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Vonovia crowned Europe’s largest listed residential real estate company

Rolf Buch, CEO of Vonovia, completed a double-whammy when he arrived at the EPRA conference in Berlin. Not only was he appointed as association Chairman for the next two years, but the previous evening he had put the finishing touches to a deal to acquire from Starwood the remaining shares in Swedish property firm Victoria Park. That transaction took Vonovia over the line to become the world’s largest listed residential real estate company.

Rolf Buch, CEO of Vonovia, completed a double-whammy when he arrived at the EPRA conference in Berlin. Not only was he appointed as association Chairman for the next two years, but the previous evening he had put the finishing touches to a deal to acquire from Starwood the remaining shares in Swedish property firm Victoria Park. That transaction took Vonovia over the line to become the world’s largest listed residential real estate company.
Addressing journalists from across Europe at EPRA’s annual press conference, Rolf Buch said the German listed residential sector has displayed dynamic growth over the past five years, moving from a free float market capitalisation of EUR 5 billion in 2013 to around EUR 52 billion this year, and is now more than ten times the size of the entire publicly quoted European residential sector outside Germany. Vonovia, with a free float market cap of EUR 21 billion, is by far the biggest player in this constellation.
The genesis of the emergence of a large new European listed real estate sector for international investors in such a short period of time lay in the period between 2000 to 2010, when the sleepy investment backwater of German residential property was shaken up by a series of large private equity acquisitions. These were followed by a spree of public listings, of which the later to be named Vonovia was the largest in 2013.
But Buch warned that facile comparisons shouldn’t be made between the residential sector in Germany and most other countries: “The German market is highly regulated.”
There is no connection between German macroeconomic data, such as national income or inflation, and rental growth, but this also creates a very stable business environment for the listed residential sector. ‘’In the US, there was a dip in rents during the financial crisis; in Germany, that did not happen,” Buch said.
German residential rents are regulated via city-specific rental indices: average rates for the previous four years determine rises for the following two years, and this results in a rental growth of approximately 1.5-2.0% per year. “Due to regulation, it will not be more, and I do not see how that will change materially going forward,” he added.
The German market is also characterised by a structural imbalance between demand and supply.
“Politicians made a very critical mistake in 2000. Because of Germany’s negative demographic outlook at the time they decided there would be less demand for housing in the future. Construction fell from 600,000 new apartments per year to less than 200,000 by 2010.The politicians overlooked some other major trends, such as expanding immigration, the growing proportion of single person households, the greater demand for larger apartments and urbanisation as people moved from smaller towns to the big cities.”
Residential construction in Germany is now running at a rate of around 300,000 apartments a year, but this is still far too low and has produced a shortfall of an estimated one million apartments in the largest urban areas. Speeding up the construction process is almost impossible, Buch said, because the planning and building permit system is also heavily regulated and bureaucratic.
“Finally, the imbalance between supply and demand will continue, which is a challenge for German society as a whole. We are talking about an essential need that is very close to people’s heart.”