The business of Germany’s major property groups used to be fairly straightforward and uniform: managing and renting out apartments in Germany. Today, however, several companies are leaving the beaten path, developing in different directions, or shifting their focus. The main reason lies in the outlook for the German housing market: although rents are continuing to rise sharply, high interest costs are eroding part of that growth.

As a result, groups are looking for new avenues of growth. „The playing field has changed“, says Simon Stippig, analyst at Warburg Research. The culprit remains high interest rates, and "that is unlikely to change in the coming years.“ And because the property business is fundamentally debt-based, he explains, growth is becoming harder to achieve. „Property groups must look for new growth drivers“, Stippig concludes.

Rents are climbing. Stippig cannot recall a time in the past ten years when market rents at Vonovia, Germany’s largest landlord, have risen as sharply as they did in the second quarter of this year. But the equation no longer works: the problem is the rising cost of borrowing. „An alternative is needed to offset higher financing costs, even though rental income itself is becoming more lucrative“, explains the analyst.

The strategies of individual groups reflect this challenge. Vonovia, TAG and Aroundtown show how companies are adapting to persistently high rates – and to weaker demand in the office segment. Hamburg-based TAG Immobilien, for example, has diversified geographically by investing in Poland. Co-CEO Martin Thiel describes the German business as „extremely stable, reliable and predictable“ – a bread-and-butter operation. But the group’s growth now comes from its eastern neighbour.

In Poland, TAG not only buys apartments but also builds them, renting some and selling others. „The Polish business is currently showing more growth, but it is also more volatile“, says Thiel. „Germany is a regulated rental market, which limits the scope for rent increases.“

By contrast, Poland’s unregulated market can move both up and down. TAG’s portfolio now comprises 83,000 apartments in Germany and around 8,700 in Poland, with another 1,400 under construction. The long-term target is about 20,000 units, though Thiel is reluctant to commit firmly to that figure. Progress is ahead of schedule.

Stippig considers the move into Poland a good idea. „At some point in Germany it became difficult for TAG to acquire more assets – they did not want to pay the prices“, he notes. Expanding into the neighbouring country was therefore a logical step. But the current advantage of virtually no regulation could eventually disappear. „No regulation is in sight yet, but laws can change – also regarding building standards“, he says.

The boom in Poland may already be fading. Rental growth, once in double digits, is now around 3%. „That is still not bad“, says Stippig, „but after high inflation it has normalised.“ The same applies to transaction prices for apartments in major cities. There is also a currency risk. Today, a large share of TAG’s results already comes from Poland. „One third from Poland, two thirds from Germany“, Thiel notes. „That is also because in Poland we have a strong sales business in addition to a growing rental business.“

Vonovia, for its part, announced earlier this year a return to a growth path. The company aims both to invest in new construction and to expand smaller segments. The share of so-called non-rental businesses in adjusted Ebitda is set to rise from just under 10% in 2024 to at least 20% by 2028.

Vonovia’s chief executive Rolf Buch – who will hand over the responsibilities to current Vodafone CFO Luka Mucic at year-end – says the group is „on a very good path“ with its growth strategy. By mid-year, non-rental segments already accounted for 14% of earnings. By 2028, the rental business is expected to make up only 75–80% of adjusted Ebitda. At that point, Ebitda should reach 3.2 billion to 3.5 billion euros, around 30% more than in 2024.

According to Vonovia, all non-rental segments developed strongly year-on-year in the first half. In recurring sales – the disposal of individual apartments and single-family homes – margins rose thanks to recovering property prices. The company also sees further potential here. In its value-add business – covering housing-related services – higher investment in modernisation and portfolios has boosted its trades operations. Energy sales have also shown positive momentum.

Vonovia says growth is based on three strategic initiatives: expanding value-add, development and recurring sales, investing in technologies such as photovoltaics and heat-pump cubes for apartment blocks, and building new business lines, for example offering services to third-party clients. Serial modernisation, modular construction and infrastructure services are the focus. Analyst Stippig notes that none of these areas are entirely new, „but the company is putting greater emphasis on innovation.“

Aroundtown, meanwhile, is pursuing a different route with digital services. Its new „AT World“ app offers unused spaces such as hotel lobbies, cafés or co-working areas as flexible bookable workplaces, with Aroundtown acting only as an intermediary. The commercial property specialist is struggling not just with higher rates but also with high vacancy levels, given its portfolio is largely composed of offices. The company hopes to ease the pressure by converting offices into furnished apartments for short-term rental (serviced apartments) or into data centres. „Our goal is to build data centres for hyperscalers over the long term“, says Chief Capital Markets Officer Timothy Wright.