Looking ahead to 2024, we can take stock of the 2023 investment year. Last year was characterised by sharply rising interest rates and significant political, social and economic uncertainties, resulting in inflated property yields and investment volumes at their lowest levels for years. As a result, real estate portfolios were hit relatively hard, with average valuations falling by almost 9%, with the office market in particular being hit by more than 17% and the residential market by almost 9%*. On the positive side, most of these revaluations took place in the first quarters and were limited by the end of 2023.

Signs of stabilisation are increasing, supported by lower inflation data in the fourth quarter and the absence of interest rate hikes by central banks. Financial markets are pricing in a rate cut during 2024. While the timing and pace of these rate cuts remain uncertain, the prospect of an end to rate hikes is supportive for property investors. In addition, the economy is still in reasonably good shape, which, combined with the shortage of (healthcare) housing, is resulting in strong occupier markets. For core real estate, the "zero line" in terms of initial yields and revaluations seems to be in sight, especially in the first quarters, after which a slight recovery is possible. However, negative effects are still to be expected for less current properties, including less sustainable ones.

In the last Investment Update, we discussed the potential for further falls in the value of unsustainable real estate. In this Investment Update, we focus on the impact of climate risks. Investors will need to be increasingly aware of the impact of climate change on property use and valuation.

* MSCI Netherlands Quarterly Annual Property Index (Unfrozen)

Casper Hesp, Director Investment Management