Housing giants Vonovia and LEG see bottoming-out of housing valuations

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In Germany's residential real estate sector, the giants Vonovia and LEG Immobilien are shaping market expectations and investor strategies through their distinct approaches to property valuations amidst ongoing economic adjustments. The approaches of both companies, the two largest players respectively in the housing market, may provide useful insights into the future of residential property valuations.

Vonovia, Germany's largest residential property group, manages an extensive portfolio valued at €83.7 billion. After enduring a couple of challenging years marked by significant devaluations, the company is now signaling a potential shift in momentum. CEO Rolf Buch recently expressed a robust outlook, underlining that the severe phase of devaluations has ended, buoyed by the company's recent transaction activities which align closely with book values. “Our transactions are carried out at book value. This is an indication that the market is prepared to buy at these values again,” Buch noted, highlighting a resurgence in market demand.

This confidence is reflected in Vonovia's recent activities, including the sale of about 4,500 apartments to a Berlin-owned housing company, showcasing a readiness in the market to engage at stabilized prices. Moreover, Buch is optimistic about future growth, anticipating an annual value growth of around €3 billion from 2025, driven by persistent housing shortages in urban centres. “We can see that demand is picking up again,” Buch added, pointing out increasing inquiries from both domestic and international investors.

LEG Immobilien: cautious optimism amid market adjustments

Contrasting with Vonovia’s emerging positivity, LEG Immobilien, managing over 166,000 units, is taking a more cautious stance. The Düsseldorf-based company foresees a moderate decline in its property values, projecting a valuation decrease of only 1% to 3% in the first half of 2024. LEG's CEO Lars von Lackum acknowledges the challenging market conditions but also indicates signs of stabilization. "We are observing the first signs of an upturn; the bottoming out of property valuations is imminent," von Lackum said.

Despite a downward adjustment in valuations last year, LEG's active management of its portfolio through strategic sales has been crucial. The company has already sold around 2,200 apartments this year, bringing in about €210 million, often surpassing book values. This strategy is designed to not only mitigate financial strain but also to capitalise on the market's gradual recovery.

Market perspectives and strategic outlook

Both Vonovia and LEG are navigating a complex landscape shaped by high interest rates and economic uncertainty. However, their strategies and market adaptations reveal divergent but insightful approaches to handling these challenges. Vonovia’s transition from significant devaluations to a stable and potentially growing valuation underscores a broader market recovery. In contrast, LEG’s cautious yet optimistic outlook, with strategic asset disposals, suggests a more measured confidence in the market’s short-term recovery.

As the largest players in the German residential market, Vonovia and LEG not only reflect but also influence the broader trends in property valuations. Their activities offer useful insights for investors and stakeholders into the resilience and future directions of the housing sector in one of Europe's largest economies.

As we move further into 2024, the strategies of Vonovia and LEG are likely to continue to serve as key indicators of the health and dynamics of the German real estate market, providing a benchmark for other players in the industry.