DThe real estate company LEG plans to increase rents due to significantly increased costs and higher interest rates. „Rents will increase significantly,“ announced CEO Lars von Lackum on Friday. Material costs alone have risen by 30 percent in the last three years. At the same time, the company has increased salaries. The landlord cannot offer a sustainable, environmentally friendly product for 6.52 euros per square meter. Therefore, LEG wants to increase rents „as much as legally possible,“ said the manager.
Real estate companies in Germany are limited in their ability to increase rents in many cities due to government regulations. Rent cannot increase by more than 20 percent within a three-year period. In cities and communities with particularly tight housing markets, there is often a stricter cap of 15 percent. If there is a rent control measure in place, the rent at the start of a lease agreement cannot exceed ten percent of the local comparative rent.
„I cannot reword“
Returns in Düsseldorf, Cologne, and Aachen have decreased.
Like others in the industry, the real estate company had to write down the value of its properties at the end of the first half of the year. As a result, LEG incurred a billion-dollar loss in the first six months, as did Germany’s largest residential real estate company, Vonovia. TAG Immobilien and Grand City Properties also slipped into the loss zone due to a lower valuation of their properties. According to von Lackum, the highest write-downs at LEG occurred in cities with the strongest demand for residential properties, including Düsseldorf, Cologne, and Aachen. In these cities, returns have declined the most in recent years.
In conclusion, there were yields of less than three percent, despite interest rates being at four percent. Therefore, we do not sell properties in prime locations, but rather in cities where higher returns can be achieved,“ he said. This includes cities in the northern Ruhr area such as Gelsenkirchen and Marl, as well as cities in the Sauerland region and the new federal states. In these areas, the company can offer a higher interest rate.
Tiefpunkt vor 12 Monaten
LEG plans to sell a total of 5000 apartments, with 750 changing ownership in the first half of the year. The sold property portfolios are relatively small, according to von Lackum. Buyers include smaller private companies and some professional market participants. Currently, there is no trading of large portfolios in the market. LEG is not under pressure to sell apartments.
Meanwhile, according to the CEO of LEG, the sentiment in the residential real estate market has slightly improved. „We saw the lowest point 12 months ago when it was unclear how Germany would get through the winter,“ explained von Lackum. The concerns were enormous. It took some time for certain investors to understand that LEG did not have to refinance all their loans on day one due to their maturity profiles. The high demand and lack of new construction will also contribute to a stabilization of values in the near future.