Deutsche Wohnen is buying residential rival LEG Immobilien, creating a €17bn portfolio.

The merger of the two companies has been recommended by LEG to its shareholders.

Around 90% of the combined portfolio of 250,000 residential units will be in core-plus and core regions.

Listed on Deutsche Börse’s MDAX, Berlin-based Deutsche Wohnen currently holds 144,000 units, of which 141,900 are residential and 2,100 are commercial.

LEG, meanwhile, owns 110,000 rented residential assets.

Thomas Hegel, chief executive at the Dusseldorf-based company, said: “The combination is the next logical step as both companies pursue the same business philosophy and complement each other regionally very well.

“This creates a strong base for a successful joint future. We are convinced that, under a single roof, we will generate significant value-added for shareholders, employees and our tenants.”

Two members of the current LEG board, Thomas Hegel and Eckhard Schultz, will become members of the Deutsche Wohnen board, while LEG chief executive Hegel will become deputy chief executive at Deutsche Wohnen.

Deutsche Wohnen this year failed in its attempt to take over Austria’s Conwert, with shareholders in the latter rejecting the offer.

Deutsche Wohnen bought GSW Immobilien via a public takeover in 2013.

The deal created a merged entity managing a €8.5bn property portfolio.

The German residential sector is driving growth in the country’s listed sector, which had a market cap of €48bn in August, delegates at the European Public Real Estate Association’s (EPRA) annual conference in Berlin heard this month.

The cash flow on offer from German residential property makes the sector a “good hiding place”, with potential for growth, PGGM’s head of listed real estate Hans Op’t Veld said.

Following a period of significant German residential trading, the time of the “mega portfolio” is now over, Peter Barkow, founder of Barkow Consulting, said.

“Replicating the growth story of the German residential sector on the commercial side will be almost impossible,” he said. “I doubt it would happen.”

The recent inclusion of Vonovia, formerly Deutsche Annington, in the DAX30 was the first entrant to the index by a listed property company.