Challenges, Opportunities and Risks

Modernization

Energy-efficient modernizations are currently considered to be the cause of rising rents, which are driving the cost of living considerably. The acceptance of large-scale modernization measures is therefore sinking in sociopolitical and media political opinion. The federal government has stipulated the reduction of modernization allocations from 11% to 8% and restricted allocation capacity of measures to a maximum of €3 per m² (or €2 for rents under €7 per m²) in its coalition agreement, and has now also enacted this into national law.

Nevertheless, energy-efficient modernization of the portfolio remains a necessary and effective measure in improving building performance and living comfort, and in reducing consumption. In order to keep the burden on our tenants as low as possible, we restrict the allocation to a maximum of €2 per m² and plan modernizations individually for each building. We achieve cost savings by combining measures - so that we can, for example, allocate costs for scaffolding to different measures.

Declining acceptance also means that the search for alternative approaches to improve building performance is becoming more important. However, as the legal framework conditions and requirements are becoming stricter and the cost of materials and purchased construction services are rising, the challenge is to test the shrinking elbowroom for forward-looking measures.

The further expansion of our technical service, which allows us to perform several key trade tasks ourselves, provides us with the opportunity to stretch out the elbowroom available to us a little in terms of costs and efficiency advantages.

Energy Supply

We intend to keep driving forward energy generation from photovoltaic plants (PV). This in turn creates another opportunity for us to use our buildings to generate sustainable energy. We want to technically implement all new PV plants in a way that they can be integrated into a landlord-to-tenant electricity model and the electricity generated is available to our customers in their home or at charging stations.

The particular challenges we face in implementing the landlord-to-tenant electricity model include the expensive meter reading technology and the complicated invoicing processes and processes associated with the turnover of tenants for so-called customer plants. These lower the viability of the projects considerably and increase the economic risk associated with implementing the landlord-to-tenant electricity model. At the same time, however, they also offer the opportunity of deploying digital meter reading systems, also known as smart meters, which provide our customers with a visual presentation of the electricity being consumed and generated.

From a legal point of view, legislation relating to landlord-to-tenant electricity models remains incomplete and is not precise in its terminology. In addition, further statutory regulations hinder the implementation of sustainable energy projects, e.g., the energy pooling law, which will result in a drastic decline in feed-in tariffs and cause a considerable reduction in the associated tenant electricity subsidy from the beginning of 2019. Continual changes to funding principles is causing trust in the planning security of the projects to erode, but this trust is indispensable for making long-term investment decisions. Vonovia therefore follows legal developments very closely and is committed to promoting future regulations that are shaped in a sustainable and positive manner through its membership in associations such as the Association of German Housing and Real Estate Companies (Bundesverband deutscher Wohnungs- und Immobilienunternehmen GDW) and German Association for Housing, Urban and Spatial Development (Deutscher Verband für Wohnungswesen, Städtebau und Raumordnung DV).

With Vonovia Energie Service GmbH, a licensed energy provider in Germany, we have created a good and important foundation to fully tap into numerous new business areas and add our own value. Decentralized energy supply, charging infrastructure for e-mobility and energy storage are just a few examples.