Last year saw the full impact of the ongoing polarisation in the office market that has been developing for a number of years. The office market is very definitely a market with two faces. On the one hand, we have seen an enormous increase in demand for office space in the G4 cities, especially in inner city business locations and locations with good transport links. Vacancy rates in some prime locations have dipped to their lowest levels in a long time and led to continued market rent increases in 2019.
On the other hand, we have peripheral office locations and offices that simply fail to meet modern office standards, certainly in terms of sustainability.
In the most difficult period of the past decade, immediately after the global financial crisis, many were wary of investing in Dutch offices. This was partly due to the massive oversupply on the back of the addition of too much office space in the previous booming market, especially in peripheral locations. This left the way open for professional office investors and during this period, the Office Fund was investing in offices that have since proven to be very popular with tenants. This has certainly paid off with the delivery of Move and The Garage (the former Citroën buildings) in Amsterdam to their new tenants. And we now are working to create the same kind of building in the WTC Rotterdam and our new-build projects Hourglass in Amsterdam and Central Park in Utrecht.
Of course, the fact that we acquired these new-build assets (Hourglass and Central Park) and have been working on several redevelopment projects has dampened our income return over the past few years, but this has been more than compensated by higher capital growth due to the upward revaluations of new and upgraded assets.
The progress we made towards the delivery of these assets certainly helped lift our total return last year, as this came in at a 20.3%. And while capital growth is now likely to level off, we will continue to see our income returns increase once all our offices are fully occupied. Although the delivery of Central Park is not expected until mid-2021, thanks to newly-signed leases in 2019 this building is already 50% pre-let. We have set our sights firmly on the controlled growth of the office portfolio and increasing the sustainability of our assets and the portfolio as whole. We retained our GRESB 5-star rating and improved our overall score. In addition to this, our ambition is to have a Paris-proof portfolio before 2045.
As I noted above, investors have been reluctant to invest in the office market, but their appetite is on the rise and we are optimistic we will find the new investors we need to fuel our growth in the coming three years. New commitments signed in 2019 already provide resources for new acquisitions. Because there will be opportunities to invest. These may be in the G4, but they could also be in up-and-coming cities that meet our standards. Meanwhile, we will continue to optimise the portfolio and make it attractive to investors, with a clear focus on improving our sustainability at both portfolio and asset level.
The impact of the coronavirus will affect our organisation and the Fund’s results and forecasts. In the coming period, we will be monitoring the impact on our organisation and the Fund closely and will inform our investors about the effects of this pandemic and actions taken to mitigate the related risks among others in our quarterly reports and investor calls.
All that remains now is for me to thank our investors for their continued faith in our strategy and all our employees for their hard work and commitment to Bouwinvest in 2019.
Dick van Hal
CEO and statutory director