Societal Megatrends and Overall Conditions on the Residential Real Estate Market

Vonovia’s business model is influenced by key environmental developments. The main megatrends are (1) demographic change and migration, (2) climate change and the replacement of fossil fuels with alternative sources of energy as well as (3) social change. (4) digitization is also becoming increasingly important. The real estate industry is also influenced by a large number of statutory regulations.

(1) Demographic change The German 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 by single- and two-person households. Migration within Germany, from rural and non-urban regions to urban areas, and immigration to Germany, a trend that has been accelerated by the influx of refugees from global crisis regions, is creating greater demand for suitable and affordable living space in conurbations. More than 30 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.

(2) Climate change and alternative energies: A sustained, significant reduction in energy consumption and the replacement of fossil fuels with alternative sources of energy are key prerequisites for the success of the energy transition. 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. In addition, Vonovia uses modern and resource-conserving technologies when installing new heating units.

(3) Social change: The process of social change is characterized by growing social disparities, meaning that Vonovia has to engage in active neighborhood management in order to ensure a pleasant residential environment. Efficient portfolio management also plays an essential role in this ensuring that rents remain affordable and that ancillary costs remain low in the long term.

(4) Digitization: Digital transformation is also having an increasing impact on Vonovia’s business model. Developments in the field of digitization, i. e., primarily the exponential increase in computing power, networking (Internet of Things (IoT)) and platform solutions, mobile devices, robotic process automation (RPA) and artificial intelligence (AI) are being monitored on an ongoing basis to evaluate the impact on our business model and adapt where appropriate. We evaluate digitization and the benefits that it offers with regard to our processes and our customers. For Vonovia, Smart Real Estate already means the extensive digitization of business processes with a level of sophistication that includes RPA and even extends as far as the first few AI approaches, for example in contract and portfolio data analysis. In our new construction activities, we are using Building Information Modeling (BIM) solutions. Evidence of networking can be found, in particular, within the value chain in our management platform, which facilitates ongoing improvements in how we interact with our customers using corresponding apps and portal solutions, and in the coordination of the local customer service, the craftsmen’s and residential environment organization and the commercial support functions. We are also, however, increasingly seeing approaches for smart home building solutions, from smart grid, to assistance systems and predictive . Vonovia is not pursuing digitization as an end in itself, but rather to boost customer satisfaction, improve the basis on which decisions are made, further develop its business model and processes and reduce the use of resources.

Maintenance covers the measures that are necessary to ensure that the property can continue to be used as intended over its useful life and that eliminate structural and other defects caused by wear and tear, age and weathering effects.