Annual Report 2020

Capital Market Outlook

2020 was a year full of challenges. The coronavirus pandemic severely affected society at large, the global economy and, at times, also the capital markets. How the economy and financial markets will fare in 2021 will again rely to a large extent on how the coronavirus pandemic develops.

As the newly elected President Joe Biden takes office in the United States, the country is expected to return to a more predictable and reliable foreign trade policy. Trade conflicts are likely to ease.

The topic of sustainability is also playing an increasingly important role. Society, politicians and investors are attaching increasing importance to ecological criteria, in particular. The rescue and fiscal stimulus programs launched by governments and central banks are partly linked to criteria relating to environmental, social and governance aspects.

In line with a large number of analysts and market participants and we expect very receptive borrowing markets and attractive financing conditions to continue in the medium term due to an outlook that remains attractive, albeit less than in the past, and thanks to the ongoing high levels of liquidity.

With a moderate level of debt that allows us to acquire a significant volume of financing eligible for the collateral pool and our investment grade rating as proof of our exceptionally stable business model, Vonovia’s debt instruments will remain a sought-after investment. We do not expect to see any direct correlation between interest rate developments and earnings given the long maturities of our financing instruments and the steady maturity profile. Rather, it is evident that the supply/demand situation regarding the residential real estate market and, as a result, rental development has much more of an impact on earnings. This is enhanced by the results of the Value-add Business, which is unrelated to interest rates.

We expect central banks to continue to pursue loose monetary policies, meaning that we do not predict any significant changes in key interest rates within the next 12 months. Provided that the coronavirus crisis does not escalate again, we do not expect to see any significant increase in risk premiums either, thanks to an improved economic outlook and sustained demand from the European Central Bank’s asset purchase program.

Classification of debtors or securities with regard to their creditworthiness or credit quality according to credit ratings. The classification is generally performed by rating agencies.