HOSPITALITY MARKET OVERVIEW, ITALY
H1 2024
A Cushman & Wakefield publication
01
ECONOMY
02
OFFICES
03
RETAIL
04
INDUSTRIAL & LogIsticS
05
HOSPITALITY
07
INVESTMENT
08
09
SUSTAINABILITY
AGENDA
06
LIVING
Trend & Outlook
In the first half of 2024, Italy's economy exhibited signs of cautious optimism which led to improving forecast for the year end. GDP growth was positive in 2023, with a 0.9% increase and a consistent 0.3% growth in the first quarter of 2024, setting a trajectory for a 1% annual increase. The labor market remained strong, with a slight increase in employment in the early months, likely to result in slightly less than 7.0% unemployment rate for the year end. The strengthening of the labor market combined with an increase in real wages are supporting private consumption, leading to a projected growth in household consumption of 0.4% in 2024. Inflation rate has been subdued, with a 0.8% reading in May: a gradual return to inflation rates closer to the ECB targets is anticipated, leading to a sharp deceleration in the household spending deflator to 1.7% in 2024, sharply down from 5.2% in 2023. Despite wage growth consolidation is expected to rise in the following months, 2025 inflation trend will show a moderate increase, but would remain aligned to the European Central Bank's (ECB) 2% target. In June, the ECB made a significant decision to cut interest rates for the first time since 2022. This strategic move resulted in a reduction of government bond yields. Importantly, the yield spread between Italian real estate and the Italian 10-year bond has returned to positive territory. This shift has fostered renewed optimism among real estate investors, signaling a positive outlook for the property market. Overall, the forecast scenario remains characterized by uncertainty in the international framework, particularly due to ongoing geopolitical tensions. However, the economic forecast for Italy in the first half of 2024 offers a guardedly positive view, anticipating moderate expansion and a steady macroeconomic climate.
GDP
PRIVATE CONSUMPTION
UNEMPLOYMENT RATE
10YRS GOV. BOND YIELD
INFLATION
INDUSTRIAL PRODCUTION
+1.0%
+6.9%
+1.7%
+0.4%
3.84%
-1.3%
Italian bond yields increased standing at ca 4.4% as tightening policy continues to be in place. After peaking in the first quarter of 2023, the Italy-Germany 10-year bond spread is forecasted to converge to a longer-term equilibrium just above 1% by 2024. Rising interest rates are starting to weigh on firms’ physical capital investments as evidenced by lower capital goods production.
Against a backdrop of high inflation (7.8%), the Portuguese economy still recorded a 6.7% increase in GDP in 2022, the highest in the European Union, largely thanks to the positive performance of private consumption (+5.8%) and exports (+17.3%).
Q1 20224
2024
source: Moody's (July 10th 2024), ISTAT, Bank of Italy
Click over to view the notes
10YR GOV. BOND YELD
MAY 2024
INDUSTRIAL PRODUCTION
Economic Forecasts
2022 / 2024
Short-term economic forecasts point to a slowdown of activity in the Portuguese economy, which, according to Moody's, is set to grow 1.3% in 2023, recovering to 2.8% in 2024. Against the backdrop of the prevailing strong global uncertainty, this outlook is driven by the expected continuation of high energy prices, reducing spending power, more difficult access to finance and a weakening of external demand; with a gradual reversal forecast to occur from the second half of this year.
EXPORTS
+1.3% / +2.8%
+0.8% / +6.6%
+5.2% / +2.4%
+0.4% / +1.8%
+3.8% / +1.2%
+6.6% / +6.2%
A steady reduction in inflation across Europe, will allow the European Central Bank's medium-term objective of 2% to be reached by 2025, which has justified the current monetary policy normalisation process and repeated interest rate hikes.
Thus, in 2023, Moody’s foresees moderate private consumption, a deferment of corporate investment and a slowdown in exports, with only the latter not forecast to recover in 2024.
Source: Moody's (February 2023)
MILAN
Italy
Milan
TAKE-UP
NEW COMPLETIONS
AVERAGE DEAL SIZE
UNDER CONSTRUCTION
VACANCY RATE
173,000 sq.m (+33%)
1,230 sq.m (-19%)
10.4%
147,000 sq.m
670,000 sq.m
Note: variations refer to H1 2024 on H1 2023.
(New/ Refurbishment)
(Speculative and Pre-let)
AVERAGE SIZE
Take-up by semester and average deal size
In the first semester of the year, the Milan occupier market has registered an absorption of 173,000 sqm, in line with H1 2023 and the half-year average of the last 10 years. On top of the leased spaces, there are further 9,000 sqm of sub-leased space bringing the total absorption for H1 to 182,000 sqm. Occupiers’ decision-making process is increasingly driven by accessibility, infrastructures (retail, leisure, hospitality, public spaces) and, above all, by sustainability. Occupiers and investors acknowledge that respecting ESG criteria and adopting green policies is not only a matter of ethics, but also an advantage to be more competitive while aligning to new regulations and standards.
Source: Cushman & Wakefield
Main transactions
Note: variations refer to H1 2023 on H1 2022
“1.3 million sqm of new and refurbished office (Under construction and Potential) expected by 2027. The volume of under construction projects, with circa 670,000 sqm, recorded a decrease of 26% compared to the end of 2023. Of this volume, 42% represent pre-lease spaces, while 58% will be available on the market. On top of these, there will be 625,000sqm of potential developments” “Circa 146,000 sqm have been completed throughout the first semester (between New and Refurbishment) – of which 33% pre-let.”
Main new completions
Vacancy rate by zone
Main projects under construction and potential pipeline
Sustainability and ESG are becoming essential in the real estate sector, especially in light of compliance with European directives on sustainable building. Within urban regeneration, developers and investors are increasingly integrating sustainable practices into ESG criteria, not only as an ethical choice, but also, and above all, as a crucial strategy to remain competitive in the market in the long term.
Greater
Lisbon
Main projects under construction
Take up H1 23: 52,000 sqm Prime Rent: 700 €/sqm/year Prime Yield: 4.00% Pipeline UC 2023/2026: 245,000 sqm - pre-let: 31%
Take up H1 23: 10,000 sqm Prime Rent: 530 €/sqm/year Prime Yield: 4.50% Pipeline UC 2023/2026: 55,000 sqm - pre-let: 96%
Take up H1 23: 49,000 sqm Prime Rent: 470 €/sqm/year Prime Yield: 5.00% Pipeline UC 2023/2026: 256,000 sqm - pre-let: 39%
Take up H1 23: 39,000 sqm Prime Rent: 350 €/sqm/year Prime Yield: 6.00 % Pipeline UC 2023/2026: 349,000 sqm - pre-let: 28%
Take up H1 23: 23,000 sqm Prime Rent: 250 €/sqm/year Prime Yield: 6.50% Pipeline UC 2023/2026: 149,000 sqm - pre-let: 63%
CBD
CENTRE
SEMICENTRE
PERIPHERY
HINTERLAND
Click on
MIND Pipeline UC+Potential 2023-2026: 157,000 sqm CITY LIFE DISTRICT Pipeline UC+Potential 2023-2026: 85,000 sqm
SCALO FARINI Pipeline UC+Potential 2023-2026: 123,000 sqm PORTA NUOVA Pipeline UC+Potential 2023-2026: 244,000 sqm
SCALO DI PORTA ROMANA Pipeline UC+Potential 2023-2026: 252,000 sqm
SANTA GIULIA Pipeline UC+Potentia 2023-2026: - sqm
CBD Take up 24 H1: 70,100 sqm Prime Rent: € 700/sq.m/yr Prime Yield: 4.25% Pipeline UC 2024/2027: 159,000 sqm pre-let:33%
CENTRE Take up 24 H1: 11,250 sqm Prime Rent: 540 €/sqm/year Prime Yield: 5.00% Pipeline UC 2024/2027: 57,000 sqm pre-let: 95%
SEMICENTRE Take up 24 H1: 20,600 sqm Prime Rent: 480 €/sqm/year Prime Yield: 5.50% Pipeline UC 2024/2027: 230,000 sqm pre-let: 62%
PERIPHERY Take up 24 H1: 35,900 sqm Prime Rent: 350 €/sqm/year Prime Yield: 6.75 % Pipeline UC 2024/2027: 200,000 sqm pre-let: 19%
HINTERLAND Take up 24 H1: 35,150 sqm Prime Rent: 250 €/sqm/year Prime Yield: 7.25% Pipeline UC 2024/2027: 24,000 sqm pre-let: -%
MIND
SCALO FARINI
SCALO PTA ROMANA
CITY LIFE DISTRICT
Pipeline UC+Pontial 2024/2027: 72,500 sq.m
Pipeline UC+Potential 2024/27: 103,000 sq.m
Pipeline UC+Potential 2024/2027: 270,000 sq.m
Pipeline UC+Potential 2024/2027: 157,000 sq.m
PORTA NUOVA
Pipeline UC+Potential 2024/2027: 179,000 sq.m
BICOCCA
Pipeline UC+Potential 2024/2027: 46,000 sq.m
Pipeline UC+Potential 2024/2027: 103,000 sq,m
Prime rents
The availability of Grade A Green spaces is still very limited (1.9% in the whole Milanese market) and the competition for these spaces, in particular in CBD and Semi-centre, caused a significant increase in rents, which have generally registered a +20/25% and have reached 700€/sqm/yr in the CBD.
ROME
Rome
UNDER REFURBISHMENT
67,000 sq.m (-56%)
916 sq.m (-56%)
6.9%
66,000 sq.m
202,000 sq.m
Note: variations refer to H1 2024 on H1 2023
(Speculative and pre-let)
The Rome occupier market recorded similar absorption levels in the first two quarters of the year, reaching an absorption of 67,000 sqm in the first semester of the year. However, this represents a 56% decrease compared to the same period last year, which was significantly higher than the 10-year average due to a major pre-let transaction. Considering the size of transactions, 80% by number are for small spaces (<1,000sqm). Occupiers continue to concentrate primarily on the CBD and Greater EUR areas, which have accounted for nearly 60% of the semester's take-up, including the three largest transactions (ranging between 5,000/6,000 sqm). Secondary offices are suffering as occupiers downsize and/or move to Grade A spaces.
“Circa 280,000 sqm of new and refurbished office (under construction and potential) expected by 2027. The volume of under construction projects, with circa 202,000 sqm, recorded an increase of 12% compared to the end of 2023. Of this volume, 58% represent pre-lease spaces, while 42% will be available on the market. On top of these, there will be circa 80,000sqm of potential developments” “Circa 66,000 sqm have been completed throughout the first semester (between New and Refurbishment) – of which 55% pre-let.”
Take-Up 23H1: 23,900 sqm Prime Rent: 550 €/sqm/year Prime Yield: 4.25% Pipeline UC 2023/2025: 43,000 sqm pre-let: 33%
Take-Up 23H1: 36,700 sqm Prime Rent: 380 €/sqm/year Prime Yield: 4.75% Pipeline UC 2023/2025: 107,600 sqm pre-let/EU: 97%
Take-Up 23H1: 4,600 sqm Prime Rent: 280 €/sqm/year Prime Yield: 6.25% Pipeline UC 2023/2025: 15,000 sqm spec: 100%
Take-Up 23H1: 72,700 sqm Prime Rent: 360 €/sqm/year Prime Yield: 5.00% Pipeline UC 2023/2025: 165,000 sqm pre-let: 50%
Take-Up 23H1: 14,600 sqm Prime Rent: 150 €/sqm/year Prime Yield: 9.00% Pipeline UC 2023/2025: 43,000 sqm pre-let: 23%
GREATER EUR
FIUMICINO CORRIDOR Prime Rent: 200 €/sqm/year Prime Yield: 7.75%
TIBURTINA CORRIDOR Prime Rent: 140 €/sqm/year Prime Yield: 8.25%
TUSCOLANA CORRIDOR Prime Rent: 180 €/sqm/year Prime Yield: 7.75%
CBD Take-Up 24 H1: 17,400 sqm Prime Rent: 575 €/sqm/year Prime Yield: 4.75% Pipeline UC 2024/2027: 31,500 sqm pre-let: - %
CENTRE Take-Up 24 H1: 12,200 sqm Prime Rent: 400 €/sqm/year Prime Yield: 5.00% Pipeline UC 2024/2027: 45,000 sqm pre-let/EU: 5 %
SEMICENTRE Take-Up 24 H1: 3,900 sqm Prime Rent: 300 €/sqm/year Prime Yield: 6.75% Pipeline UC 2024/2027 : - sqm spec: -%
GREATER EUR Take-Up 24 H1: 22,670 sqm Prime Rent: 370 €/sqm/year Prime Yield: 5.75% Pipeline UC 2024/2027 : 122,300 sqm pre-let: 57%
PERIPHERY Take-Up 24 H1: 10,760 sqm Prime Rent: 150 €/sqm/year Prime Yield: 9.50% Pipeline UC 2024/2027: 3,000 sqm pre-let: 100 %
TUSCOLANA CORRIDOR
FIUMICINO CORRIDOR
Prime Rent: €200/sq.m/yr Prime Yield: 8.25%
Pipeline UC+Potential 2023-2026: 123,000sqm
Pipeline UC+Potential 2023-2026: 252,000sqm
Prime Rent: €160/sq.m/yr Prime Yield: 8.25%
TIBURTINA
Prime Rent: €140/sq.m/yr Prime Yield: 8.50%
Piepeline UC+Potential 2023-2026: 46,000sqm
Like in the capital, considerable interest in Greater Porto and the quality of new buildings led to an increase in headline rents in most areas.
The market is constrained by a shortage of quality spaces: Grade A green offices (in line with sustainability and ESG criteria) constitute less than 1% of the total availability and this figure rises to 2.2% including Grade A spaces. Consequently, these spaces achieve significantly higher rental rates (+26% over grade B buildings in CBD/Centre) stimulating opportunities for upgrading and refurbishing poor quality spaces to reflect occupiers’ interest in efficient and valuable spaces. In the first semester of the year, prime rents increased in almost all submarkets, with an average rise of 5%, while they remained stable in the CBD at 575 €/sqm/year, where a significant increase had already been recorded in 2023 (+10% for the year), and in the Periphery. (NB: correction in values within the Semi Centre is due to an adjustment of the submarket borders). Moreover, Stock in strategic locations is decreasing due to conversion to hospitality or residential use.
Souce: Cushman & Wakefield
Trends
OCCUPIERS' ACTIVITY STILL POSITIVE
SUSTAINABILITY AND GREEN CERTIFICATIONS
ENVIRONMENT, SOCIAL AND GOVERNANCE (ESG) CRITERIA
RENT STABILISATION
SUSTAINABILITY AND GREEN CERTIFICATION
Corporate demand in both Milan and Rome will continue to be active; in Milan we expect a take-up in line with last year volume (412,000sqm), approx +10-15% compared to the 10-year average (360,000sqm), while Rome will be in line with the 10-year average (of 170,000sqm). Market activity continue to be characterized by the decrease in the average size of transactions (mostly small to medium size) and a decrease in big pre-lease transactions due to the limited Pipeline and to the uncertainty around delivery times for future projects. On the other side, the sub-lease market will grow as a consequence of the reorganization policies of many companies (i.e. banks).
Office spaces are no longer viewed as an area where people exclusively work, but have become spaces to meet, collaborate and share. Larger projects extend their range of services and create both work and leisure experiences.
In Milan, the slowdown in real estate developments will inevitably lead to a reduction in the availability of high-quality spaces, especially in central areas where most demand is concentrated. In this context, an increase in the absorption rate of Grade B spaces is expected, as companies will compromise a central location with a lower quality space. “Location” will continue to be the determining factor for future demand, consequently, an increase in rental value for both prime and secondary spaces in central areas is anticipated. This dynamic reflects a trend already observed in the Rome real estate market, which has historically suffered from a limited availability of quality spaces in the center.
Rent in all areas has stabilised, following a steady period of growth.
Sustainability has become a pivotal element in occupiers' leasing decisions. Companies are increasingly focused on green-certified buildings (LEED and/or BREEAM), as they aim to align their operational spaces with their environmental values and Net-Zero targets. This shift in priorities is not just about corporate image; it's driven by a broader commitment to reducing carbon footprints and promoting environmental stewardship. Consequently, landlords and developers are responding by investing significantly in sustainable renovations and improvements. These upgrades not only enhance the environmental performance of the buildings but also make them more attractive to eco-conscious tenants, thus ensuring higher occupancy rates and potentially higher rents. This trend underscores a growing synergy between environmental responsibility and business strategy in the real estate market.
Occupiers’ activity still positive
Sustainability and Green Certifications
Rental growth against decrease in vacancy for quality spaces
What occupiers want
TOP CRE STRATEGIC DRIVERS
OFFICE COMMUNAL SPACE PROPORTION TO DOUBLE
OFFICE OCCUPANCY LEVEL
COST, TALENT SOURCING / RETENTION AND ESG are the top three strategic drivers for real estate decisions in EMEA. This is not surprising given the elevated uncertainty since mid-2022, as inflation peaked, and interest rates began to rise. Given that cost pressure is the top challenge facing occupiers in 2023 and real estate is typically the second-largest expense category (after talent), CRE executives are looking for ways to thoughtfully reduce spend: reducing floorplans, subleasing space, mothballing underutilized or unused floors, and expanding in lower cost markets. That said, occupiers are willing to spend money on the right investments. This includes buildings that offer sustainability features and green certifications, as well as offices that increase employees’ attendance and engagement; talent attraction and retention is one of the main drivers of the demand as companies want to offer their employees a better workplace and experience than their competitors.
As difficult as the pandemic was on urban cores, any talk of a mass exodus out of Central Business Districts (CBDs) is overblown. They remain the most desirable location for companies’ office headquarters. Two-thirds of occupiers prefer headquarters locations in the CBD (57%) or in emerging creative urban areas (12%). Occupiers are signaling that they intend to remain in urban cores with their major offices. Eighty percent of firms have not considered moving their offices out of the CBD. In Italy, the demand concentrates in the CBD areas, as confirmed by the analysis of the average absorption in the last 10 years, which is equal to 27% of the total in Milan and 20% in Rome.
The targeted amount of communal space within the office has doubled compared to pre-pandemic levels (40-50% vs 20-30%), with majority of occupiers (89%) seeing the office as a place for creativity, innovation and a planned meeting point. Along with increasing communal spaces at their HQs, occupiers are looking at flexible offices and co-working spaces as a solution for an increasingly hybrid workforce.
Most occupiers are at occupancy levels that are below the pre-pandemic levels. Hybrid and remote work schedules have meant that employees are not in the office at the same rate as they had been prior to the pandemic. Among survey respondents, just over half of occupiers indicate that their office space is 31%-60% full on any given day. This will vary greatly by day of the week (Tuesdays are typically the highest and Fridays the lowest), but the weekly average remains below the 60-80% pre-pandemic norm.
CBD REMAINS THE PREFERRED HQ LOCATIONS
ESG IS RISING IN IMPORTANCE
ESG ranks #3 in EMEA (#5 globally and #6 in Americas). Companies’ focus on ESG has accelerated in the past two years. Goals and implementation plans for various ESG components are increasingly seen as essential to organizations’ long-term financial performance, corporate reputation, and ability to attract clients, investment and talent. Two-thirds of CRE executives indicate their firm has ESG goals that they have already begun to implement (42%) or are planning to implement. Companies appreciate the environmental value of incorporating sustainability into workplace designs and portfolio strategies. Accordingly, occupiers are ready to pay a premium to incorporate sustainability into the workplace and their office portfolios. On average, they are willing to pay up to a 22% premium for buildings with green credentials. In Italy corporates tend to lease smaller spaces but of higher quality and pay higher rents for green certified spaces reflecting ESG criteria, such spaces registered a 10-20% increase over other high quality assets without green certifications.
Top takeways
Fit out cost guide
COST, TALENT SOURCING & RETENTION AND ESG AS STRATEGIC DRIVERS
OFFICE COMMUNAL SPACE TO DOUBLE AS COMPANIES SEEK TO FOSTER CREATIVITY, INNOVATION AND COLLABORATION
OFFICE OCCUPANCY REMAINS LOW, DRIVING FURTHER FOOTPRINT REDUCTION
Cost, talent sourcing / retantion and ESG are the top three strategic drivers for real estate decisions in EMEA. This is not surprising given the elevated uncertainty since mid-2022, as inflation peaked, and interest rates began to rise. Given that cost pressure is the top challenge facing occupiers in 2023 and real estate is typically the second-largest expense category (after talent), CRE executives are looking for ways to thoughtfully reduce spend: reducing floorplans, subleasing space, mothballing underutilized or unused floors, and expanding in lower cost markets. That said, occupiers are willing to spend money on the right investments. This includes buildings that offer sustainability features and green certifications, as well as offices that increase employees’ attendance and engagement; talent attraction and retention is one of the main drivers of the demand as companies want to offer their employees a better workplace and experience than their competitors.
As difficult as the pandemic was on urban cores, any talk of a mass exodus out of Central Business Districts (CBDs) is overblown. They remain the most desirable location for companies’ office headquarters. Two-thirds of occupiers prefer headquarters locations in the CBD (57%) or in emerging creative urban areas (12%). Occupiers are signaling that they intend to remain in urban cores with their major offices. Eighty percent of firms have not considered moving their offices out of the CBD.
ESG ranks #3 in EMEA (#5 globally and #6 in Americas). Companies’ focus on ESG has accelerated in the past two years. Goals and implementation plans for various ESG components are increasingly seen as essential to organizations’ long-term financial performance, corporate reputation, and ability to attract clients, investment and talent. Two-thirds of CRE executives indicate their firm has ESG goals that they have already begun to implement (42%) or are planning to implement. Companies appreciate the environmental value of incorporating sustainability into workplace designs and portfolio strategies. Accordingly, occupiers are ready to pay a premium to incorporate sustainability into the workplace and their office portfolios. On average, they are willing to pay up to a 22% premium for buildings with green credentials.
Below, we have summarized the most relevant elements for the Italian market, to find out more link here for the C&W global report
With sustainability targets increasingly becoming the norm, the focus, for many landlords, has been on ensuring their assets are aligned with legislative requirements as well as increasingly meeting tenant expectations, thus future-proofing their assets against obsolescence. In the office sector most, if not all, major companies have adopted some form of hybrid working model as well as more visible practices to foster and promote diversity, equity, and inclusion (DE&I). The role of technology has increased in importance: both as an enabler of change and as a means of measuring its impact. Together, these factors mean that the fitting out of space goes beyond looks, to include how the space contributes to a company’s financial, social, and sustainability goals whilst also reflecting corporate brand and culture. Over the last couple of years costs of energy and materials has risen exponentially. Inflation has proven to be more persistent than many economists originally envisaged, forcing downstream pricing to rise. On top of this sharp increases in fuel costs have increased transport costs adding to pricing all along supply chains. In line with this, fit out costs have risen, though with little change across the proportionate share of cost splits (A/V, furniture, Fit out and professional services). Italy recorded an average increase between 15-20% compared to the 2021/22 values considered in the 2023 Cost Guide, which in some cases is now lessening. Moreover, the issues with material shortage which was linked also to the Superbonus 110% (a maneuver intended to boost the construction industry strongly hit during the pandemic) has also decreased compared to 12/18 months ago and is now in line with normal timescales. For more detailed information, please check out Cushman & Wakefield's Fit out cost Guide [link here]
Average office fit out cost (€ per sq.m)
LOW
MEDIUM
HIGH
- Limited meeting facilities less than 10% of space. - Paint to all walls. - Low specification finishes and carpet throuhout. - Vinyl flooring to cafeterias. - Minimal alterations to air conditioning and ventilation. - Data points to equal desk positions. - Locally procurement furniture workstations.
- Meeting facilities around 10%-20% of space, with part single glazed partitions. - Alterations to less than 25% of ceiling. - Plasterboard ceiling to meeting rooms. - Feature wall finishes to reception and cafeterias. - Medium specification carpet and finishes. - Hard flooring to reception. - Alterations to ariconditioning & ventilation to sult cellurosation. - Multiple data points to each desk position.
- Meeting facilities to over 25% of space, with double glazed partitions. - Alterations to ove 25% of ceiling. - Features & plasterboard ceiling to reception and offices. - High specification carpet. - Bespoke joinery to meetings rooms and offices. - Hard floating to cafeterias and finishes. - Modification to air conditioning/ventilation along with new air- conditioning units. - Additional feature lighting. - Wired data provision (future flexinility). High and and /or imported furniture
Quality space is decreasing rapidly as tenants seek to upgrade; strong competition for prime spaces is leading rents to a futher increase of the coming months especially in strategic locations
"All-in" fit out costs
Fit out cost (€/sq.m)
Reinstatement cost (€/sq.m)
Rome prime rents
Lack of readily available quality offices coupled with tenant demand centered around the seat of Government, is behind the rise in rents within the CBD, while other submarkets confirmed values. (NB correction in values with the Semi Centre is due to an adjustment of the submarket borders) Moreover, Stock in strategic locations is decreasing due to conversion to hospitality or residential use.
CONSUMER CONFIDENCE INDEX
Consumer confidence slightly improved month by month since January, with an increase in June compared to May. Consumption is set to strengthen in the second half of the year, supported by slowing inflation and a solid job market. Notwithstanding the positive climate, consumers’ spending power worsened due to inflation affecting retail sales. Purchases are generally directed towards more convenient formats and traditionally strong sectors such as fashion and electronics are experiencing a period of contraction; food&beverage and health&beauty segments are instead performing well. E-commerce recorded an almost stable growth trend around 2% and is now a faithful ally of physical sales in the strategies of retailers.
98.3
Non-food Retail
+1.9%
Online shopping growth
E-COMMERCE
RETAIL SCHEMES
20,000 sq.m
New Completions
206,000 sq.m
Pipeline 2023-2024
1
3
4
2
Calendar and seasonal effects adjusted deflated; Index base 2015 = 100
Source: INE
In the quarter preceding the survey
Until 2025
Click hover to view the notes
Sources: Moody’s analytics (July 2024) Osservatorio eCommerce B2c Netcomm (May 2023)
13%
Online purchases penetration on total (online + offline) retail spending
June 2024
(+2% since January 2024)
(stable)
E- COMMERCE
At this pivotal moment in retail, the Italian shopping center landscape is experiencing a revitalization phase, akin to other countries. Owners are prioritizing the restyling and reorganization of spaces to create community hubs for customers. Collaboratively, owners and operators are striving to enhance visitor engagement by emphasizing food, beverage, and entertainment experiences within the centers. Additionally, there is a concerted effort to reduce consumption in the ESG domain.
Dados deflacionados e ajustados de efeitos de calendário e da sazonalidade; Índice com base 2015 = 100
Fonte: INE
No trimestre anterior ao inquérito
Até 2024
Retail stock evolution
Source: Cushman & Wakefield * Forecast
Out of town
Schemes
Retail stock evolution | recent opening
The first part of 2024 witnessed the opening of To Dream shopping centre Phase 2 in Turin, with the important presence of Primark. The restyling of the Carrefour shopping centre mall in Limbiate (Milan), which now offers customers a new, modern food court, has also been completed. Between the end of the year and the beginning of 2025, several long-awaited projects are expected to open on the Italian retail scene: Maximall Pompei (Naples), Scalo Milano extension (Milan), Waltherpark (Bolzano), Waterfront Mall (Genoa) and Chorus Life (Bergamo).
Main luxury transactions
In the first half of the year, the luxury sector went through a settlement period with a drop in sales, typical of the descendent phase of the retail market cycle. Retailers’ attention was mainly focused on holiday resorts to follow the segment of customers represented by high-spending tourists, testament to the strong correlation between luxury and hospitality. The transactions closed in the most attractive high streets confirmed the importance of the location. Luxury brands are determined to attain or confirm their presence along the most exclusive shopping destinations in Italy, even entailing a considerable economic effort.
560 (=)
New openings
64%
High Street Retail
45%
F&B
5
Non-random sample of retail demand aggregated by Cushman & Wakefield based on public sources and targeted fieldwork
Demand
Mouse hover to view the notes
Luxuy Market
The mass market segment lived a positive semester, fueled by renewed interest from international brands aiming to enter the Italian market. New entrants have strategically chosen locations for their flagship stores and engaged in extended negotiations with Landlords to secure the best terms. They are injecting fresh energy into the Italian retail market, which is benefiting from the increased foot traffic driven by city trips. Retailers’ expansion plans mainly focus on Milan and Rome, followed by northern cities and foresee new formats to make customers live the experience.
230 (+16)
89%
57%
High street market
The F&B industry is witnessing increased demand for healthier and sustainable food options. Consumers are more conscious of their choices, leading to greater interest in organic, locally sourced, and ethically produced food. Concepts like food delivery services, ghost kitchens, and pop-up restaurants are gaining popularity. These innovations allow restaurants to reach wider audiences and adapt to changing consumer preferences. Historic city centers attract F&B innovations and serve as locations for flagship stores. Smaller cities and capitals are also targeted by expanding businesses.
100 (+71)
90%
56%
F&B market
Main high street transactions
Main F&B transaction
Persistent demand for exclusive spaces along prime high street locations drove the positive trend. Milan, Via Montenapoleone registered a 29% YoY increase, while Rome, Via Condotti showed a YoY growth in the order of 15%. Other cities such as Venice, Florence and Turin maintained stable prime rental values. The OOT market is more constant: prime shopping centres market polarization drove prime rents to a modest growth, while retail parks rental values remained instead stable.
* for unit of 100-200 sqm. Retail values may change depending on positioning along the street and number of shopping windows.
SYNERGIES BETWEEN RETAIL AND HOSPITALITY
LOCATION LOCATION LOCATION
PIVOTAL STRATEGIES FOR APPEALING RETAIL SCHEMES
- Shopping tourism is emerging as a major economic sector, benefiting from enduring synergies between retail and hospitality industries. - Tourists desire holistic experiences that blend shopping with leisure activities, appreciating not only cultural landmarks but also the diverse shopping options cities provide. - The combination of food and hospitality remains strong, especially in luxury settings and major Italian cities.
- The location continues to be a key element in the commercial strategies of brands, especially in the luxury segment. - Brands are willing to make significant economic efforts to secure a location on key streets and this contributes to the steady increase in rents. - Some brands prefer to acquire properties along key streets in the retail landscape as strategic operations in their business plan.
- The high street and out of town (OOT) markets are evolving along parallel paths. - Historic city centers, popular with tourists, are central to the expansion strategies of new international brands. - Shopping centres predominantly feature despecialized brands operating across large stores.
- Renewal and modernization are essential for the future of shopping centers. - Retail schemes are enhancing their green commitment through energy-efficient and cost-saving technologies, thereby improving building efficiency and resilience. - Asset management strategies will be increasingly crucial in attracting investors’ interest to this asset class."
RETAIL DYNAMICS
RETAIL IS BACK IN THE INTEREST OF INVESTORS
- Retail investment doubled at ca. €500M in comparison to the first semester of 2023. - Roma Est transaction represented the first regional shopping centre deal in the last 7-year period. - OOT assets are primarily in the sights of retail investors due to potential significant returns. - Interest in retail investment is gradually improving.
LOCATION. LOCATION. LOCATION.
In 2022, trading activity in Portugal maintained an upward trend, with the export and import of goods recording year-on-year growth of around 20%, against a backdrop of a slowdown in price increases in the final months of the year.
PIPELINE UNDER CONSTRUCTION
PRIME RENT MILAN - ROME
15,100 sq.m
0.9M sq.m
509,000 sq.m
€67 sq.m/yr
(-3.2%)
(BTS/BTO/ Speculative)
(Speculative)
6
Excluding fuel and lubricants
Note: Data refer to the comparison between the first half of 2023 and the first half of 2022.
(+3%)
(+10%)
(-28%)
1,100,000 sq.m
(-25%)
PRIME RENT MILAN & ROME
The total take-up for the first half of the year, at 1.1 million sqm, reflects a decrease of 27% compared to the first semester of 2023, which was the best semester ever alongside the first half of 2022, however it remains consistent with the five-year average. Throughout the semester, the majority of transactions were for spaces between 10,000-25,000 sqm (33% by volume and 43% by number of transactions on the total). Emilia Romagna with Lombardy continue to attract significant demand and remain among the preferred destinations, accounting for 50% of the number of transactions. Alongside Veneto, where the largest transactions of the semester was completed (exceeding 80,000 sqm in size).
Take-up by semester
Source: Cushman & Wakefield; IPI
The share of demand facilitated through speculatively developed space has decreased, as demand for BTS/BTO saw an increase accounting for 59% of half-yearly take-up. The stability of construction costs had a positive impact on development activity and from the beginning of the year the speculative pipeline has been growing Q-on-Q, tripling in volume by the end of 2023 to 900,000 sqm. Considering the limited immediate availability, developers are more confident to start works.
If we consider the last three years of the Logistics occupier market in Italy, it is evident as 3PL, Retailer and e-commerce are confirmed as the most active players. 3PLs have consistently accounted for almost 60% of the square meters leased in the last years, reaching 56% of the volume transacted in the first semster 2024; During the semester, End Users saw an increase in the share of transacted volumes, being more flexible and willing to invest in long-term contracts to obtain better terms. On the other hand, 3PLs are more conservative in expanding, partly due to the strong growth in rents, which drives them to prefer renegotiation over relocation. This helps keep costs low, as existing contracts typically have lower rents than current market rates. Retailers have increased market share in the past three years, accounting for 17% of the half-yearly volume; E-commerce, despite slowing down from 2020, maintains an active demand, as consumers are opting for the convenience of online shopping; Follow the Manufacturing sector, which increased its share year on year, accounting for 5% of the half-yearly volume.
Among the main future supply currently under construction is the development of the second phase of Aquila Capital's project in Azambuja; and the entry into the market of Montepino, which recently reached an agreement with Leroy Merlin to build what will be the largest logistics platform in the country, in Castanheira do Ribatejo.
Take-up by tenant sector
Excluindo combustíveis e lubrificantes
LOGISTICS WAREHOUSE
(>10,000 SQ.M)
€67/sq.m/yr
Big Box Distribution Centers are logistics facilities exceeding 10,000 sqm, primarily used for the storage and distribution of goods. These centers are typically situated on the outer edge of the city, in the proximity of major road junctions, and often close to other transportation hubs (such as road, rail, air, or water networks). Approximately 3-5% of the space is allocated for office use. In some regions, units of this size may not be available; therefore, rents and yields should be adjusted to reflect the characteristics of major logistics facilities in those markets. The typical building coverage ratio is 50%.
Porto
LAST MILE / COURIER LOGISTICS
(5,000 - 15,000 SQ.M)
€110/sq.m/yr
Last Mile/for Courier – units will typically be in the region of 5,000-15,000 sq.m. Ideally located in the city hinterland or in proximity of motorway junctions in the vicinity of major metropolises – within about 20 minutes from the city center. The unit could be used for courier activities and/or for urban distribution of goods. Units may provide cross-docking for transfer of goods between truck and vans; in this case the width of the warehouse should be in the range of 40/50 meters. Units are likely to have ca. 5%-10% office content. The characteristics of this type of assets are: high number of loading bays, floor to ceiling height not necessarily over 7 meters, good maneuvering areas and quantity of parking lots. Typically, the building coverage ratio is 30%.
Future demand will be more driven by End Users
Sustainability and Energy Efficiency
SPACE FLEXIBILITY
End users, in particular from the Manufacturing, Pharmaceutical and Large Distribution sectors, saw an increase in the share of transacted volumes, not only for BTO developments, but also for New Leases, as they are more flexible and willing to invest in long term contracts to obtain better terms. On the other side 3PLs are becoming more conservative and less inclined to expand, which results in less activity. Moreover, since 3PL’s participate in tenders, they must control their direct costs to be competitive. Due to the high rent cost many tenders failed and the final clients remain with original 3PL.
Despite the soft economic outlook, business confidence is expected to improve. However, the risk of volatility remains driven by macroeconomic and geopolitical factors such as trade tensions, inflationary pressures, and political instability. These uncertainties could significantly impact occupier leasing decisions, leading to more cautious and protracted negotiations. Companies might seek shorter lease terms or flexible agreements to mitigate risks.
Sustainability is already a crucial factor in decision-making process. Companies are prioritizing logistics warehouses that integrate sustainable elements, such as solar panels, advanced energy management systems, green certifications like LEED and BREEAM. These sustainable features not only help reducing the environmental footprint but also offer significant savings long-term. By investing in green buildings, companies can enhance their corporate social responsibility profiles, comply with regulatory requirements, and attract eco-conscious clients and partners. Additionally, sustainable practices provide healthier work environments contributing to improve employee well-being and productivity. Overall, sustainability and energy efficiency are becoming fundamental components of modern real estate strategies.
Space flexibility is a critical trend in the real estate market, driven by technological advancements, market fluctuations, and evolving business models. Companies are seeking flexible leasing agreements that adapt to changing operational needs, offering short-term commitments and adjustable space usage. Modular spaces are in high demand for their reconfigurability, allowing businesses to expand or contract quickly. Flexible spaces support new technologies like automation and IoT without costly renovations. This adaptability helps companies manage costs effectively, respond to market changes, and maintain a competitive edge through strategic flexibility and innovation.
Longer negotiation times
Longer negotiation times:
Sustainability and Energy Efficiency:
Tourism
Indicators
Italian tourism maintains its positive trajectory in the first half of 2024, building on the strong rebound witnessed in 2023. Domestic tourism continues to be a driving force, with 81 million overnight stays recorded between January and April 2024, representing a +7% increase compared to the same period in 2023. International tourism shows a more measured pace of growth with 91 million overnight stays recorded between January and April 2024 (Banca d'Italia), +2% compared to the same period in 2023. Air travel demand continues to see a significant rebound, with 79 million passengers arriving at Italian airports in the first five months of 2024, a substantial +13% increase compared to January-May 2023. Interestingly, foreigners account for 67% of these arrivals. Key Performance Indicators for the hotel sector remain positive: ADR reached €210 in the first half of 2024, a +6% increase compared to H1 2023. Similarly, RevPAR reached €142 (+5% Y-o-Y), while occupancy rates held steady at 68%. This continued strong performance in the accommodation sector highlights its resilience and ability to adapt to evolving traveler demands.
DOMESTIC OVERNIGHT STAYS
INTERNATIONAL OVERNIGHT STAYS
REVPAR
ARRIVALS AIRPORT
OCCUPANCY RATE
81M
INTERNATIONAL Overnight Stays JAN-APR 2024
Average ADR
Sources: Bank of Italy, Jan-Apr 2024; Assaeroporti, Jan-May 24; STR June 2024
(+7% on Jan - Apr 2023)
(+2% on Jan - Apr 2023)
(+6% H1 2024 on 2023)
(+5% H1 2024 on H1 2023)
(H1 2024 alligned on H1 2023)
Foreigners 46%
DOMESTIC OVERNIGHT STAYS JAN-APR 2024
91M
ARRIVALS AIRPORT JAN - MAY 2024
79M PASSENGERS
(+13% on Jan - May 2023)
FOREIGN PASSENGERS SHARE
67%
€210
€142
68%
FOREIGN PASSENGER SHARE
AVERAGE ADR
RevPAR index (H1 2024 vs H1 2019)
Continuing the impressive trend from 2023, the Italian hotel sector solidified its position as Europe's second strongest performer in the first half of 2024, shortly after Greece. The average occupancy of Italian hotels during H1 2024 matched the levels in H1 2023, while it was just 1 percentage point below H1 2019. ADR was the key performance driver, increasing by 6% during the first 6 months of 2024, reaching EUR 210. This figure signifies a staggering 49% growth above 2019 levels. Overall, RevPAR increased by 5% in H1 2024 compared to H1 2023, reaching EUR 142 and ranking the second highest in Europe, just after Switzerland.
Hospitality performance index Italy
Source: STR
7
The Short-Term Rental segment attracted 9.8 million overnight stays and 4.1 million guests, in line with the hospitality sector a growth of about 90%, but still below 2019 (4% and 10%, respectively). Total revenue also doubled compared to the previous year and was 14% above 2019, standing at €437 million; and compared to this latter year, RevPAR recovered 17%, to €36.7.
New Supply
The first half of 2024 witnessed a limited number of new openings (rebranding/conversions/renovations/developments), marked by a focus on smaller-scale properties (under 100 rooms) catering to both budget-conscious travelers and those looking for a luxury experience. Among the notable debuts are the Anglo American Hotel Florence (former NH Firenze Anglo American), the Max Brown Missori in Milan (first Sircle Collection’s hotel in Italy) and Radisson Collection Hotel, Roma Antica.
Main openings
Até 2025
Supply will continue to grow in the coming years, with close to 130 projects expected to open by 2025, totalling 11,300 keys mostly 4- and 5-star hotels (30% and 33%, respectively) in the metropolitan areas of Lisbon and Porto.
+51
Hotels opened in 2022
+2,910
New Keys
ROME, attracts tourists from all over the world thanks to its longstanding history and cultural heritage. The Eternal City, has the biggest historical city centre of the world and a multitude of cultural attractions.
29,3M
XX million
63.3%
€158
So far in 2023 the city has seen 10 new openings in the 4 and 5 star category, for a total of 1,315 rooms; a further 3 openings are expected by year end with an additional 256 rooms. The estimated pipeline for the next two years, totals 8 new openings (rebranding and conversions) for a total of 1,005 rooms.
OVERNIGHT STAYS
AIRPORTS FIUMICINO
AIRPORT CIAMPINO
OCCUPANCY RATES
TOURIST ARRIVALS
(XXX% vs 2021; XX% vs 2019)
(+98 on 2021)
(+143% on 2021)
PASSENGERS
(+152% on 2021; -33% on 2019)
3,5M
(+49% on 2021; +41% on 2019)
Source: ISTAT
In touristic establishments
8
9
In hotel establishments
10
11
Source: Study of the Economic Impact of Cruise Activity in Lisbon, promoted by the Administration of the Port of Lisbon in partnership with Lisbon Cruise Port and carried out by Netsonda and Nova SBE.
AIRPORT FIUMICINO
RevPAR
1,261
HOTELS
58,433
KEYS
118,937
BEDS
Milan, capital of fashion, represents one of the most important market reference for business-oriented tourism due to its economic and manufacturing industry and the widespread transport network.
21,3M
59%
€130
Since the beginning of 2023 ther have bee 5 new openings in the 4 and 5 star category, for a total of 307 rooms; a further 6 openings are expected by year end with an additional 515 rooms. The estimated pipeline for the next two years, totals 8 new openings (rebranding and conversions) for a total of 1,005 rooms.
MALPENSA AIRPORTS
LINATE AIRPORT
(+XX% vs 2021; +XX% vs 2019)
(+65% vs 2021)
(+99% vs 2021)
(+123% vs 2021; -26% vs 2019)
7,7M
(+78% vs 2021; +17% vs 2019)
Source: iSTAT
12
13
14
Fonte: Estudo de Impacto Económico da Atividade de Cruzeiros em Lisboa, promovido pela Administração do Porto de Lisboa em parceria com a Lisbon Cruise Port e realizado pela Netsonda e Nova SBE
AIRPORT MALPENSA
AIRPORT LINATE*
AIRPORT ORIO AL SERIO
13,1 M
(+103 vs 2021; - 51 vs 2019)
442
27,204
50,874
AIRPORT
* Linate Airport closed for 6 moths during 2019 with air traffic diverted to Malpensa
ORIO AL SERIO ARIPORT
STRONG DEMAND
A NEW ERA
PERFORMANCE
Blurring lines between traditional hospitality and living
Leisure and lifestyle at an advantage
In a challenging global context, the hotel real estate market in Italy performs better than other asset classes. The growing hotel performance driven by the strong tourism demand, attracts investors in the Italian hospitality sector. However, innovation, investment in sustainability and repositioning of real estate assets are needed for the Italian hospitality sector to remain competitive and future-proofed.
The increasing international demand is driving growth in both the luxury sector and lifestyle hospitality concepts. This includes a range of accommodations, from hostels to lean luxury, designed for modern travelers who want to experience the city, with Food & Beverage components also open to locals. Additionally, there is a rise in branded beach resorts and hotels that meet international standards of size and quality. The trend also includes upscale camping and glamping experiences.
The increase in hotel performances is leading to a greater interest on behalf of investors with varied profiles
The resilience shown during the pandemic and the rapid evolution of mobile lifestyles led investors to look for unconventional forms of hospitality, with hotel concepts increasingly integrating long-term stays, co-living, student accommodation and housing. Developers and brands will be more aware of consumer trends and more agile in responding with new real estate products.
Investors will continue to invest in the strong recovery and prospects for continued growth in the leisure and lifestyle segment. Several funds were capitalised during 2022 with a view to source investment in leisure products during 2023 and beyond. Demand for investment opportunities will shift from resorts to urban lifestyle projects in popular and safe destinations, in key southern European geographies, including Portugal.
NEW FORMATS GROWING
INNOVATION AND REPOSITIONING
The hospitality sector is witnessing a significant upswing in investment (ca €800 M in H1 2024), buoyed by robust performance and increasingly favorable lending conditions. This positive trend is underpinned by a strong future outlook, attracting a greater number of buyers interested in value-add opportunities. The current market dynamics suggest a shift towards a buyer's market, with a focus on strategic investments that promise long-term growth and profitability.
INVESTMENT ON THE RISE
Freehold
Milan & Rome
ITALY in 2023 there was the first, not considering the 2020 covid year, inversion of the growth trend in both the number of transactions and transacted volume that had been underway since 2014. In fact, in 2023 there was a slowdown in both the number of transactions and the volume transacted of about 10% compared to 2022, which was, however, the record year in the last decade. The number of transactions decreased more in the main Italian cities, mainly due to the increase in residential values and interest rates. Nevertheless, the number of transactions can be still considered to be above the 10-year average. Milan and Rome continue to be the main Italian residential market with the highest number of transactions in Italy, accounting for 8% of all residential sales and representing the 16.5% of volume transacted. MILAN MARKET N. Transaction Q1 2024: 5,141 (-13.2% Vs Q1 2023) In 2023, the Milan freehold market recorded a 13.3% decrease in the number of transactions compared to 2022 (Q1 2024 also confirms this downward trend). On the other hand, there was an increase in the average price of dwellings, + 7.5% year-on-year. The increase in prices balanced out the decrease in the number of transactions, managing to contain the decrease in transacted volumes to - 5.3% (vs. 2022), which represents in absolute values approximately €9.5 mln. Following this trend, there was a slight increase in sale times balanced by a slight decrease in the discount applicable with respect to requests. The size range of the most transacted flats remains unchanged, between 50 and 85 sqm. ROME MARKET N. Transaction Q1 2024: 7,703 (-6.9% Vs Q1 2023) Rome remains the leading market in Italy in terms of the number of transactions, despite a 14.3% drop in transactions in 2023 compared to 2022. In general, the Rome market has seen a worsening of all the main market parameters in 2023 compared to 2022: prices have fallen slightly by -1.4%, sales times have increased slightly, from 4.7 months last year to 5.6 months in 2023, and the discount percentage has also increased, reaching 7% compared to initial expectations. In addition, for 2023, the size range of the most transacted flat, is between 50 and 85 sqm, which remains unchanged from previous years.
TRANSACTIONS
AVERAGE VALUE
SALE TIME
SIZE CLASS
AVERAGE LOAN
Milan €9.5B
Milan €382,000 Rome €255,100
Milan 50-85 sq.m
SALE TIME (months)
Milan € 225,500
NOTE: Variations 2023 on 2022 * Source : C&W relaboration on Agenzia delle Entrate data excluding Porta Nuova and City Life Data refers to dwellings in good and excellent conditions ** Source: C&W on Agenzia delle Entrate data Data refers to dwellings in normal conditions Source: OMI (Agenzia delle Entrate - data 2024), Rapporto Imobiliare Agenzia delle Entrate, Nomisma
(+51% os 2021)
(+42% on 2021)
(+% on 2021)
Milan 3.8 vs 3.6 Rome 5.6 vs 4.7
(+63% on 2021)
Milan 24,833
AVERAGE PRICE 2023
Number 2023
Milan* €4,552 /sq.m
AVERAGE UNIT VALUE 2023
DISCOUNT
Milan 3.6% vs 3.9% Rome 7% vs 5.6%
Volume 2023
- 5%
Rome €8.7B
- 14.2%
-13.2%
Rome 34,342
-14.3%
+9%
stable
+7.5%
– 1.4%
Rome** €2,760/sq.m
SIZE CLASS 2023
Rome 50-85 sq.m
44%
42%
LOAN 2023
Rome € 176,000
-7%
-8.2%
Leasehold
ITALY In 2023, the number of new leases was 1.28 million, -1.1% less than last year. The Milan and Rome markets, which almost had the same number of new leases, account for about 8% of the total market of new contracts in Italy and 21% of the total rent of new contracts in Italy MILAN MARKET N. Transaction Q1 2024: 11,826 (-1.8% Vs Q1 2023) The Milanese rental market has slowed down, less than the buying and selling market, with a -3.6% increase in new leases compared to 2022. Even in this case, however, there was an increase in rents of +8.8% in 2023 compared to 2022 with an average rent of almost €190/sqm/year, resulting in an decrease of +5 in the total rent of new contracts. The most signed rental contract is confirmed as the ordinary long term one, which accounts for 64% of new leases. Lease times in 2023 have increased slightly, but still staying under two months, and the average leased area is currently about 68 sqm, slightly higher than in 2022 ROME MARKET N. Transaction Q1 2024: 12,330 (-8.2% Vs Q1 2023) The Roman rental market has slowed down, less than that of buying and selling, in terms of new leases with -5.3% compared to 2022. The average rent increased by around +5% compared to 2022 with an average rent of almost €137/sqm/year. The increase in rents balanced out the decrease in new contracts, keeping the total amount of rents in line with the previous year. With 57%, the most subscribed being regarded as agreed/facilitated leases. Lease times have decreased, and the average lease is currently slightly above 80 sqm, up from 2022
AVERAGE RENT
AVERAGE SALE TIME & DISCOUNT
TIME TO LET
Milan €639M
Milan €189 Rome €137
Milan 1.8 vs 1.6
AVERAGE SALE TIME (months)
Milan 67.8 vs 67.6
NOTE: Variations 2023 on 2022 Source: OMI (Agenzia delle Entrate - data 2024), Rapporto Imobiliare Agenzia delle Entrate, Nomisma
Milan 49,975
AVERAGE RENT 2023 SQM/YR
AVERAGE DISCOUNT
- 5.3%
Rome €574M
- 0.8%
-3.6%
Rome 52,220
-6%
+8.8%
+4.9%
TIME TO LET 2023 (months)
Rome 2.4 vs 2.6
AVERAGE SIZE 2023 SQM
Rome 80.1 vs 79.6
ITALY In 2023, the number of new leases was 1.28 million, -1,1% less than last year. The Milan and Rome markets, which almost had the same number of new leases, account for about 8% of the total market of new contracts in Italy and 21% of the total rent of new contracts in Italy MILAN MARKET N. Transaction Q1 2024: 11,826 (-1.8% Vs Q1 2023) The Milanese rental market has slowed down, less than the buying and selling market, with a -3.6% increase in new leases compared to 2022. Even in this case, however, there was an increase in rents of +8.8% in 2023 compared to 2022 with an average rent of almost €190/sqm/year, resulting in an increase of +5 in the total rent of new contracts. The most signed rental contract is confirmed as the ordinary long term one, which accounts for 64% of new leases. Lease times in 2023 have increased slightly, but still staying under two months, and the average leased area is currently about 68 sqm, slightly higher than in 2022 ROME MARKET N. Transaction Q1 2024: 12,330 (-8.2% Vs Q1 2023) The Roman rental market has slowed down, less than that of buying and selling, in terms of new leases with -5.3% compared to 2022. The average rent increased by around +5% compared to 2022 with an average rent of almost €137/sqm/year. The increase in rents balanced out the decrease in new contracts, keeping the total amount of rents in line with the previous year. With 57%, the most subscribed being regarded as agreed/facilitated leases. Lease times have decreased, and the average lease is currently slightly above 80 sqm, up from 2022
AVERAGE TIME TO LET
Milan €350,000 Rome €255,100
Milan 67.6 sq.m Rome 79.7 sq.m
AVERAGE TIME (months)
Milan € 241,900 Rome € 194,400
Source: OMI (Agenzia delle Entrate - data 2024), Rapporto Imobiliare Agenzia delle Entrate, Nomisma
Milan 1.6 Rome 2.6
Milan 51,821 Rome 55,557
AVERAGE PRICE*
NUMBER
Milan €152* €/sq.m/yr Rome €125* €/sq.m/yr
AVERAGE UNIT VALUE
Milan 3.9% Rome 5.6%
TRANSACTION VOUME
AVERAGE PRICE
NUMBER OF TRANSACTIONS
AVERAGE UNITS VALUE
NEW
€10,008 million
(+15%)
TOTAL
11,060
(+1%)
€350,00
(-1%)
4,220 sq.m
80,4sq.m
3,6%
6 months
KEY DATA 2022
80,4 sq.m
6,030
(-7%)
3,6 months
3,120 sq.m
(+9%)
3,9%
€ 241,90
8 months
AVERAGE TIME
PORTO
15
New and used
Source: SIR / Confidencial Imobiliário (SIR Ci)
Transactions are still growing +3.05% on 2021. 50-85 sqm band size results the most transacted, with c. 42% on total transactions Quicker sale time than 2021 with an average selling price that has remained constant
* Source: C&W relaboration on Agenzia delle Entrate data Data refers to dwellings in normal conditions Source: OMI (Agenzia delle Entrate), Rapporto Imobiliare Agenzia delle Entrate, Nomisma
TRANSACTION NUMBER
28,595
4,236 €/sq,m
AVERAGE SALE TIME
€241,900
€10,219M
€255,100
93.1sq.m
5.6%
Transactions are still growing +3.05% on 2021 50-85 sqm band size results the most transacted, with c. 42% on total transactions Quicker sale time than 2021 with an average selling price that has remained constant
40,064
2,799 €/sq.m
4.75 months
€194,400
VOLUME OF TRANSACOTIONS
152 €/sq.m
67.65 sq.m
1.6 months
Increasing number of new contracts and growing rental levels (c. +19% since 2016) 68% is represented by Ordinary long-term contract. Decreasing of time to let 1,6 months and increasing Average Rent The Average leased Area is slightly decreasing since 2016. In 2022 it is about 68 sqm.
125 €/sq.m
79.7 sq.m
2.65 months
Growth in number of new contract after covid emergency (2020). + 6.84% 58% is represented by Rent with Incentives. Decreasing of time to let 2.65 months and increasing Average Rent. The Average leased Area is slightly decreasing since 2016. In 2022 it is about 80 sqm
55,557
STUDENT ACCOMODATION
ca. 109,680
MARKET FUNDAMENT ITALY
-0.9%
STUDENT REGISTERED
(ETPs)
>500
First mover market activity primarily focused on development transactions. A diverse educational offer across some of the oldest universities in the world Lack of fit for purpose and modern purpose built accommodation. Most of the student accommodation are managed by Public entity
Source: MIUR accademic year 2021/2022
FULLTIME STUDENTS
ca. 1.8 Mln
INTERNATIONAL STUDENTS
Why invest in Italy?
STUDY IN MILAN & ROME
27.5%
35%
Italy Student Numbers and Yearly Change
Student by CIty 2021/2022
(2020/2021)
FOREIGN
+7.2%
STUDENT ACCOMMODATION
Potential demand
Milan is the leading student market, and represents the most attractive market for PBSA thanks to the highest numbers of both domestic study away from their home region and international students. Nevertheless, Milan provision rate is very low considering continental standards as Milan confirmed to be the preferred destination in Italy for international students.
Sources: Miur (Ministero dell’istruzione) and C&W data
Amostra não aleatória da procura de retalho agregada pela Cushman & Wakefield baseada em fontes públicas e trabalho de campo direcionado
According to the Bank of Portugal, mortgages were granted to the total amount of €16.2 billion, the highest in the last 15 years.
16
Percentage values correspond to the variation between 2022 compared to 2021
Operating beds
Pipeline 2024 - 2027
+ c.8,000
NEW BEDS
TOTAL STUDENTS
210,084(*)
69,291
DOMESTIC STUDENTS OUTSIDE REGION
21,040
Milan university demand
Potential demand of beds
c.69,150
c.13,250
(*) not considering students of online universities
Rome represents Italy's second largest market in terms of the number of students that study away from their home regions and international students. It is a very interesting market, since even when comparing it to Milan, there is an even smaller supply of beds in PBSA and the pipeline is not adequate to meet potential demand. The Eternal city is characterized by a lowest provision rate and, consequently, needs a huge number of beds.
+ c.1,434
200,396 (*)
44,973
16,404
Rome university demand
c.53,200
c.6,700
Sales price of apartments
In 2022, the average sales price (new and used), in Lisbon, stabilised at €4,220/sq.m, and at €6,260/sq.m for new apartments. The Traditional Zone and Historical Centre commanded the highest sales prices, standing at €5,260/sq.m and €5,220/sq.m, respectively. The average discount and adjustment rate remained at 7%; with the average take-up time decreasing slightly to 6 months. The difference between the final sales price and the initial price offered for the property. In terms of future supply, Lisbon recorded a sizable decline in the licensing of residential projects, namely 15% of both licensed and submitted projects.
Source: Cushman & Wakefield; SIR Ci
Price of apartments
17
The difference between the final sales price and the initial price offered for the property
18
In Porto, the sales prices of apartments increased by 9%, to €3,120/sq.m, and 3% for new apartments, to €3,910/sq.m. Foz and the Historic Centre were the most sought-after, with prices reaching €3,830/sq.m in both. The average discount and adjustment rate adjusted downwards to 6%; and like the capital, the average take-up time decreased by 1 month to 8 months. Future supply seems to stagnate in the volume of projects licensed and a 21% drop in projects submitted for licensing.
19
Lease of
apartments
NR. LEASED UNITS
AVERAGE ABSORPTION TIME
AVERAGE MONTHLY CONTRACTED RENT
AVERAGE DISCOUNT AND ADJUSTMENT RATE
170
(-18%)
3,050
(-20%)
€21.4/sq.m
(+30%)
€15.8/sq.m
(+22%)
-3%
3 months
LISBON
70
(-38%)
450
(-27%)
€15.1/sq.m
(+16%)
€12.5/sqm
(+20%)
-1%
Source: SIR Ci
Given the shortage of supply in Lisbon and Porto and with more stringent finance terms for mortgages, the appeal of the private rented sector (PRS) continues to grow, as well as the intention of developers to develop new built-to-rent (BTR) projects. Even so, there is still an enormous scarcity of supply, which worsened in 2022, with a decrease in the supply of housing for rent above 40% in both cities, potentially due to the revival in tourism (and the conversion of residential units to short-stay rentals), and the consequent reduction in the number of apartments leased, as well as an increase in average rents.
Rental
Em estabelecimentos de alojamento turístico
Em estabelecimentos hoteleiros
Rents in Lisbon reached €15.8/sq.m, for apartments (+22%), and €21.4/sq.m for new properties (+30%); with the Historic Centre continuing to take the lead, with a year-on-year growth of 31%. In Porto, the average rental price increased by 20%, standing at €12.5/sq.m/month, with new apartments reaching €15.1/sq.m/month (+16%). Like Lisbon, the same area remained popular, with Foz commanding the highest prices. The discount and adjustment rates also reflected the mismatch between demand and supply, adjusting between 3 to 6 p.p.; with the take-up time mostly falling by 1 month.
Market
Rental price of apartments
20
Like in recent years, and as a result of the continuous imbalance between demand and supply, student accommodation and CoLiving benefitted from significant development activity in 2022, with 2,170 new beds, spread over 7 units, all privately run. The LIV Student Campus Street in Asprela, with 775 beds, is now the largest accommodation in the country. The ratio of number of beds per student has slightly increased to 13%, as did the predominance of private operators, who now represent more than a third of the supply.
24,700
36%
Student Accomodation
/ CoLiving
TOTAL SUPPLY (nr. beds)
PrivaTE OperaTors
PROVISION RATE
(+1 p.p.)
21
Ratio between number of beds and displaced national and international students
22
Next 3 years
Continuous increasing demand, particularly for purpose-built accommodation, continues to attract the private sector and encourage public investment, with the supply forecast for the next 3 years standing at 8,800 beds. Noteworthy future private supply includes the Coletivo de Azúrem, a project in Guimarães, with 630 beds, the expansion of Xior, with two U.Hub projects, and the entry into the market of The Social Hub (formerly The Student Hotel), with projects in Carcavelos (Lisbon) and in Bonjardim (Porto).
Main private pipeline
In the senior housing sector, the number of available beds is rising, currently standing at 103,400. Even so, the ageing of the population contributed to the fact that the equipment ratio has not improved, remaining at 14%. Under these circumstances, complemented by a high occupancy rate and scarcity of quality supply, there is increased activity by the private sector, particularly with the entry in the market, in recent years, of specialist international companies, such as the ORPEA group, which in 2022 opened a 100 beds unit in Braga. Looking ahead, for the next three years, an increase of 800 beds is projected from among the main private operators, with most choosing to develop projects of more than 100 beds, like DomusVi that will open 3 residences (in Leiria, Oeiras and Estrela).
103,400
92%
26%
Senior
Living
(+2 p.p.)
Source: GEP; INE; ACSS
23
Ratio between the number of beds and population aged 80 and over; 2021 population
14%
(=)
EQUIPMENT RATE
Source: Office for Strategy and Planning – Social Charter (excludes Madeira and Azores)
Supply
Main Private Operators Pipeline
Main Private Operators Openings
24
SLOWING TRANSACTIONS BUT RISING PRICES IN MILAN AND ROME'S REAL ESTATE MARKETS
MILAN CONSTRUCTION SLOWDOWN WILL DRIVE UP PRICES
SHORTAGE in FUTURE PIPELINE IN STUDENT ACCOMODATION
The number of transactions and new lease agreements in Italy's two main markets, Milan and Rome, has slowed down in 2023. The contraction in residential transactions is mainly the result of the reduction in financing secured by loans, which fell from 50% of transactions in 2022 to 38% in the first quarter of 2024. A contraction in transactions is also expected in 2024, although to a lesser extent. However, sale prices and rental values, especially in Milan and partially in Rome, are still on the rise and growth can also be assumed for 2024 particularly for new products, which are increasingly in demand. This trend is likely to boost the gap between the value of old and new properties.
Despite the ongoing increase in the number of students in Italy and, consequently, the rising demand for student housing, the supply of student accommodations remains limited. PBSA are characterized by high occupancy rates and elevated rental prices, which are expected to continue rising throughout the remainder of 2024.
A slowdown of new real estate initiatives in the city of Milan is anticipated due to the urban planning and administrative uncertainty currently affecting the city. This uncertainty has put many residential projects on hold, causing significant delays and reducing the overall availability of new products. As supply is unable to meet the growing demand of new products, if the situation persists, this imbalance could lead to an increase in rental values and future prices for new developments.
The living sector, more than other sectors, has a pivotal role in tackling social factors it also plays a central role in addressing many of society's major urban challenges in the years to come. The #11 SDG’s is about building Sustainable and Inclusive Cities: real estate capital could support and contribute to achieve this goal. Some of the patient capital is targeting the sector and the relatively more favorable outlook for capital markets we anticipate in 2024 should further help funding these type of new social and affordable projects
Rising Student Housing Demand Drives RentAL GROWTH
THE “S” OF ESG TAKING THE STAGE
DEVELOPMENT
Development &
Purchase of buildings for refurbishment or land for development
Main urban development and regeneration deals
25
Activity in the urban development and regeneration sector picked up in 2022 growing by 48%, compared with 2021, with a total transaction volume of €786 million, spread over 55 deals. Amongst these, the development sites included in the Crow project (among other, Vale do Lobo), sold at the end of last year by ECS Capital to DK, for an estimated price of €200-250 million; and the purchase by AXA IM - Real Assets of Colombo Tower 3, for €40-45 million, stand out.
26
Information based on internal and public sources
PROMOÇÃO
Aquisições de edifícios para reabilitação ou terrenos para promoção
Real estate projects under licensing
Source: Pipeline Imobiliário Ci
Regarding future supply, during the last year 7.2 million sq.m were submitted for licensing in mainland Portugal, spread over more than 21,000 projects, reflecting increases of 11% and 21%, respectively, when compared with the same period of the previous year. In terms of area, although most of the projects are for residential use (73%) and new construction (78%), the office and tourism sectors benefitted equally from development and refurbishment projects, with each category accounting for around 50%.
Baseada em fontes internas e públicas
Real estate projects licensing
Licensing of construction projects in Lisbon followed an asymmetric pattern, with a decrease related to projects submitted and an increase in those already licensed. Regarding the former, there was still an increase (+13%) in the number of projects submitted, to close to 310. Contrary to country-wide data, there was again a balance in terms of the type of construction, with works in existing buildings marginally dominant.
337,200 sq.m
997,300 sq.m
(+91%)
LICENSED
Submitted for licensing
Licensed real estate projects
Próximos 3 anos
The area of licensed projects doubled, with the retail sector taking the lead, with 449 thousand sq.m, swayed by the permitting for the refurbishment and expansion of Centro Colombo. Construction costs continued to escalate, with average costs in Lisbon ranging from €1,450/sq.m to over €1,850/sq.m, in new construction, and from €1,700/sq.m to over €2,000/sq.m in refurbishment.
Construction costs by segment
Porto also showed an unlikely trend concerning the area of construction submitted for licencing and the licensed area. The former decreased by 28%, with the number of projects decreasing by 10%, to around 275. In Porto, new construction prevails, representing 72% of the total area.
214,500 sq.m
353,400 sq.m
(+6%)
LICENseD
Regarding new licensed area, the residential sector is the most popular, with a balance between new development and refurbishment. Additionally, in Porto, construction costs continued their upward trend, ranging from €1,400/sq.m to over €1,800/sq.m in new construction and from €1,500/sq.m to over €1,900/sq.m in refurbishment projects.
Residential development will continue to be a priority
Pressure on construction costs may be easing
The significant imbalance between demand and supply, especially in the mid-end segment, will continue to drive developers and investors to adopt innovative solutions to develop more homes for the middle class. The recent measures announced by the government to create more residential accommodation, do not include tax benefits for new construction nor the optimisation of licensing time for allotments, so several larger-scale residential projects are likely to continue to be delayed. Portugal is currently a very popular destination, so investment in residential projects for the high-end and luxury segments, fuelled by growing demand from international buyers, is likely to continue.
The need to develop more practical, modern and, above all, environmentally and energy-efficient offices will become increasingly evident, freeing up more buildings for conversion into housing or tourism in central locations, fostering a new cycle of urban regeneration in the cities of Lisbon and Porto.
A slight slowdown in the rising costs of construction materials and labour costs can already be observed, which may continue provided there is no global catastrophe, favouring the development of projects targeted at the mid-end housing segment.
The emergence of a new generation of offices
CAPITAL MARKETS
Commercial Real Estate
Investment
The first half of 2024 confirms a moderate recovery in CRE investments , supported by the ECB’s 25 basis point rate cut in June. Investment volume in H1 reached 3.5€Bn, recording a 50% increase compared to the same period of 2023, which had been the lowest semester in the last 10 years. There is a trend towards diversifying investments across various asset classes, with Hospitality sector confirming its attractiveness and leading the market alongside the Office sector. Strong interest in logistics and living sectors, however, in these markets, the supply of products that meet institutional investors' expectations remains limited, and the gap between buyer and seller expectations is still significant. Sustainability and ESG criteria are becoming increasingly crucial in the real estate sector, with developers and investors integrating sustainable practices to stay competitive in the long term. However, risks related to rising inflation remain, which could slow down the ECB’s rate-cutting policy. Continued interest in Alternatives assets and Value-add opportunities is expected to support investments in the second half of 2024 and into 2025.
TOTAL VOLUME
Foreign Investment
best performing sectors
€3.5Bn
(+50%YY) H1 2024 TOTAL VOLUME
50%
24%
27
Institutional investment in completed and income-producing real estate properties
FOREIGN INVESTMENT
HOSPITALITY & OFFICE EACH Best performing sector
BEST PERFORMING SECTORS
Investment by semester
28
In case of a range in the “Value (M€)” column, the calculation of this indicator is based on the range’s average value
Investment by sector
29
Despite a quarter-on-quarter decrease, which highlights investors' cautious attitude towards this asset class, the Office sector reached above 800€Mn. Rome is gaining interest and has surpassed Milan, thanks mainly to a sizable transaction that accounted for 35% of the sector's semester volume. Main focus remain on central locations and on assets with future reversion or potential repositioning. This attitude contrasts with office fundamentals, characterized by continued good occupier demand and potentially rising prime rents. The Retail sector saw a quarter-on-quarter increase, recording an investment volume of €465 million in the first half of the year, doubling the volume recorded in H1 2023. RomaEst transaction represented the most significant deal in the semester, being the first regional shopping centre transacted since 2017. Active investors are mainly represented by retail specialists and value-add investors drawn by potential significant returns, together with end-users acquiring real estate as strategic assets in their business plan Industrial & Logistics continues to attract investors as one of the most sought-after asset classes, representing 16% of H1 2024 overall investment volume. The fastest repricing compared to other asset classes favored the greater liquidity in this sector. Despite this, the market remains constrained by a limited supply of products that meet institutional investors' expectations. In the first semester, Industrial & Logistics investment volume reached 550 €Mn, recording a slight decrease of 4% compared to H1 23. ESG criteria and value-add opportunities are key factors influencing investors' decisions.
Mouse hover to see the notes
Main investment deals
Commercial real estate component
With regards to Alternative asset classes, the Hospitality sector confirmed its attractiveness by recording a quarter-on-quarter increase in the first semester. It led the market, accounting for 36% of the second quarter volume of the year and 24% of the semester volume. This growth was driven by an increasing number of transactions, particularly in the last quarter, with significant deals involving luxury hotels in Rome, Venice, and Lake Como. Indeed, the increasing attention of investors in these destinations is led by the growing interest in resorts and urban markets with strong tourism appeal, underpinned by the expected growth of leisure demand in the long term. The Living sector, which focuses on developments and asset repositioning, recorded an increase quarter on quarter, recording a volume of circa 118€Mn in the first semester of the year. Mainly during the first quarter many transactions have involved old office buildings to be converted and this represents a great opportunity for investors who are keen to invest in this sector. However, the sector remains constrained by a lack of supply that meets institutional investors' expectations and the urban planning and administrative uncertainty currently affecting the city of Milan.
30
32
33
Nr. of keys of the transacted hotels (circa 85% of the commercial real estate component, as it excludes the golf courses)
Unit value by keys (€/keys)
Unit value by keys (€/beds)
In the first semester of 2024, prime yields remained stable for most asset classes compared to the end of 2023: Offices remained stable at 4.25% in Milan and 4.75% in Rome; Retail High Streets remained at 4.00%; Shopping Centers prime yields increased of 25bps at 7.00%; Retail Parks prime yields increased of 25bps at 7.25%; Logistics remained stable at 5.50%; Hospitality remained stable at 4.50%.
Investimento institucional em produto imobiliário acabado e de rendimento
Prime
Yields
THE "PRICE DISCOVERY" PHASE CONTINUE
NEW MARKET CYCLE
OPPORTUNITY
In June, the European Central Bank (ECB) implemented its first rate cut of the year, the first cut since 2019 after 9 consecutive hikes, reducing rates to 4.25% from 4.50%, as anticipated. However, market expectations have since shifted, as the institution will remain cautious about further reductions due to the upward revision of inflation forecasts. Europe moved ahead of the FED, which is holding US rates steady (at 5.50%). However, according to C&W's TIME score, CRE is currently in a transition phase. The main factors limiting the market in the coming months are related to Momentum, specifically “liquidity”, as the cost of debt remains high. However, as conditions improve, investment volumes are expected to increase. Download TIME SCORE Report
Bond yields are expected to gradually trend down over the forecast period albeit remain elevated, with the 10-year Euro area bond yield averaging 2.9% and Italy 3.8% over 2024-2028 due to the impact of the higher rate of inflation compared to historical levels. (Source Moody’s 10th June 24). A gradual return towards inflation rates close to the ECB's targets is expected in the coming months. The forecast scenario remains characterized by a high level of uncertainty in the international environment, determined by the evolution of geo-political tensions.
With an increase of 50% compared to the same period of last year the Italian market gave the first signals of recovery with the Hospitality and Office leading the scene. Alternative assets such as Data Centres, Student housing, Multy-family, Healthcare are attracting increasing interest but the market remains limited due to the scarcity of products aligned with institutional investors' expectations. In terms of risk profile there is growing interest in Core + / Value-add opportunities, with an increase in value through the dynamism of the rents in the recent years (across almost all the asset classes) and the achievement of green certifications with an additional impact on the appeal of the assets. The combination of these factors should help to strengthen the investment trend in the second half of 2024 and in 2025.
The city of Milan, with a total investment volume of €1.2 Bln in the first half of the year, accounted for 34% of the overall H1 Investment Volume. The largest component was the Mixed-use sector (43% of the city's volume), which included the acquisition of Scalo Farini as part of the revitalization plan for Milan's railway yards, followed by the Office Sector (29%) represented by single-asset transactions in selected locations. The city of Rome follows, accounting for 28% of the overall volume in the first half of the year (almost €1 Bln), a share that has consistently grown over the last four semesters, highlighting the increasing interest in the city. In particular, Hospitality, Retail, and Office asset classes recorded the highest volumes, with each sector achieving a transaction over €100 Mln and surpassing Milan's figures in all asset classes.
MISMATCHED EXPECTATIONS
THE START OF THE RATE CUTS IMPROVES THE SCENARIO
ECONOMIC DRIVER
HAS THE MARKET RECOVERY ALREADY BEGUN?
CITY'S OVERVIEW
OFFICE
Office investment market remains characterized by a very selective approach, highlighting investors' cautious attitude towards this asset class. Main focus remain on central locations and on assets with future reversion or potential repositioning. This attitude contrasts with office fundamentals, characterized by continued strong occupier demand and potentially rising prime rents. Confirmed also the strong attention to ESG: green certifications in place or potential improvements are now a “must have” for investors.
The industrial and logistics sector is highly sought after by investors, viewed as stable due to low vacancy rates, limited new supply, and high rents. Interest in Core/Core+ products is strong but limited by a gap in buyer-seller expectations. Interest will remain high for Sale & Lease back transactions, especially for industrial properties, for their stable, long-term returns. Value-add opportunities are attractive if supported by the possibility of an increase in value through the achievement of green certifications and a rising rental value. Last Mile close to the main cities also with assets to be re-developed and land to be developed in consolidated locations. Data Centers are increasingly important due to AI growth, making this product a critical infrastructure behind the digital economy; nevertheless the market remains limited due to the scarcity of products aligned with the expectations of institutional investors. Sustainability and Green Certifications are crucial due to net-zero commitments.
INDUSTRIAL
office
LOGISTICS
ALTERNATIVES
Retail investment doubled at ca. €500M in comparison to the first semester of 2023. RomaEst transaction represented the first regional shopping centre deal in the last 7-year period. Investors are gradually rediscovering interest in retail attracted by potential returns: speculative REITs focus on high-performing shopping centres to enrich their portfolios, while value-add investors prefer secondary schemes with potential double-digit returns. Another is represented by end-user category who plan their real estate investment as part of their industrial business plan.
HOSPITALITY The hospitality sector is witnessing a significant upswing in investment (ca €800 M in H1 2024), buoyed by robust performance and increasingly favorable lending conditions. This positive trend is underpinned by a strong future outlook, attracting a greater number of buyers interested in value-add opportunities. The current market dynamics suggest a shift towards a buyer's market, with a focus on strategic investments that promise long-term growth and profitability. LIVING Investors are turning their attention and investments towards Rome, partly due to the current urban planning and administrative uncertainties in Milan. Although Milan remains an area of significant interest, it has experienced a slowdown in investment and development activities. The macroeconomic situation and pressure on yields are pushing Build-to-Suit (BTS) projects to the forefront, especially for value-add investors. Build-to-Rent (BTR) products are highly sought after, primarily by institutional investors, but their development is mainly seen in large urban regeneration projects and suburban areas. The Purpose-Built Student Accommodation (PBSA) market remains remains attractive due to the low offer of beds and incentives coming with the PNRR. Investors increasingly interested also in secondary markets and cities.
Investment on the rise. The market is seeing growing investments , particularly in value-add opportunities , in consolidated cities and leisure destinations, with increasing interest in secondary cities. A recovery of core investors is expected due to the forecasted reduction in interest rates and outstanding hotel performance. The growth drivers include the generational change in existing hotel owners and the opportunities from the conversion of office assets in the major cities.
Investors are turning their attention and investments towards Rome, partly due to the current urban planning and administrative uncertainties in Milan. Although Milan remains an area of significant interest, it has experienced a slowdown in investment and development activities. The macroeconomic situation and pressure on yields are pushing Build-to-Suit (BTS) projects to the forefront, especially for value-add investors. Build-to-Rent (BTR) products are highly sought after, primarily by institutional investors, but their development is mainly seen in large urban regeneration projects and suburban areas. The Purpose-Built Student Accommodation (PBSA) market remains attractive due to the low offer of beds and incentives coming with the PNRR. Investors increasingly interested also in secondary markets and cities.
Commercial real estate certified buildings
The Portuguese real estate market continues to see growing interest to incorporate sustainability concept, as well as ESG criteria, in decision-making processes. In light of the increased regulation at European level, with the implementation of relevant policies and strategies, obtaining certificates such as Building Research Establishment Environmental Assessment Method (BREEAM), Leadership in Energy and Environmental Design (LEED) and WELL certification, in addition to the application of taxonomy to properties to classify their sustainability, is rapidly taking precedence.
Source: BREEAM and LEED
Portugal currently has several buildings in the commercial real estate market in different phases of certification (from design to operation). There has been a marked rise, over the last three years, of buildings awarded sustainable building certificates, for new construction / refurbishment and buildings in use.
34
New certification or renewal; only includes the projects listed by the respective entities (some projects are anonymous and therefore not published)
BREEAM has taken the lead, with close to 80 certified buildings, 90% of which are related to in use and more than half are in the retail sector. More than 30 buildings have LEED certification, and this is equally distributed between new construction / refurbishment and in use, mainly in the office sector. In terms of future certification, data of which is only available for LEED, currently almost 50 buildings are registered.
The WELL certification is focused on the use of the building and the well-being of its users. Although the implementation of this rating begins in the construction phase, it is only obtained in the operation phase, and there are yet no buildings with this certification. Even so, with nearly 40 projects registered, all in the office sector, it is expected that this situation will change shortly.
35
Response to climate change
Value chain integration
Reporting of non-financial indicators and classification of investments regarding sustainability
Reduction of the carbon footprint as a climate change mitigation measure, in order to comply with the goal to global warming to 1.5ºC. This reduction may involve the choice of construction materials to reduce embodied carbon locked in new buildings, or by measures to reduce energy consumption in the operation of existing buildings. Energy audits, Life Cycle Analysis or tools such as CREEM, which determine the carbon obsolescence of a building, are increasingly used and necessary, especially for existing real estate.
Workspace trends in 2023 are dramatically different from the pre-COVID-19 period. In this ever-changing environment, the valorisation of human capital continues to be a priority, and a determining differentiation factor. Consequently, there is a clear trend towards offices obtaining sustainability certification (LEED or BREEAM) and promoting the health and well-being of employees (WELL). The market clearly prefers to buy or rent properties with these certifications, and this requirement has become an integral part of the ESG policies of large companies. The residential market, especially the luxury segment, is also starting to adhere to sustainability certifications, with a focus on BREEAM.
The value chain is taking on considerable importance throughout companies’ activities, as these impacts need to be integrated into the reporting of non-financial indicators. Companies are now no longer analysing their own activity, but are beginning to consider the wider impact, for instance through their suppliers.
With the publication of the recent EU regulation on the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR), there is a growing focus on the classification of investments, in terms of sustainability, through the Taxonomy criteria. However, the market is still trying to understand the necessary changes and next steps, and how companies may incorporate ESG principles into their activity.
Valuing human capital
Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In 2023, the firm reported revenue of $9.5 billion across its core services of property, facilities and project management, leasing, capital markets, and valuation and other services. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), sustainability and more. For additional information, visit www.cushmanwakefield.com. To learn more, visit www.cushmanwakefield.com © 2024 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.
ALESSANDRO BELLI alessandro.belli@cushwake.com SILVIA COSTANTINI silvia.costantini@cushwake.com NICOLAS VIVIANI nicolas.viviani@cushwake.com
INVESTMENT David Lopes david.lopes@cushwake.com BUSINESS SPACE & RETAIL INVESTMENT David Lopes david.lopes@cushwake.com ESG Ana Luísa Cabrita analuisa.cabrita@cushwake.com ASSET SERVICES Bruno Silva bruno.silva@cushwake.com RETAIL ASSET SERVICES André Navarro andre.navarro@cushwake.com PROJECT MANAGEMENT Carlos Pueyo carlos.pueyo@cushwake.com VALUATION & ADVISORY Ricardo Reis ricardo.reis@cushwake.com BUSINESS DEVELOPMENT Isabel Correia isabel.correia@cushwake.com
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