"Opportunities for ESG Value-Add Strategy in the Office Market Are Increasing"
The Dutch office market currently has historically low vacancy rates and a very limited pipeline for new developments. However, over the past two years, core investors have tightened their investment criteria—primarily in response to ESG ambitions and the impact of hybrid working. According to CBRE’s Real Estate Market Outlook 2025, investors are reluctant to make concessions regarding location, quality, and sustainability. Many adhere to strict sustainability targets, such as a maximum energy consumption per square meter or net-zero CO₂ emissions. The latter is achieved by phasing out gas and sourcing green electricity.
Investors aim to meet these goals between 2040 and 2050 or at least stay within the reduction pathways of the Carbon Risk Real Estate Monitor (CRREM). Various methodologies are used, including the internationally recognized SBTi-aligned CRREM and the Dutch Paris Proof 2040 standards developed by the Dutch Green Building Council (DGBC).
In practice, meeting these sustainability ambitions is not always feasible. While the "low-hanging fruit" was tackled in previous years, deep CapEx interventions—such as upgrades to mechanical systems, facades, and glazing—are now often required. Investors with a Paris Proof ambition, in particular, must adhere to strict standards, such as a maximum energy intensity of 70 kWh per square meter per year.
Additionally, large-scale investments are putting pressure on core investors' returns, leading to an increased divestment of less sustainable buildings. This raises the question of whether such properties can still be considered "core" if they require substantial investments.
As a result, core investors primarily focus on the most sustainable and best-located buildings that align with changing tenant demands. Meanwhile, private equity firms, family offices, and SCPI funds are showing interest in less sustainable assets—but only at significantly higher gross initial yields. This has led to a gap of 150 to 300 basis points between core and other office products.
Opportunities for Value-Add Investors
The growing polarization in the office market, as identified by CBRE, is becoming increasingly visible in valuations. This presents opportunities for opportunistic investors to enhance and future-proof buildings.
However, many investors remain cautious due to uncertainty regarding exit yields in five to seven years. The key question is whether these properties will have been sufficiently upgraded by then and how the tenant market will evolve. As long as investors can meet the quality and sustainability expectations of tenants, a favorable exit yield remains realistic.
CBRE’s Real Estate Market Outlook 2025 highlights the importance of making strategic choices between different sustainability ambitions. The European Commission is introducing new regulations for sustainable buildings and energy labels (EPBD), which will lead to changes in the Dutch energy labeling system by 2029. The highest classification (Label A) will then be reserved exclusively for energy-efficient, fossil-free buildings.
When planning renovations, investors should carefully consider three key factors:
- Do the plans align with future tenant demands? Companies are setting higher standards for workplace concepts and sustainability.
- How will current tenants be accommodated during renovations? This remains a challenge in the tight office market.
- Is the power supply sufficient? Sustainable systems and EV charging stations require adequate grid capacity.
More insights on these trends and market developments can be found in CBRE’s Real Estate Market Outlook 2025.
