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What is the State of the Real Estate Industry, Ms. Wärntges?

An Interview with the Chairwoman of the Management Board of DIC Asset

The commercial real estate market is facing major challenges. The traditional office is being challenged by the growing trend of home offices, the growing online trade is endangering retailers and at the same time requires new logistical solutions, construction costs as well as interest rates are rising, and above all, there are the big issues of sustainability and ESG. We talked about this with Sonja Wärntges, CEO of the listed commercial real estate company DIC Asset AG, based in Frankfurt am Main. DIC manages around 349 properties from nine locations in Germany, and the real estate assets of the listed group amount to around EUR 13.8 billion.


“Being able to work mobile is a real achievement – flexibility is good and timely. But I never believed in the trend away from the office.”

– Sonja Wärntges

SKYLINE ATLAS: Hello Ms. Wärntges, nice of you to take the time for our interview today. You have been managing the German real estate company DIC Asset AG since 2013 and have also led it very successfully through the Corona crisis. In your opinion, what were the biggest challenges in the past two years?

Sonja Wärntges: Corona was completely unforeseeable as an external shock for any company and for the economy, politics and society as a whole, and to that extent it was impossible to be explicitly prepared for this situation. But of course, anyone who is in close contact with their customers and has built up an agile organization has an advantage in such a situation. DIC is characterized by both of these things. And that has carried us well and successfully through this period. Right from the start, we were in close contact with the tenants in the retail and hotel sectors who were particularly affected. Where necessary, we worked together to find solutions that were acceptable to all concerned. The only major customer we lost as a tenant was Kaufhof-Karstadt in Bremen, but we were able to work out a good follow-up solution within a few weeks and re-let the space to a furniture store. In the meantime, Opti-Wohnwelt has long since opened its downtown branch there. In abstract terms, the biggest challenge was to create an agile organization. We did this systematically and successfully in the years before, independently of Corona. This enabled us to get through this crisis successfully without any major dents, and we did not let the nervousness and the many speculations about the end of office jobs and the like distract us from a factual, strategic view of the market and business.

SKYLINE ATLAS: Let’s talk about the home office trend. Most companies have embraced mobile working during the pandemic and now leave it up to your employees whether you come into the office or work from home. Will there be less need for office space as a result, or will it just change?

Sonja Wärntges: There has been a lot of talk about the new freedom and independence of working from home. Flexibility is good and timely. Being able to work on a mobile basis is a real achievement. But the charm of working from home all the time is quickly fading. For many people, coming to the office, meeting and working with colleagues is far more than a chore. It is an integral part of their life rhythm and social life. People don’t want to do without this permanently and shift completely to digital platforms, even though it’s a good and groundbreaking experience to know that many things can also be done digitally – at least temporarily. But I never believed in the trend away from the office. That’s what I’ve always said, and I’m now clearly confirmed in that. However, the office of tomorrow will not simply continue to look exactly like the office of yesterday. Digitization and the changing expectations of younger generations, hygiene requirements and lessons learned from the pandemic – all these factors have an influence on the design and furnishings, and in some cases also on the location of office properties. In other words, there is a lot of momentum in this field. If you want to be an attractive employer, you have to offer an appealing working environment not only in terms of content, but also in terms of design and space. And for us as an office property provider, this means that there is music in the market, our customers are looking for and want advice, want to see showcases, and for us these are great opportunities in an intact market!


SKYLINE ATLAS: The Corona pandemic also had an impact on our city centers. The terms vacancy and impending inner-city death are heard more and more frequently. Can’t this also be an opportunity for city centers with more multifunctionality and quality of stay?

Sonja Wärntges: Taken up correctly, it can be just that: an opportunity for urban development and urban design. But it has to be approached consciously. Because, of course, lifestyles, real estate prices, purchasing and mobility behavior are also changing the demands on urban neighborhoods and individual buildings. Multifunctionality – we often talk more about mixed use – is definitely an approach that is gaining a lot of importance. The mix of retail and logistics, of office, residential, gastronomy and leisure is coming strongly to the fore. Connectivity – not only digital but also social and between modes of transport – bicycle, car, public transport, individual transport, messenger and courier services – must be taken into account when planning and equipping buildings and in urban planning. Anyone who does not want to risk the desolation of inner cities must approach and implement such holistic approaches – as an urban planner, as an investor, as a real estate and facility manager.


From left: Jakob Schickedanz, Dean Vukovic (both SKYLINE ATLAS), Sonja Wärntges

SKYLINE ATLAS: You repeatedly criticize the lack of transparency and general standards with regard to the topic of sustainability in the real estate sector. In addition to existing ESG incentives, does Germany need stronger regulations and laws from policymakers to create more clarity for a sustainable real estate industry?

Sonja Wärntges: You certainly don’t need a legal requirement for everything and anything. In principle, openness to technology is a better way than legislating concrete solutions for every detailed topic. But we need clarity about the goals. And generalities are not enough. We need to be specific. Clear targets, clear timeframes and milestones. At the moment, the EU taxonomy still lacks this considerably in our field, the building sector. And that creates uncertainty for investors and users alike. What we can do, we do: On the one hand, we are actively contributing our expertise to make clear what we need, what is lacking, and what realistic goals and paths might be. And on the other hand, we are leading the way in our own portfolio.

SKYLINE ATLAS: Our interview today takes place in the new Global Tower, the former Commerzbank Tower. GEG, a subsidiary of DIC, has extensively revitalized this building and equipped it with modern office space. With a view to sustainability, will there be more modernization of existing buildings in the future?

Sonja Wärntges: The Global Tower is indeed not only a kind of landmark in Frankfurt’s high-rise landscape, but also a good example of the approach of revitalization towards an ultra-modern, contemporary building with appropriate interior design of the working environments and technical upgrading towards digital and air-conditioning efficiency. To be honest, however, your question cannot be answered in one direction or the other, because it depends on the initial situation and the potential of each building. But it is true that the demolition and recycling of existing buildings must also be considered as part of a holistic approach and resource balance. And of course the same applies to new buildings. The construction phase, the production and transport of building materials, all this is and must be part of the life cycle assessment of a building. And that’s why it’s important to consider existing buildings and refurbishments as alternatives before rashly deciding that “new construction is better than refurbishment. But it is also clear that both are always needed in an overall economic analysis.


The Global Tower

SKYLINE ATLAS: Your goal is to increase the proportion of so-called “green buildings” in DIC‘s own portfolio to 20 percent by the end of 2023. What exactly do you mean by the term “green building“?

Sonja Wärntges: First of all, we haven’t just been on the road to comprehensive sustainability since yesterday, but we started – we call it – our ESG journey more than 10 years ago with the strategic investment of the topic of sustainability and the introduction of corresponding targets and reports. And our claim in this field is quite clear – not to be a follower but best in class! For example, we have set ourselves the goal of reducing CO2 emissions in our existing properties, i.e. in our commercial portfolio, by 40% by 2030. And as you said, we want to increase the share of green buildings in our own portfolio to at least 20% by 2023. The important thing here is that there are clear benchmarks and criteria for this, which we explain and disclose in detail in our Sustainability Report.

SKYLINE ATLAS: The European Central Bank has announced that it will now gradually raise interest rates in response to inflation. In addition, the construction industry is struggling with material shortages and rising construction costs. How great is the uncertainty in the real estate industry?

Sonja Wärntges: No greater and no less than in other sectors. The fact that we are heading for a turnaround in interest rates comes as no surprise. That this will be a major change after many years of extremely low real interest rates and thus very attractive financing conditions is just as clear. And the fact that high volatility, as we are currently seeing with massive short-term interest rate swings, can also bring one or the other temporary dislocation is a phenomenon in a readjusting market. As a forward-looking management, you adjust to such developments in the best possible way. Nevertheless, there will certainly be one or two developers and investors who will not be able to cope with this so easily. In overall economic terms, however, the weakness of one can be the opportunity of others. The material bottlenecks and global turbulence were not foreseeable in the severity that has occurred. In this respect, it affects the market, but it affects everyone. It delays projects, it drives up prices, but it does not distort competition because no one can completely avoid it. Those who act with foresight and have good risk management will also deal with these developments professionally. But there’s no denying that it’s unpleasant and makes orderly planning and execution of projects much more difficult for the time being. Everyone suffers from this, and it creates uncertainty and resulting hesitation.

Current developments are making the planning and implementation of projects much more difficult, there is no denying that.

– Sonja Wärntges

SKYLINE ATLAS: No new high-rise has been announced for Frankfurt since the Corona pandemic. The new high-rise master plan is also to designate fewer sites. Is the big high-rise boom in the Main metropolis over?

Sonja Wärntges: Corona has changed the framework conditions on the office property market and, in particular, the start of the Ukraine war has created a new mixed situation with multi-layered uncertainties. This climate of uncertainty is currently shaping the market, and for the time being it is impossible to predict how quickly more predictable conditions will return. The mix of weaker economic growth and the impact of reduced growth expectations on the office markets, the current interest rate environment with rising interest rates and higher financing costs, high inflation as a short-term effect that was not only expected at the beginning, further increases in construction and material costs and postponement of completion times for construction projects form a complex mix. This does not remain without effect on investors and developers and makes them cautious.

Of course, high-rise projects will continue to be realized in the future, but for all stakeholders, the current time is not a good time to initiate and tackle new high-rise projects. As far as planning and construction are concerned, a high-rise project is always a look several years into the future – and as far as the amortization of the investment is concerned, a look over decades. In particular, the rising and currently incalculable construction costs are a very high uncertainty factor. In addition, high-rise projects in the office segment generally require a certain level of pre-letting in order to be implemented – and the current situation with uncertain expectations makes it difficult to agree pre-letting with sufficient space and profitable rents.

However, one trend is clearly emerging: instead of a concentration on classic office towers, we will see a stronger mix of uses in the future, comprising offices, apartments, restaurants and also hotel use within building complexes. This is in line with the current trend toward neighborhoods or neighborhood developments – the future is likely to lie in such hybrid towers and mixed-use neighborhoods, also for reasons of acceptance. To return to the initial question as to whether the big high-rise boom in the Main metropolis is over. According to the planning department, a total of around 18 high-rise buildings are currently being planned or built, so the pipeline is currently well filled. Initiating another project as a developer in the current environment is likely to be an increased risk for competitive reasons.


SKYLINE ATLAS: The Frankfurt housing market is known to be overheated and a bursting of the bubble can no longer be ruled out. In this context, do we need to think more boldly about converting office towers into high-rise residential buildings? And would that even provide the necessary relief on the market?

Sonja Wärntges: In sub-segments, such projects might work, but a sustainable relaxation of the housing market will not be achieved by converting office towers into residential towers. To ease the situation, rental apartments would have to be built – in reality, however, residential towers in central locations tend to serve international investors as capital investments. In particular, affordable and also larger apartments, which are not only aimed at one- and two-person households, must be built on the market. However, the conversion of office towers into residential towers does not lend itself to this. Specialized forms of use such as micro-apartments, temporary living, co-living, service apartments and similar, but not classic, larger and inexpensive rental apartments are conceivable. Also, the sharply rising costs of construction and materials, as well as the necessary consideration and implementation of ESG aspects, would result in very high rents for subsequent residential use. Added to this are the ancillary costs, which are usually high for such properties. In short, this approach is not suitable for a sustainable easing of tension on the housing market; instead, traditional multi-story residential construction must be significantly strengthened.


From left: Dean Vukovic (SKYLINE ATLAS), Sonja Wärntges, Nina Brandenburger, Peer Schlinkmann (DIC Asset)

SKYLINE ATLAS: Finally: What are your forecasts for the Frankfurt real estate market and can the Main metropolis maintain its outstanding position as an international investment location?

Sonja Wärntges: Frankfurt is the most international city in Germany and has high economic power. The internationality is also underpinned by a recent increase in activity by international investors. These fundamental conditions are intact, and the uncertainties arising from the current geopolitical and macroeconomic situation do not change these fundamentally favorable conditions. Overall, the real estate market in the office segment has proven resilient during the pandemic. This also underpins the safe haven argument for the future. Based on a slightly positive office employment forecast, the outlook for Frankfurt as an office location is positive. The broadly diversified sector structure of the economy also provides a solid basis for the office leasing market. ESG-compliant core projects in particular are in high demand among investors. The trend is very likely to continue or even strengthen further.

SKYLINE ATLAS: A great closing!  Thank you very much for the interview.


From Left: Dean Vukovic, Sonja Wärntges, Jakob Schickedanz

About Sonja Wärngtes

Sonja Wärntges is in her tenth year on the Management Board of DIC Asset AG. Initially, she headed the company’s finance department as Chief Financial Officer. Since October 2017, she has also been Chairwoman of the Board of Directors of DIC, while retaining the finance department. DIC Asset AG has been listed on the SDAX since June 2006 and is one of the few listed companies led by a woman in the DAX family. Sonja Wärntges is the longest-standing woman at the helm of a DAX company. Under her leadership, DIC has grown into new dimensions – currently with managed real estate assets of EUR 13.8 billion and a market capitalization above EUR 1 billion. Before joining DIC Asset AG, Sonja Wärntges held management positions at the C&A Group, among others. She started her professional career at the auditing companies Ernst & Young and Price Waterhouse. Ms. Wärntges holds a degree in economics and lives in Frankfurt and Düsseldorf. In her spare time, she and her husband engage in ballroom dancing at a professional level.


Sonja Wärntges