Real estate investment in Italy: Best sectors and forecasts for 2023.

In the first half of 2023, Italy recorded almost 2 billion euros of capital-market real estate investments. This is evidenced by the latest report from research office Gabetti, which shows a small but still positive advance (+3%) in the second quarter of 2023 compared to the first quarter. The Italian real estate market is still attractive despite the turbulent macroeconomic situation and rising interest rates. Capital-market investment is expected to rebound in the second half of the year, especially in core and ancillary operations.

"Capital-market investment has declined not because of Italian fundamentals, which remain robust, but because of the increase in the cost of money, the uncertainty of the macroeconomic situation in the world and the rapid innovation that many sectors are undergoing in their operations (we are talking about e-commerce, remote working, etc.). etc.)," says Claudio Santucci, Gabetti Agency's director of capital-market Italy. - "In Italy, the outlook for capital-market investment remains strong, with GDP above the European average in 2023 and inflation already starting to fall. "

What are the reasons for this optimism? "We can assume that capital-market investments are temporarily postponed," Santucci replies. - "Industry operators have the opportunity to use this period of slowdown to bring Italian real estate closer to tenants' requirements (Environmental, Flexibility of space, Omnicanality, etc.)." The three main areas where investments will focus in the future: value-added investments, which mainly affect the office and hotel sectors, justified for the logistics and residential real estate sectors, as well as major investments in the retail sector, are still of great interest.

In terms of investment distribution, the best asset classes in Italy, according to Gabetti, are as follows:

Offices: A total of 450 million euros were invested in offices in the first half of the year, representing 23% of total investments, making them the most popular asset class among investors. Operations are mainly concentrated in theMilan andRome markets. In terms of rentals in these two main markets, Rome shows the greatest growth with office space rentals totaling 161,000 square meters and almost doubling compared to the same period last year, thanks to two major operations, one of which is a pre-lease, registered in the center and Eur zone, for a total of 80,000 square meters.

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Milan then has leased office space of 176,000 square meters, 32% lower than in the same half-year of 2022. Rents in CBD Milan and Rome remained stable quarter-on-quarter at €680/sqm/year and €500/sqm/year respectively. Nevertheless, rents have been rising steadily in recent years as tenant demand for high quality products increases, with a shortage of such supply in both markets, although Milan is more compliant with Environmental, Social and Public Administration standards compared to Rome.

Logistics: In the logistics sector (€440 million), operations are predominantly concentrated in northern Italy, where new LEED or BREEAM certified building projects are underway.

Residential and hotel real estate: The residential real estate sector in Italy (330 million euros) is mainly represented by value-added operations concentrated almost exclusively inMilan. This is followed by the hotel real estate sector (303 million euros), where 15% of total transactions are concentrated between the north and center of Italy, with outstanding regions in terms of number of transactions, such as Lombardy. Transactions concerned mid- and high-end properties that migrated to the standard segment.

Retail: The retail sector accounted for 11% of total investment in the first half of the year, although it is still experiencing the effects of e-commerce and transaction volumes are lower than the logistics and office sectors. There was an upturn in the second quarter as a result of operations affecting the GDO segment.

Healthcare: the Health Care sector (€80 million) benefited in particular from operations in the area of hospitals, clinics and health care facilities, concentrated mainly in the Piedmont region. The mixed sector (€60 million) accounted for 3% of the total investment volume. The alternative sector, comprising land and facilities, accounted for 9% of the total with an investment of 90 million euros.

Investments in real estate in the different regions of Italy in the first half of 2023 had the following structure: in the north 68%, in the center 18% and in the south 4%. The remaining 20% consists of investments that are spread across the country.

In terms of sources of capital, after a decline in the first quarter, foreign investors again dominated (46%) at the half-yearly level. They were mostly Americans, French and British, focusing mainly on the logistics, residential and office sectors. 45% of the capital is raised from Italian investors and 9% of the capital source is unknown.