The Italian real estate market is in good condition; what are the prospects for 2024?

In 2023, the residential real estate market in Italy is experiencing a decline; however, despite this, property prices remain at a positive level, exceeding double-digit figures compared to the last ten years. The first quarter of this year also showed an increase in real estate investments, reaching approximately one billion euros compared to the same period last year. This data was presented by the Research Office of Gabetti, which reflects the current state of the Italian real estate market over the past few months.

In the residential real estate market in 2023, there is a decline, driven by the rise in mortgage interest rates. The total number of transactions has decreased by9.7%compared to 2022, making up709,591 transactionsAccording to the Tax Service, in particular, the first quarter recorded166,828 transactions(-8.3% compared to the same period last year), in the second it was184,116 transactions(-16.1%), and in the third quarter -157,024 transactions(-10.5%). In the fourth quarter, the number of transactions increased to201 623and the decrease here turned out to be less significant, amounting to -3.3%.

"Due to the anticipated more significant decline, the drop in the number of transactions turned out to be less pronounced, considering the decrease in the volume of mortgage lending. The market is withstanding pressure as the demand for quality housing remains high. Financial support plays an important role for many families; however, the market is likely to normalize soon at interest rate levels around..."2.5%", said Marco Speretta, the CEO of the Gabetti group.

According to data from the Gabetti Research Office, price indicators remained positive both compared to 2019 (+17%) and compared to the average over the last 10 years, showing growth in24%This makes 2023 the third most successful year after the records set in 2021 and 2022.

Changes in macroregions

In all macro-regions of Italy, the year 2023 was also marked by negative changes: in the north, the decline amounted to10%, in the center -13.1%, and in the south -6.2%Overall, a decrease has been recorded in the regional capitals.10.7%, while in non-capital cities - on9.2%If we look at the largest cities in Italy by population, in 2023, it has been recorded115,030 transactionsthat on11.9%lower compared to 2022. The related regions also showed a decrease of10.3%Compared to last year, all major cities reported a negative trend:

• Bari (-19.1%)
• Bologna (-16.1%)
• Rome (-14.4%)
• Milan (-13.2%)
• Florence (-12.8%)
• Padua (-12.7%)
• Genoa (-8.0%)
• Turin (-7.8%)
• Palermo (-5.2%)
• Naples (-4.4%)

As for housing prices in Italy, in the second half of 2023, there was an average change in dynamics at just the level of0.1%...which indicates stability compared to the first half of the year, with an annual change at the level of...0.2%If we recall the dynamics over the past six months, all major cities showed stable values in the second half of the year. The average time to sell property in major cities was about4.3 monthswhile the average discounts at the completion of deals remained at the level10.5%.

Forecasts for the residential market indicate that with more than700,000 transactionsThe year is coming to an end, and the real estate market has faced interest rate levels that are unusual for recent times. The year 2023 marks the beginning of a new cycle in the real estate market, different from the three years of the pandemic (2020-2022), and in the next couple of years, we expect a normalization of rates at around2.5%...until the European Central Bank's (ECB) concerns about inflation are fully addressed.

Current demand and forecasts

The modern demand for housing has become more demanding, as families realize the need to live in homes that often do not meet contemporary standards for energy efficiency, spatial flexibility, comfort, and the integration of new technologies. However, the Italian economy remains strong and suggests possible improvements in the macroeconomic context: GDP growth is expected to reach in 2024.0.7%The unemployment rate is the lowest in Europe (the highest in Europe and for the third consecutive year better than in Germany), while inflation in February reached the lowest level in Europe (+0.8%). At the same time, the number of employed continues to grow, especially in new permanent contracts (+2.4%).

In this context, optimism about the future remains high, considering the decline in inflation, which could lead to the first decrease in the ECB's interest rate.25 basis pointsfrom June to September of this year.

Real estate investments

As for real estate investments in Italy, the first quarter of 2024 saw a recorded...1.8 billion euroscorporate investments, which is on1 billion aboveCompared to the same quarter of 2023. Thus, the beginning of the new year confirms the trend of investment growth noted in the fourth quarter of 2023, suggesting a positive shift compared to the first nine months of last year.

“Despite the fact that the rise in the cost of borrowed funds has negatively impacted asset allocation across Europe, the first quarter showed positive results for Italy, which remains a country with low investment risk, andMilan continues to be a driving force for institutional investments. The focus in asset allocation has been on core and trophy assets, as well as value-added operations aimed at adapting to the growing multi-tiered demand based on ESG principles. The year 2024, with solid economic fundamentals and monetary conditions that seem to be becoming more flexible again, could be a turning point when real estate investments become more attractive compared to financial markets,” noted Alessandro Lombardo, Commercial Director of the Gabetti Group.

Popular asset classes

Among the most popular asset classes in the real estate market are:

• Office spaces, taking first place with540 million euros29% of the total investment volume, which is more than double the figures for the same period in 2023. InMilan, the volume of office space rentals amounted to91,000 square metersthat on1%compared to the first quarter of 2023, an important event was the signing of a contract for15,000 square metersin the heart of the Porta Nuova district with a leading tenant in the insurance sector. InRome, on the other hand, there is a slight decline following the record set in the first quarter of last year, with the absorption of office spaces in31,800 square metersRental rates in the center ofRome have remained the same.510 €/m²/yearfor the EUR zone, they amount to360 €/m²/yearInMilan, rental rates in the central areas have remained at the same level.700 €/m²/yearThe prime net yield conditions in the central business district of both cities remained at the same level.4.75%forRome and4.25%forMilan.
• Mixed-use developmentswith almost500 million euros27% of the total volume, achieved through the acquisition of the railway sections of Farini and San Cristoforo, which are part of the renovation project initiated by theMilan city hall. This deal became a key investment for the quarter.489.5 million euros).
• Logisticstakes the third position, receiving just under340 million euros19% of the total volume, with an increase of28%Compared to the same period in 2023, investor interest in this area is mainly focused on northern Italy, which, due to its geographical location and developed infrastructure, is attractive for those seeking modern warehouse facilities.
• Hotel industrylocated slightly below logistics, with a total investment volume of246 million euros14% of the total volume, which exceeds the average figures for the last five years.220 million eurosThis indicates that investors still see potential in this area, supported by the recovery of demand from foreign clients after the lifting of restrictions. In recent years, it has become clear that the hospitality industry needs to adapt to the growing demands and needs of discerning clients, which has also been reflected in new projects for reorganization and rebranding.
• Residential sectorwith90 million eurosonly takes5%The overall volume has shown potential for growth, despite a limited number of transactions, which is related to the transformation of office spaces into housing. Most transactions took place inMilan, which reaffirms its position at the center of investor interest. Although volumes show a decline compared to the previous year, this sector is largely affected by a lack of supply amid rising demand, concerning both the rental and sales segments, as well as various forms of collective housing, including student and senior living sectors.
• In the first quarter of 2024, there is a slight recovery in the retail sector, with volumes amounting to66 million euros4% of the total volume, which is mainly supported by the segment of large trading operators (GDO) and big stores. In terms of geographical location, the central and southern regions of the country show the greatest dynamics.