Fundamental Information About the Group
Societal Megatrends Defining Overall Conditions on the Residential Real Estate Market
In February 2022, Russia invaded Ukraine, and economies that had already been hit hard by the coronavirus pandemic, particularly in Europe, came under additional strain.
The war in Ukraine triggered an additional shortage of raw materials and primary products in global supply and value chains, which had already been disrupted by the coronavirus pandemic, pushing prices up considerably and, as a result, driving inflation rates up across the globe. In particular, fears of energy shortages sent energy prices soaring.
In this environment, central banks abandoned their low interest rate policy entirely, and lifted key interest rates significantly. The financial markets reacted to the new macroeconomic conditions with hefty price losses overall. And although Vonovia has a balanced long-term financing structure, stakeholders reevaluated the business model against the backdrop of the changing interest rate landscape in terms of profitability, the level of debt and assets. This contributed to the considerable drop in the price of the company’s shares.
Nevertheless, it is important to note that, putting the increased interest rates aside, there has been no fundamental change in the overall conditions for the Vonovia Group. The megatrends driving our business model remain unchanged. Vonovia’s portfolio is virtually fully occupied, guaranteeing secure and stable future cash flows.
The shortage of housing in large metropolitan areas means that there is continued strong demand for the apartments completed by Vonovia’s Development segment, particularly given that the political targets for new construction in Germany currently appear to be out of reach. This creates an extremely solid foundation for the company’s operating business.
The management is focusing on the increased prices for raw materials, energy and primary products, together with interest rates, to ensure profitability in the changed macroeconomic environment described above. Vonovia’s plans to increase sales of residential portfolios are designed to have a positive effect on debt and profitability, as well as on the demand for houses.
The megatrends that have been at work for some time now, urbanization and the shortage of housing, climate protection and reducing CO2, digitalization and demographic change, are being continually reassessed in terms of their economic, political and social implications for the company’s strategy and business model in light of the experience gleaned from the coronavirus pandemic, recent developments as a result of the war in Ukraine and the higher interest rates.
As part of its sustainability strategy, Vonovia has made a clear and explicit commitment to climate protection targets, in particular to a virtually climate-neutral building stock by 2045, as well as to reliable and transparent corporate governance.