly across its funds depending on the sector. On a more positive note, Bouwinvest said the impact would be “limited” for its largest Dutch Residential Fund but “severe” for its Dutch Hotel Fund.
Dick van Hal, Bouwinvest’s chief executive officer, said: “The outbreak of the covid-19 virus has plunged the world into a crisis and national governments everywhere are taking measures to contain the pandemic. Clearly, this crisis has severe implications for the global and Dutch economy, as well as each of the real estate sectors in which we are active. But we need to distinguish between the short- and long-term repercussions.
“The expected impact on returns in the various real estate sectors in which we are active differs significantly, but for the medium to longer term we are optimistic. The fundamentals of our business remain strong.”
Of the five Dutch portfolios expected to generate “slightly” negative returns this year, Bouwinvest’s Dutch Office Fund turned in the best performance of the range with a total return of 20.3 percent in 2019, well above the 11.5 percent recorded a year earlier. With €1.07 billion of invested capital, the fund is focused on sustainable multi-functional, multi-let assets located primarily in the largest cities in the Netherlands.
Bouwinvest’s Dutch Residential Fund, meanwhile, recorded a total return of 11.5 percent in 2019, below the 18.2 percent it registered in 2018. With €6.5 billion of invested capital primarily in the mid-range private rental market in the Netherlands, the fund is expected to suffer a “limited” impact from the pandemic in 2020.
The €957 million Dutch Retail Fund, however, posted a total return of 4.3 percent in 2019, compared with 5.6 percent in 2018. This vehicle has €979 million of invested capital.
Bouwinvest’s Healthcare Fund had invested capital of €262 million in 2019, compared with €178 million at the end of 2018. It achieved a total return of 7.7 percent in 2019, down from 8.1 percent in 2018.
The Hotel Fund is expected to be “severely” impacted by covid-19. It delivered a total return of 22.3 percent in 2019, up from 7 percent in 2018, and had a total invested capital of €333 million in 2019.
The prediction chimes with those elsewhere as the hotel sector experiences severe contractions in occupancy levels due to global travel being essentially shut down.
Marleen Bosma, Bouwinvest head of research and strategic advisory, said: “The coming economic fallout from the coronavirus pandemic is going to hit all areas of the Dutch real estate investment market, but those sectors where consumers and businesses can quickly choose to cut spending, such as non-staple retail, hotels and restaurants, and the relatively small co-working office niche, will probably be most affected.”
The negative outlook, however, comes on the back of strong annual results. Bouwinvest posted a total investment return of 11 percent over its portfolio in 2019 and a 14 percent invested capital increase to €12.9 billion from €11.3 billion the previous year.
Although Bouwinvest said it cannot assess at this time the specific impact the pandemic will have on its business and returns this year, it listed a series of measures it has taken since the crisis started to mitigate negative repercussions.
From last month, the manager has deferred rental payments for tenants that have indicated they are experiencing, or expect to experience, financial problems, for all its funds. It is also said to now be looking for tailor-made solutions for tenants that continue to have difficulties paying their full rents after April.
Van Hal said: “In recent weeks, we have, for example, been holding intensive discussions with the tenants and residents of our buildings on how we can help those who have been affected financially. This is a logical thing to for us to do. After all, our long-term goals go hand in hand with long-term relationships with our tenants. We will strive to be as flexible as possible in our dealings with those who are experiencing payment difficulties.”