Investor insights: An overview of the Italian real estate market

23 Mar 2018
Investor insights: An overview of the Italian real estate market

Italy’s real estate market is thriving. In 2017, the real estate market recorded an impressive 18% growth. Supported by the ongoing strength of the Eurozone, the recovery of the Italian economy slowly gained pace throughout the year. Findings from CBRE’s Europe 2018 Real Estate Market Outlook show that economic indicators continue to improve and have a positive effect on the real estate market. Italy is seeing surprisingly high levels of consumer confidence after the results of recent elections. We continue to see positive macroeconomic trends in the first quarter of 2018. And these trends are reflected in the sentiment of real estate investors.

In Italy’s investment market, foreign investors remain the majority, with 79% of investors being foreign. Subsectors that mainly drive the Italian real estate market are Office, Retail and Industrial & Logistics. However, other subsectors such as Hospitality, Student housing and Care homes are also showing great prospects.

Office property market

According to a report by Crushman & Wakefield, the Office property market remains the most active within the real estate market. It is expected that this part of the market will continue to drive investments throughout this year, as has been the trend in previous years. Transaction volumes have recorded a 70% increase from 2015 to 2017.

Foreign investors have dominated the Italian investment market in past years – representing 73% of the 2017 investment volume. The levels of interest both domestic and foreign investors show in Milan confirm the northern Italian city continues to evolve and can compete with large European and capital cities.

High value properties are most desired, though hardest to come by. Factors such as scarcity, rising prices and decreasing yields will lead investors to look for alternative opportunities, especially when there is the prospect of achieving higher returns. As a result, Italy has recorded an increase in investments in alternative secondary locations.

Retail property market

The Retail property market covered circa 20% of the overall investments in real estate, with foreign investors playing a dominant part (80% in 2017, 75% in 2016). The lion’s share of investors originate from the UK, Germany, France and US. Among domestic investors, have SGRs and private investors have been the most active.

Offering and transaction of high value properties has been low. As a result, a strong demand for retail property investments is focusing on core plus opportunities and off market deals - especially for core high street property and single asset transactions, which represent some 53% of the market.

Industrial & Logistics property market

In 2017, the logistics sector registered the highest volume of the last 10 years. Portfolio deals have confirmed their important role in the market (which represented the 76% of total volumes in 2017).

The limited availability of high value properties is creating competition. This is reflected both in a yields’ compression and in the increase of new ways of investing: pure developers and institutional investors are more involved in forward funding and forward purchase. We even expect to see JV’s in the near future.

The evolution of the logistics market and a dynamic occupier market, driven by the presence of primary and international companies, continue to attract the attention of foreign investors.

We foresee growth in this sector as new foreign investors are increasingly showing interest in the Italian property market. Especially the Northern regions are in high demand and worth keeping a close eye on.

Industry forecast

2017 showed a 22% year on year growth in investment activity in property from both local institutional investors (mainly insurance and pension funds), and foreign investors. We expect this trend to continue through 2018. We also expect to see growth in opportunistic and value-add investments, in response to investor search for greater returns. 

Despite gradually increasing restrictions on monetary policy in Europe, we expect increasing interest in the Italian real estate industry. Among the asset classes, 2017 has been a record year for property markets once considered as a niche. Hotels saw a 12% increase compared to 2016, and the industrial & logistics property market almost double compared to last year. In 2018 this trend will continue, especially in industrial & logistics property.

We also believe the weight of niche asset classes considered will continue to grow. Real estate for healthcare (including RSA, hospitals, clinics etc.) accounted for approximately Euro 600m of investments; a large increase compared to 2016. We expect to see more growth in this area in the near future. 

Article by Francesco Dori, Partner at Studio Alfuor & Associati, member of HLB's Real Estate Group. Contact Francesco on This email address is being protected from spambots. You need JavaScript enabled to view it.

 

 

 

 

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