Last week the Dutch Advisory Board on Nitrogen Problems (Remkes Committee) handed the Cabinet its advisory report on the aviation sector, resulting in headlines dominated by the effect on the opening – or not opening -  of Lelystad Airport.

But what have been the impacts on the other real estate sectors?

• Delayed projects?
• Increasing construction costs
• Decreasing new build projects
• Redeveloping brown fields?
• Does existing real estate have more value?
• Out of the (big) box 

Delayed projects

Although the nitrogen depositon caused by the construction sector is relatively limited according to the RIVM (0.6 per cent compared to, for example, 46 per cent by the agricultural sector), the impact on the sector is tremendous. The residential sector seems to be hit the hardest, although the graph below shows the volume of logistics real estate under construction, after the revocation of the PAS is also clearly declining.

Increasing construction costs

After a long period of increase, construction costs are leveling off at the end of 2018 - start of 2019 (0.41 per cent increase in construction costs for distribution centers in 19H1). We now see a change in trend in the second half of 2019. The construction costs of distribution centers again show a sharp increase to 1.07 per cent in 19H2 (source: bouwkostenindex.nl and Savills Research).

Decreasing new build projects

As a result of the nitrogen issues, the increasing number of new build projects will come to a halt in 2020 and 2021, according to the Economic Institute for Construction (EIB) in the report "Expectations for construction production and employment 2020" published on 22 January  2020. The construction of new homes and infrastructure projects in particular is being hit the hardest. In non-residential construction, the pressured new build market is somewhat stabilised by renovation and maintenance, although the effects are also felt here. The logistics real estate market saw a decline in permits for new build projects in the second half of 2019. For example, around 30 per cent fewer permits were issued in 19Q3 than in 18Q3 (source: CBS).

Redeveloping brown fields?

Increasing the level of sustainability of existing buildings seems to be an attractive alternative to new build, since permits are expected to remain under pressure in 2020. Up to now, the government has mainly communicated solutions for the agricultural and aviation sectors, the solutions for the construction sector are not forthcoming and the measures that the government is taking to limit nitrogen deposition need time to be implemented effectively.

Does existing real estate (from before the introduction of the PAS in 2015) have more value?

It is too early to tell whether the value of existing buildings will actually increase. Especially when you consider that part of the existing stock is very outdated. These sheds are smaller and not as tall and therefore do not meet the current modern occupier requirements for large sheds with a minimum clear height of 12.2 meters and a heavy floor load. A possible increase in value will therefore only apply to some of the properties built before 2015.

Out of the (big) box

In my previous blog I discussed the negative effects of the nitrogen discussion and highlighted several possible solutions. One option is assessing the nitrogen emissions from projects, and whether they can be reduced by adjusting the plan / project. Even if our sector is (so far) less affected, it is still important to look at how we - as a sector - can contribute to reducing nitrogen emissions in the Netherlands.

Last Friday, colleagues organised an inspirational session about timber construction. Building with wood (Cross Laminated Timber) offers a sustainable alternative to building with concrete. With wood, the greenhouse gas CO2 is stored over time, while the production of concrete actually causes a lot of CO2 emission. It is also possible to build much faster with CLT, because of prefab preperations; a good way to reduce nitrogen emissions in the construction phase! A shed is perfect for building with wood, given the "straightforward" shape and limited height. I immediately started imagining what a wooden distribution center might look like. Could this also offer a solution for the ‘not in my backyard’ movement?