The Dutch office market
The office market in the Netherlands is decentralized, which results in each city having a more or less specific office market. Amsterdam (approx. 6.6 million sq.m. office stock) focuses on finance and international trade, The Hague (approx. 4.0 million sq.m.) is the national administration centre where the government and public departments are the main users of the local office buildings. Rotterdam (approx. 3.1 million sq.m.) has one of the largest ports in the world, as a result of which the office market has a traditional focus on insurance and trade. Utrecht (approx. 2.5 million sq.m.) is the heart of the country with a focus on transport and domestic commercial services. In Eindhoven (approx. 1.4 million sq.m.) and Arnhem (approx. 1.1 million sq.m.) occupiers of office space have strong ties with electronics, chemicals and energy supply.
In general the office leasing market reflects the trends in the national economy. After 2000 when GDP fell, the demand for office space fell back as well and supply increased rapidly. Like the Dutch economy, take-up levels increased in the period 2004-2007. In 2008 and 2009 take-up decreased due to the changing economic climate. Occupiers are increasingly cautious in decision making and activity is driven by cost reduction and is focused primarily on good quality, well-located space. In the course of 2009 the supply rose by approx. 11% compared to 2008. There is a strong polarisation between (economically) dated and modern office space in the total supply.
Owners are aware of the fact that the market has changed and it has become a lot more difficult to attract new tenants. In all markets incentives went up; in areas confronted with high-vacancy rates the growth of incentives is even more generous.
The Netherlands has seen its key office markets slow down over the course of 2009. However, signs of modest improvement in occupier interest are becoming evident, suggesting that the prime market segment has found its floor and no further rental falls are expected. Prime rents in the top CBD locations across the country have stabilized, whilst secondary and non-core locations continued to decline.
|Location||Prime rent (Jan. 2010)Euro/sq.m/yr|
|Amsterdam - Zuidas||360|
|Amsterdam - Central||270|
|Amsterdam - South-East||195|
The Netherlands has applied strict regulations with respect to the development of offices, retail, industrial and residential schemes since 1950. The municipal system of zoning plans determines in detail what can and cannot be built. In general, developers are only granted building permits if their plans fit in with the zoning plans or if an exemption has been granted. The zoning plans also apply to all redevelopment projects. It is therefore not easy to change the use of the building without the cooperation of the local authorities. Municipal as well regional approval is mandatory with respect to zoning plan changes. Procedures for obtaining permits are scheduled according to strict timetables. It can take several years to obtain approval for complex building plans in which public authorities play a dominant role.
Lease or buy
The general practice in the Netherlands is to lease office space: approx. 65% of all office buildings are owned by investors. Owner-occupier situations are more common in the industrial real estate market, but due to an increasing number of sale-and-lease-back transactions this proportion is changing.
Leasing has advantages, such as a positive impact on the company’s cash flow, flexibility, the possibility of off-balance presentation and negotiation of incentives with landlords. Lease contracts can be subject to VAT; which may result in VAT savings in specific situations. Depreciation is an important consideration with respect to the ownership of real estate.
Since the beginning of 2007, the depreciation on real estate is limited, both for BVs and for IB entrepreneurs. Depreciation is exclusively permitted where and in as far as the book value of the building exceeds the so-called base value. The level of the base value depends on the intended use of the building.
Leasing Practises and Taxes
Offices and Industrial
|Typical lease length:||Negotiable, but the common practice is 5 years + auto-renewals for 5 years|
|Typical break options:||Negotiable|
|Frequency of payment:||Quarterly in advance Annual index: Linked to CPI consumer price index (all households)|
|Rent reviews:||To market prices only if agreed upon (frequency usually 5 years / by expert panel)
Service charge: Depending on contract
|Tax (others):||Property tax, water tax and sewer tax|
In all instances:
The tenant has security of tenure as the lease automatically renews at expiry, bearing in mind the notice period. The exception to this is if the landlord wishes to occupy, tear down or redevelop the building. These conditions are rather strict and in reality the landlord’s options of terminating the lease are limited.
- The tenant pays for internal repairs and utilities.
- The tenant is responsible for insurance of contents.
- The landlord pays for the external and structural elements of the building.
- The landlord is responsible for building insurance and non-recoverable service charge items.
- The landlord provides property management services that are not recoverable through service charges.
More about taxes
The landlord and the tenant are each partly responsible for the property tax levied by the local authority. Each property is assessed for taxation purposes, known as “onroerende zaak belasting” (OZB). The local government gives a value for the property and that value applies for one year. Each year the authorities collect the tax. The rate depends on the local authorities and this is a percentage of the value according to the Immovable Property Act.
Purchase Practises and Taxes
The purchaser is responsible for the so-called ‘kosten-koper’, which means that the buyer is liable for the payment of all additional costs. Those costs include transfer tax (6%), notary costs (0.2-0.5%), legal costs (negotiable) and some minor administration costs, such as land registration (Kadaster).
General building costs
|Operational Costs||10.0 %|
|Property tax||Depending on the Municipality|
Although the Dutch economy is now on the road to recovery the market conditions are still challenging. Supply will continue to creep up, albeit at a slow rate. Demand is subdued with lease extensions dominating the market in the short term. Prime rents are expected to remain largely stable, however, some pressure may be felt in the secondary markets and overall incentives remain high.
Investment in Immovable Property
It is possible to make private immovable property profitable by leasing it to private or corporate tenants. The market can be broken down into 3 fiscal situations:
- Personal investment
- Income from other work
- Income from business operations
In most instances the income from immovable property is subject to a fixed tax rate via Box 3. In the case of leasing beyond the scope of normal active asset management, the income is not taxed via Box 3, but via Box 1, as income from other work. The balance of the value applicable to the immovable property, as at 1 January and 31 December of each year, minus the financing debts on 1 January and 31 December is taxed at 1.2% via Box 3. Immovable property subject to tax based on the principles applicable to Box 3 is, in principle, valued at current market value at the reference date. Box 3 is a fixed tax rate for income from immovable property. The actual income, whether rent or lease is irrelevant.
Income from other work
In the case of private entities, income from ordinary investment and speculation does not translate into taxable income from other work. Where the activities however go beyond ordinary active asset management, such as in the case of the preparation and sale of immovable property where the sales profit is increased by carrying out major maintenance in-house, the work will not be considered normal
investment or speculation. The income will be viewed as taxable income where the work has a favourable influence on the financial outcome. The actual lease revenue is taxed in Box 1 at a maximum progressive rate of 52%. The (business) costs are deductible. If of the immovable property is sold, the profits (sales value minus the fiscal book value) will also be taxed progressively.
Income from business operations
This is processed in a similar way to that outlined in situation 2.
The annual depreciation is deductible from the annual profits in situations 1 and 2. As of 1 January 2007, the fiscal book value may not however fall below the so-called base value. The base value is equivalent to the WOZ value. If the immovable property is not leased, but used by the company itself, then the base value is equivalent to 50% of the WOZ value (WOZ for ‘Wet waardering onroerende zaken’ or Real Estate Valuation Regulations).
A private house is viewed as the complete unit of the house with the garage and other buildings on the property. Houseboats and caravans are also viewed as private houses. The only condition being that they are permanently bound to a single address. A private house is only considered as such where the house is owned by the occupant (tax payer) and where it serves as permanent domicile and not as temporary domicile.
The Own Home Scheme (Eigenwoningregeling)
Once it has been determined that a house can be viewed as an ‘own home’, the house automatically qualifies fiscally for the Own Home Scheme based on Box 1 (Work and Home: Maximum tax rate 52%).
The own home scheme works as follows: The fixed sum assumed by the legislator for the enjoyment derived from the own home is fiscally expressed in the own home fixed sum. The own home fixed sum is determined on the basis of a fixed percentage of the value of the house in question. The basis for determining the value of the own home is the value of the property, as determined on the basis of the WOZ value. The WOZ value is determined by municipal decree. Certain costs can be deducted from the above-mentioned own home fixed sum. This does not however mean that the interest paid on a mortgage bond is automatically tax deductible.
Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl