Megatrends and Real Estate Market

Societal Megatrends

The overall framework that will shape the future for Vonovia is characterized by three megatrends: demographic change (1), changes in domestic migration patterns and increased immigration to Germany (2) and the energy transition (3):

(1) Demographic change is having a major impact on the real estate industry in Germany. The population is aging rapidly and presenting the real estate industry with considerable challenges, particularly when it comes to senior-friendly homes. This development is reinforcing the growing demand for one- and two-person households, a trend that benefits Vonovia’s business model.

(2) In the recent past, migration within Germany towards urban areas has increased. Rural and non-urban regions are losing out. But the migration flow fueled by immigration to Germany, a trend that has been accelerated by the influx of refugees from global crisis regions, is also creating greater demand for good-quality, suitable and affordable living space in these urban regions.

(3) A sustained, significant reduction in energy consumption is a key prerequisite for the success of the energy transition in Germany. Buildings account for a large share of total energy consumption. Vonovia is aware of its responsibility in this area, which is why it has launched a program for the energy-efficient refurbishment of its buildings.

Overall Conditions on the Residential Real Estate Market

According to the German Association of German Housing and Real Estate Companies (GdW Bundesverband deutscher Wohnungs- und Immobilienunternehmen e. V.), the German residential real estate market comprises around 40.5 million units, approximately 17.3 million, or 43 % of which, are owned residential properties. The approximately 23.2 million rented apartments are split into around 14.9 million units that are offered by small private landlords, and 8.3 million units offered by professional commercial providers, a segment that corresponds to 20 % of Germany’s housing stock.

In the recent past, Germany’s residential real estate market has been characterized by significant migration flows. Major cities and large metropolitan areas are the winners of domestic migration and immigration trends. Those municipalities with an urban flair in the vicinity of these major cities and large metropolitan areas are also growing. Domestic migration is also shaping the overall demographic environment in Germany. 30 or so metropolitan areas or “High Influx Cities” are reaping above-average benefits from this migration trend. Magnet behavior, shown primarily by younger age groups, is characterized mainly by the growing importance of living in locations that offer a vibrant urban lifestyle. This means that Germany’s rural and less developed regions are losing out. The demand for housing in the cities and regions in question is focused in particular on low-cost smaller apartments, or apartments that can be shared by several people, also due to a further increase in the number of students. A shortage of apartments in the growing metropolitan regions and university towns is offset by lower demand for housing in those regions where the population is on the wane.

Due to these developments, Vonovia has adopted a regional residential market perspective. This means that we are focusing not on individual towns and cities as in the past, but rather on metropolitan regions each comprising a core city and its neighboring/surrounding municipalities. This perspective is reflected in the assessment of the portfolio structure and complements the analysis of our portfolio, such as Vonovia’s own total return matrix, allowing locations to be evaluated in even greater depth and strategic options for action to be identified.

Strategic
The “Strategic” subportfolio contains locations that offer development potential that is above average and for which we are pursuing a value-enhancing property management strategy.