As we leave behind a strong first half of 2022, preliminary economic data points to a more dismal outlook with increasing downside risks. Uncertainty surrounding inflation, the worsening of households’ income purchasing power, continuous surge on energy prices, construction costs and an aggressive ECB Policy on interest rates (+ 75 basis points on September 8th) are just some of the challenges investors and occupiers must face. Despite this, preliminary indicators on the Italian property sector suggest a still buoyant quarter, confirming the trend from the first half.
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Investments still sound: the foundations for a new cycle are being laid.
The cost of financing is getting hot, repricing is on its way.
Quality strongly rewarded by occupiers and investors. Increasing polarization between prime and non-prime office.
After passing the C-19 stress- test – new challenges ahead for retail sector.
Unstoppable logistics, still the most interesting among investors.
Tourism sector picked up, fundamentals improve, and the hospitality market is vibrant.
Living: a market in the making.
Living: a market in the making.
Five priorities should be factored into strategic real estate and workforce
planning
1
2
4
6
8
Raffaella Pinto
Anna Strazza
Mariacristina Maestri
David Smith
Kenneth McCarthy
Economist Global Research
Head of Occupier Insights
Global Research
Head of Business
Development
Senior Consultant,
Research
Busness Intelligence
Specialist
Industrial & logistics
7
7
10
Multifamily
Data centers
3
Life Sciences
5
Hotels
Self-Storage
Q3 added circa €2.5Bn to totals, bringing the first nine months to circa €9Bn, more than +60% on Q1/Q3 2021. Investors are adapting to the reality of rising rates, reacting differently to the changed scenario but generally remaining active: some investors are continuing to work on deals secured at a different pricing level, others are waiting for price discovery while still others have already moved their strategies along the risk curve, tuning to a more value add / opportunistic approach.
The yield on the Italian 10-year BTP rose to 4.6% at the end of September (for the first time since 2012) from 3.2% at the beginning of July, far surpassing prime property yields for the major assets classes; so a repricing in a short term is expected to continue to attract capital in the sector. Reflecting the new “market cycle”, Q3 property yields marked an increase by 25-50 bps on Q2, according to the different asset classes.
Still robust demand driving rents in Q3, +3% Q/Q at €680 sqm/yr in Milan and stable in Rome at €525 sqm/yr. Q3 Investment at €1.4Bn, more than +70% Q/Q for a year to date total of circa €3.4Bn. Quarterly yield expansion at +25 bps, standing at 3.25% for prime office in Milan and 3.50% in Rome.
Robust fundamentals drove quarterly take-up around 100,000 sqm in Milan and circa 40,000 sqm in Rome, replicating record level for YTD numbers in Milan, circa 360,000 sqm (above the LTA).
OFFICE
RETAIL
2021 will be the year of sorting out the impact of remote working on occupancy needs. Expect a more agile work approach requiring a smaller footprint. However, after a year of retrenching, occupiers will start to make longer term commitments and the volume of leasing activity will pick up materially in the second half of 2021.
The return of domestic and international tourists over the summer improved leasing market conditions driving up rents in the major luxury locations such as Milan and Venice: Via Montenapoleone +3.5% Q/Q at €15,000 sqm/yr and Calle San Moisè +7% Q/Q at €7,500 sqm/yr. Other prime high streets remaining stable. Shopping centre confirmed rental values of Q2, €900 sqm/yr with stable trend over the last years; investment restrained, with prime yields for high streets (3.25%) and shopping centres (6.10%) increased by 25 bps.
Occupiers and investors continue to fuel demand, reflected in the strong numbers of Q3: ca 600,000 sqm leased (+48% on Q3 2021) and €650Mn invested. YTD volumes show record levels with take-up, circa 2.1Mn sqm (+ 28% on Q3 2021), and investment, circa €2.5Bn, +40% on 2021. Despite the macroeconomic situation, that is beginning to reflect on the yields, which have moved out for the first time since late 2012 by 25-50 bps on previous quarter, we still see appetite and liquidity to be deployed into the sector.
Demand from investors increased and, although core assets are few, there are opportunities to enter and expand the current supply. Quarterly investment stood above €200Mn with some outstanding preliminary deals signed (W Hotel in Rome) and YTD volume reaching €1Bn, +35% on 2021.
The office faces headwinds but it will recover.
Investors continue to strengthen their position on the market, with circa €200Mn deployed in the quarter, a slight increase on Q2: YTD at circa €700Mn, +60% on 2021. The most relevant acquisitions involved Hines and Vastint, the first expanding its PRS platform and the second launching the first residential development in Italy (Segrate Milan).
In a post-pandemic environment, employers will offer a variety of locations and experiences to support convenience, functionality and wellbeing—and the focus will be on seamlessly bringing the various work locations together.
This sector entered 2020 already strong. While it was certainly challenged in some ways by the pandemic, in many other ways, the pandemic supercharged it. The momentum is only expected to continue.
Industrial and logistics stay in overdrive.
If data is the new oil, then data centers are the refineries. Demand remains high with little sign of slowing anytime soon.
Data centers remain in demand.
Investors continue to strengthen their position on the market, with circa €200Mn deployed in the quarter, a slight increase on Q2: YTD at circa €700Mn, +60% on 2021. The most relevant acquisitions involved Hines and Vastint, the first expanding its PRS platform and the second launching the first residential development in Italy (Segrate Milan).
Short-term pain eases into a healthy long-term gain. Housing cannot go virtual and various markets globally have maintained positive metrics throughout the crisis.
Multifamily brings multi-options.
1. Shifting to a greater emphasis on flexibility. For example, taking more space or temporarily reducing space, as needed.
2. Preparing for a different type of workplace. It’s no longer just about rows of desks—it’s about space as an enabler. What is the optimal configuration?
3. Finding the right balance. It’s not just about giving employees flexibility over when, where and how to work—rather, it will take active planning to balance employee preferences with company goals and costs.
4. Building and sustaining culture in a hybrid model. New models bring new challenges.
5. Understanding your employees’ unique needs. Determine how space enables people to do their best and what the different requirements are based on mental or physical differences.
Retail has clearly been challenged; closed stores mean no sales. Reinvigoration will be shaped by concepts that are either hyper-convenient or that offer a unique, destination worthy experience.
Retail suffers.
This sector has been given more attention than ever before, and demographic forces will keep it at the top of the agenda.
Life Sciences is white hot.
Travel restrictions have hurt hospitality, but once they ease, occupancy will eventually return. Indeed, structural changes such as growing incomes and the ongoing shift to an experience economy support the sector's long-term prospects, underpinned by a lack of virtual substitutes for hotel accommodation.
Hotels are down, but they aren’t checking out.
With urbanization on the rise, this sector is looking strong based on demographic shifts—for example, people renting longer before purchasing a first home and needing more storage, or people moving to cities, exchanging larger living spaces with smaller urban dwellings, and looking for more storage.
Self-Storage locked in.
Q3 | PRELIMINARY PROPERTY MARKET OVERVIEW
ITALY: 7 TAKEAWAYS
Learned
What we've
Francesca Negroni
Associate Business Intelligence
Analyst
Retail High Street
Gwendolyn Fais
Research
Consultant
Besjana Nikoci
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Marketing Specialist
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Carla Nasini
Investors continue to strengthen their position on the market, with circa €250Mn deployed in the quarter, a sharp increase on Q2: YTD at more than €800Mn, more than double on 2021. The most relevant acquisitions involved Hines and Vastint, the first expanding its PRS platform and the second launching the first residential development in Italy (Segrate Milan).
