Germany's top landlord predicts more casualties as property crash bites (updated)

Jones Lang LaSalle Incorporated

10/07/2024 14:08

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      German property crisis worst in a generation
    

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      Vonovia CEO sees surge in real estate bankruptcies
    

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      CEO Buch: 'It is going to be bitter'
    

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      Despite ECB rate cut, executives cautious on recovery
    

  
 (Updates with LBBW report in paragraph 17, adds second graphic
at end)
    By John O'Donnell and Tom Sims
       FRANKFURT, July 10 (Reuters) - Germany's real estate
industry, already in its third year of turmoil, faces more pain
ahead as further companies go bust, the CEO of Germany's largest
landlord warned. 
    The bleak assessment from Rolf Buch, the CEO of Vonovia
 VNAn.DE  and one of the nation's property titans, defies hopes
for an imminent turnaround as the sector goes through its worst
crisis in a generation.
    "We're going to see an extreme number of bankruptcies over
the next few months, maybe over the next few years. We're
already seeing them today," Buch told journalists on Tuesday.
    "It is going to be bitter." 
    For years, low interest rates and a strong economy sustained
a boom across the German property sector, which broadly
contributes 730 billion euros ($789.64 billion) a year to the
nation's economy, or roughly a fifth of Germany's output. 
    That boom ended when rampant inflation forced the European
Central Bank to swiftly raise borrowing costs. Real-estate
financing dried up, deals fizzled, projects stalled, major
developers went bust, and some banks teetered. 
    The industry has called on Berlin to intervene.
    Buch built Vonovia through a series of multi-billion-euro
takeovers, building up a debt mountain as the property crisis
struck, forcing it to sell swathes of homes. 
        
    
    In its wake, Vonovia, which has roughly 550,000 apartments,
slashed the value of its properties by almost 11 billion euros
in 2023, taking the group to a 6.7-billion-euro loss, its worst
ever. 
    It has cut the value of its property by more than one fifth,
stripping out rent increases, since 2022, when interest rates
started to climb, knocking prices.
    Buch said Vonovia was now finished with big writedowns,
although said there could be further small adjustments.
    
    ECB RATE CUT
    A recent rate cut by the ECB has sparked hopes of a revival
of the sector, but some executives are still cautious.
    "Whether or not the ECB changes interest rates marginally
will not reverse the trend for property," said Matthias Danne,
board member at Deka, one of Germany's largest asset managers
with 55 billion euros in property investments. 
    Elevated rates will keep financing expensive, and a rebound
in building sales has been "slower coming than expected", Danne
told Reuters.
    Germany is the largest real estate investment market on the
European continent. The turnover of buildings through sales that
often characterises a healthy market slowed to a halt and is
only gradually picking up.
    Jones Lang LaSalle, the global real estate consultant, this
week disclosed that transaction volumes across Europe's largest
economy rose 10% during the first half of 2024 from last year's
low level.
     Offices have been particularly hard hit, and the German
bank LBBW said in a report on Wednesday that low turnover in
transactions points to a risk that "distressed sales are on the
back burner and could flood the market later".
    The spectacular collapse of Signa, the real estate empire of
Rene Benko, has been one of the most dramatic episodes
underscoring the industry's troubles. 
    But weakness in commercial real estate in the United States,
with offices still empty after the pandemic, and the struggles
of major property developers in China have focused global
attention on the sector.
    The drumbeat of bad news is continuing in Europe. Last
month, a Frankfurt skyscraper that is home to Germany's central
bank and asset manager Deka filed for insolvency. 
    The Apollo-owned property company Demire has revealed it is
in talks with investors about restructuring 500 million euros in
bonds. It has also said it has been struggling to agree with a
bank on a loan. Demire and the bank, DZ HYP, declined to
comment.
    Rents have been climbing steeply as immigrants flock to
Germany, foreigners seek work there and house building ground to
a virtual halt, squeezing the supply of homes.
    Vonovia targets mid- and low-income earners with affordable
rents, and Buch said there was fierce competition for flats.
    "The market for apartments is going to get worse," he said.
($1 = 0.9245 euros)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Vonovia underperforms    https://reut.rs/3Liz0Jc
German building slumps    https://reut.rs/4ctLucF
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 (Additional reporting by Matthias Inverardi; editing by Rachel
More and Mark Heinrich)
 ((Tom.Sims@thomsonreuters.com; +49 30 220 133 645;))