Shopping malls: time for investments?

The inventory of shopping centers is estimated at 48.5 billion euros, according to an analysis by the Cncc Valuation Commission.

Italy is one of the most attractive countries in Europe.

- confirms Rafaella Pinto, president of the Financial Communication Commission of Cncc. She presented a slide at the Legal Forum, which took place inMilan, at the Palazzo Visconti, on Corso Chino del Duca.

"As further confirmation of the resilience and stability of the fundamental principles of the Italian retail market in the first half of the year, the index reflecting the attractiveness of countries for the retail sector showed a positive trend for Italy (116 points) in the second quarter of this year compared to the same period in 2022, confirming its position among the five most attractive countries in Europe. The factors that contributed to this strong performance were mainly related to the strengthening of the labor market and improved consumer confidence, as well as the positive dynamics of retail sales that had been evident in previous quarters."

- comments Rafaella Pinto, president of the Financial Communication Commission of Cncc.

However, the problem is not with Italy itself, as a country with its natural, historical-architectural, and cultural beauty. It's a bit more complicated than that. Retail as an active asset class no longer seems as attractive to investors. Recent data (Cbre, Savills) on investments indicate that retail is the third active class after logistics and offices. However, our country still appears to be interesting not only from a tourist perspective, as evidenced by the presence of Eleonora Galloni, head of the Italian branch of Indotek Group, a Hungarian investor who made two significant deals in 2022, one of which was related to a portfolio of Carrefour properties. Eleonora Galloni spoke at the first round table organized by Cristina Lazzati, director of Mark Up and Gdoweek, along with Silvia Gandellini, head of capital markets at A&T High Street Cbre, Raffaele Nardi, director of planning, control, and investment relations at IGD SIIQ, Salvatore Occini, director of Italy Eurocommercial Properties, Andrea Orsa, head of retail capital markets in Italy at Cushman & Wakefield, and Mario Pello, executive director, head of the general account, real estate, Europe at Nuveen, TIAA.

Let's say right away that among these investors, the most important and active in terms of historical presence and continuity are IGD Siiq and Eurocommercial Properties. The latter entered Italy in 1992, a year of decisive (both good and bad) political and institutional upheaval that erased the First Republic. Eurocommercial has 8 shopping centers in the northern part of the country, including Fiordaliso, Carosello, and I Gigli - three of the most significant shopping centers in Italy. IGD Siiq SpA (one of the few Italian Siiqs, possibly the only one) has 54 properties in 12 Italian regions, with a property value of 2 billion euros (as of H1 2023) and over 750,000 square meters of property (Gla). The company is also actively engaged in sustainability, which is why Francesco Soldi, the chairman of the ESG Commission at Cncc, is also responsible for marketing and CSR at IGD Siiq SpA. Not to mention Roberto Zoia, the president of Cncc and top manager (responsible for assets) at IGD.

Thus, in this edition of "Legal Forum," Cncc focused on two main areas of discussion and research: investments in real estate, particularly in shopping centers, and sustainability in shopping centers, where Cncc is acting in a timely manner by providing significant contributions to research and surveys, starting with the Manifesto on Sustainability. We are currently more interested in the first topic, which is the most relevant for the community of real estate professionals, although the valuation of shopping centers increasingly depends on their performance and certifications in energy and environmental standards.

The Legal Forum took place right after the data for the third quarter of 2023, which ended with investments amounting to 1.5 billion euros. This represents a slight recovery compared to the previous quarter (+15%), but is still down (-52%) from the levels recorded in the same period of 2022.

“No changes in trends are expected in the coming months compared to the current market situation,” says Silvia Gandellini, head of capital markets and head of A&T High Street at CBRE Italy. “We will have to wait until 2024 to see stabilization in inflation and a decrease in interest rates. At the same time, more and more investors are exploring new sectors, with a particular focus on operational real estate assets that follow not only real estate logic, such as medical facilities, data centers, and infrastructure for telecommunications and energy. The deals currently in process, which are expected to close by the end of this year, suggest that transaction volumes in the next quarter will continue to grow, but will not reach the levels seen in the past 18 months.”

Among the expected deals, there are also those that were frozen during the pandemic, including three deals (including Romaest and Forum Palermo) totaling 700 million euros. Meanwhile, major international investors like Blackstone are exiting the Italian retail market. This is also confirmed to me by Savino Natalicchio, chairman of the Cncc Evaluation Commission, who, along with Elena Gramalya, head of retail valuation at Cbre, presented a summary of the work the Commission is doing, which we present in the form of a slide. With an increase in Gla area of 3.5%, the overall value decreased by 3% compared to 2021. The study was conducted in the first half of 2023. "The data presented is only indicative and does not claim to be an assessment," Natalicchio clarifies. The methodology combines indexed revenues (Nomisma data 2022) and ERV (market rent) assessment using the appropriate rent coefficients. The decrease in value is mainly related to the increase in the yield rate, softened by the increase in rent (inflation effect).

FACTS

• “We have no geographical restrictions: we invest all over the country” (Eleonora Galloni, Indotek Group)
• “European investors do not understand why we cannot get rid of debtors” (Eleonora Galloni)
• "With a return of 7%, even retail trade becomes more accessible and attractive to the banking and investment world." (Silvia Gandelini, Head of Capital Markets, A&T High Street Cbre Italy)
• "One of the strategic factors of positioning, including financial positioning, for a shopping center is its dominance or competitiveness in the surrounding area." (Raffaele Nardi, Director of Planning, Control, and Investor Relations, IGD SIIQ SpA)
• “With what we have invested in the redesign of shopping centers over the past four years, we could have bought one large attractive shopping center” (Salvatore Occhini, Director of Italy Eurocommercial Properties)
• “We are heading into an uncertain year (2024, editor's note), and everyone will be trying to sell shopping centers. There are interesting prices, especially for mid-range products.” (Andrea Orsa, Head of Retail Capital Markets in Italy, Cushman & Wakefield)
• “There is yield, but there is a lack of liquidity!” (Mario Pello, Executive Director, Head of General Account, Real Estate, Europe at Nuveen, TIAA)
• “It is very important how a European investor views the local market” (Eleonora Galloni)

METHODOLOGY

What is GRAI?

The Global Retail Attractiveness Index (GRAI) by Union Investment tracks the attractiveness of the retail sector in 20 countries across Europe, America, and the Asia-Pacific region. The rating is out of 100 points.