Report of the Managing Board
INDUSTRIAL REAL ESTATE MARKET
The supply of industrial space has risen rapidly, but
increasingly is establishing a two-tier market. There is still a
need for flexible and multifunctional industrial space in good
locations, where vacancy levels will generally depend upon
economic conditions. On the other hand, the supply of
obsolete industrial space in unattractive locations is
increasing and it seems that this supply is becoming long
term in nature. FGH Bank is therefore of the view that
greater priority must be given to redevelopment. An increase
in demand for space is only to be expected if there is an
upturn in economic growth and such a recovery is not
expected on a large scale in 2003.
INVESTMENT REAL ESTATE MARKET
New investment in commercial real estate fell slightly in
2002 relative to 2000 and 2001, but nevertheless a large
amount of commercial real estate was acquired in 2002.
One significant trend was that investment in real estate hy
pension funds and insurance companies fell, but this was
largely offset by real estate funds and private investors. The
acquisition of commercial real estate by foreign investors
declined relative to 2001. The risks on the Dutch market are
increasing and the threatened limit on the depreciation of
real estate has not helped the image of the Dutch market
among foreign investors. The increased risk is also evident
in net initial yields, which rose again in 2002. FGH Bank
expects that net initial yields may rise further in 2003 as a
result of an overhang of space in the market, which is
affecting the office market in particular.
REAL ESTATE FINANCE
In 2002, the real estate market virtually came to a standstill.
As a result of low volume of letting transactions,
commercial real estate rents stabilized or even fell slightly.
Rental voids, which were mainly concentrated in
Amsterdam in early 2002, spread across the whole country
during the course of the year. As a result, the market is now
without doubt a tenants' market and because the market is
dominated by relocations, rent discounts and contributions
to relocation or fitting-out costs are regularly on offer. New
commercial real estate development is only proceeding once
a large proportion of the space has been prelet. In the wake
of these trends, the pressure on older buildings in lower-
quality locations has increased substantially. Low interest
rates and the fact that many real estate companies have good
cash positions have prevented companies from getting into
financial difficulties, however.
Operating in a contracting market requires expertise that the
bank has, but a number of our competitors do not. This
situation has led to a passive market strategy among these
competitors and others have reorganized their operations,
which meant that they were able to invest less resources in
marketing. As a result, our market position has
strengthened, and, in spite of the sharp fall in real estate
transactions in the market, we have largely achieved our
new business targets. In the top segment of transactions we
have also seen an increase in size and complexity of
transactions and FGH Bank's involvement in such
transactions, either on a direct or indirect basis, has been
increasing. The rise in the bank's margins, which started in
2001, also continued at a significant level in 2002.
Unfortunately, changes had to be made to our account
management in 2002 and the sudden death of
Carlo Baggerman, our account manager in Groningen,
represented a particular loss to us. Our policy is that
vacancies will only be filled by highly qualified candidates
who have the ability to represent FGH Bank effectively.
FGH VASTGOED EXPERTISE
2002 was the third year of operations for FGH Vastgoed
Expertise. FGH Vastgoed Expertise now has a balanced
customer base, which is made up principally of investors,
housing corporations and real estate companies. The
positioning of FGH Vastgoed Expertise in these sectors has
therefore strengthened significantly in 2002.
Last year an advanced real estate valuation and analysis
product, called 'RE-Value' was launched on the market
jointly with third parties. The total number of staff as at the
end of December 2002 was 6 persons.
VALUATION RESEARCH
In 2002, the new outsourcing policy was implemented.
This has increased the efficiency of the valuation process,
with extremely satisfactory results, and at the same time the
quality of the valuation process has been maintained.
With regard to the evaluation and monitoring of construction
projects? rating methods have been developed that take into
account all of the factors that are relevant to determining
the quality of a building.
In 2002, the department developed the first version of a
forecasting model for the real estate market, which will be
tested intensively in the near future and will then become
operational.
TREASURY
In 2002, the financial markets were again characterized by
high volatility. On 6 December 2002, following a long period
of unchanged interest rates, the ECB decided to cut its
official interest rates by 50 basis points and the 3-month
Euribor rate fell by about 40 basis points in 2002. The capital
market rate fell by about 80 basis points, thereby flattening
the yield curve. Owing to the fact that the differential
between the money market rate and the capital market rate
narrowed during 2002 by about 40 basis points, the
mismatch result was also slightly lower.