Vonovia - comment

Vonovia’s rights issue presentation had a couple of graphs underlining why the German residential market remains such an attractive investment. We do not see a risk of rising rates hurting valuations in Germany for now. First of all, residential asset yields have fallen sharply but the spread between resi yields and Bund yields has widened to 440bp. Secondly, Bund yields will rise based on inflation in the Eurozone and German rents are inflation-linked. As rates start to rise so too will NRI. The other graph worth noting was the longer-term German urbanization rate. Berlin remains a large magnet for people, underpinning the Berlin first strategy of the likes of Adler. The areas (mainly in the east) where urbanization is “reversing” reflects falling population as people migrate south for work. The exception is Leipzig which is Germany’s fastest-growing city.