Societal Megatrends

Vonovia’s business model is influenced by key environmental developments and megatrends. The main megatrends on the real estate market are (1) the shortage of housing, (2) climate change and the drive to avoid fossil fuels with the aim of limiting emissions that are harmful to the environment, (3) migration and social change and (4) demographic change and the demand for housing that meets the needs of today’s society. (5) Digitization is also becoming increasingly important. These megatrends are affecting a real estate industry that is subject to stringent statutory regulation in a climate characterized by increasing concerns regarding the “housing problem” among the population at large.

1. The shortage of housing in Germany is reflected in the need for around 350,000 to 400,000 new apartments to be built every year. In contrast, around 353,000 building permits are expected to have been granted in 2018, with only around 300,000 apartments actually completed. In Germany’s seven largest cities alone, around 88,000 new apartments will have to be built every year, in real terms, in the period leading up to 2020. This shortage of housing means that the vacancy rate is now close to zero on the real estate markets in the country’s top locations. As a result, rents in the country’s major metropolitan areas are growing at a faster rate than wages, meaning that the burden associated with housing costs is growing disproportionately. What is more, an increasing number of apartments are no longer covered by restrictions put in place to secure an adequate supply of social housing. Whereas back in 1990, there were still around 3 million apartments classified as social housing in Germany, this figure is set to have fallen to around 1 million by 2020. Vonovia plans to use densification in existing neighborhoods to create new apartments in areas that it already owns. The company has efficient processes in place for modular new construction to create affordable living space in the short term. What’s more, around 12,000 new apartments are to be built over the next few years thanks to the real estate development business.
2. Germany has made a commitment to achieving the targets agreed at the Climate Change Conference in Paris as part of its quest to combat climate change. This has created an urgent need for extensive energy-efficient refurbishment measures, particularly given that housing is one of the biggest producers of greenhouse gas emissions. Despite diminishing public acceptance for intensive measures, Vonovia most recently refurbished approximately 5% of its portfolio per year to meet the latest standards in energy efficiency, outpacing the national renovation rate. We want to continue to ensure that our tenants are not overwhelmed financially, while still being able to find solutions to reduce the CO₂ emissions of existing buildings. Energy-efficient modernization means investing in building facilities and insulation. Companies’ internal processes, however, are also being put under the microscope as far as their energy efficiency is concerned. Vonovia discloses this information in its Sustainability Report.
3. The influx of people from different cultural backgrounds as well as the internal migration towards the country’s metropolitan regions/high-influx cities is often experienced by the native population, which can impact the social cohesion in and the image of the affected neighborhoods. The risk of insufficient social diversity and mounting tension in the day-to-day interaction between residents in these neighborhoods also has to be tackled in a responsible manner. Vonovia is living up to its responsibility in this area by taking targeted neighborhood development measures, i.e., it is developing its housing stock both by making investments in the residential environment, but also by investing in neighborhood and social structures with suitable cooperation partners. Rules should also be put in place to promote a harmonious communal life.
4. At the same time, housing needs are changing. The German population is becoming increasingly older, presenting the real estate industry with considerable challenges, particularly when it comes to senior-friendly homes. The number of households is on the rise due to a growing number of one- to two-person households. This development is fueling even greater demand for apartments to accomodate smaller households. Migration patterns within Germany and immigration from abroad are increasing the demand for suitable and affordable housing in metropolitan areas even further. These trends are affecting a housing stock that was created to handle very different circumstances.
5. 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 maintenance. 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.