Annual Report 2020

Overall Conditions on the Residential Real Estate Market and Societal Megatrends

2020 will remain etched in our memories as the year of the coronavirus pandemic. Across the globe, the pandemic had an unforeseen negative impact on individual economies, plunging them into a deep recession. While both the EU and the German government have launched aid packages of historic proportions to counteract the crisis, it is impossible to make any reliable statements on when and how the economy will bounce back. It is now becoming clear that the coronavirus crisis is leaving more of a mark on the German economy than assumptions in the spring of 2020 suggested.

The Federal Statistical Office has calculated that economic output in Germany dropped by 5.0% in 2020. The greatest uncertainty factor when it comes to future forecasts for this figure remains how the pandemic will progress. The institutes expect that, with the progress of vaccinations, it will be possible to scale down the infection control measures in the six months from the start of spring to the start of fall 2021 such that they no longer have any significant impact on economic activity. The extent to which companies in Germany and abroad will become insolvent is uncertain.

The extent to which the coronavirus pandemic is changing working life and accelerating the pace of digitalization is already coming to light. This is not only having an impact on business travel behavior but is also creating new requirements that commercial and office properties as well as residential properties have to meet. It is only thanks to the digitalization progress made to date that extensive use of working from home was able to stop the pandemic from having even more devastating consequences on the economy. This experience will change working life, commuting patterns and also the requirements that many people will want their housing situation to meet in the future, too.

In addition to the coronavirus pandemic, extreme weather phenomena were also apparent which are believed – as is the largely unanimous consensus – to have been caused by global climate change driven by the man–made increase in average temperatures. Weather phenomena such as heat, drought and fire on the one hand and heavy rainfall, flooding, melting glaciers and rising sea levels on the other cause or aggravate negative economic consequences and the associated global migration movements. The protests organized by young people alone show, as expressed in the Fridays for Future movement, that companies can no longer focus exclusively on stakeholders in the equity and debt markets, but now have to respond to the needs of multiple stakeholders and to the demands being placed on companies as social protagonists. The shareholder value approach is increasingly evolving into a stakeholder value approach in which a company has to demonstrate its license to operate.

The framework for future action has been defined both by the United Nations with its Sustainable Development Goals (SDGs), and by the European Union, whose Green Deal has already put initiatives and directives in place for a more sustainable world. Vonovia is working to find answers to these questions of tomorrow, particularly with regard to climate-neutral housing. Around one third of carbon emissions in Germany are caused by operating buildings. Buildings require energy primarily to provide hot water and heating. Energy consumption levels, and thus emissions, depend particularly on a building’s condition in terms of its energy efficiency and the efficiency of the heating system.

The coronavirus pandemic and climate change have exposed just how sustainable and future-proof individual business models really are. In addition to climate change, other megatrends such as urbanization and the shortage of housing as well as demographic change will play a decisive role in determining Vonovia’s entrepreneurial activities in the future.

Forecasting errors made in the recent past at the regional and national levels in Germany have resulted in a structural undersupply of housing. For Vonovia, this means using climate-neutral housing to continue to provide affordable housing in a socially responsible manner, also by pursuing its own new construction projects. This includes, in particular, targeted neighborhood development as one of the main levers for moving towards a sustainable and future-fit housing industry.

In 2020, misconduct on the part of individual decision-makers in the German business world dealt a blow to civil society’s confidence in reliable, trustworthy and transparent corporate governance. Among other measures, this prompted the German government to present the draft bill for a Financial Market Stabilization Act on December 16, 2020. Particularly in the wake of 2020, it is more important than ever before for companies to adopt stringent corporate governance standards and put them into practice with credibility.

This is why Vonovia explicitly addressed these very megatrends as part of the most recent revision of its corporate strategy. The corporate strategy was clearly focused on future requirements resulting from sustainability, and explicitly climate protection, as well as social responsibility for tenants, customers and employees. Trustworthy, reliable and transparent corporate governance will be used to ensure that future decisions are always evaluated in terms of their sustainability.

Vonovia has made a clear and explicit commitment to climate protection targets and a CO2-neutral building stock by 2050 as well as to reliable and transparent corporate governance.