Real estate in Italy: retail property is attracting investors again.

October 25, 2023, 1:53 pm, 3 min read

More than 90% of the managers surveyed have investments in the retail sector, and 80% of them allocated Italy a share of their investments. Meanwhile, about 40% have invested more than 200 million euros, mainly in streets and shopping centers located in northern and central Italy. This was revealed in the annual EY Retail Property Investments Barometer Italy survey conducted by EY's Strategy and Transactions department for July-September 2023. The survey aimed to assess perceptions and confidence in the retail segment in the Italian real estate market, as well as to identify sentiments regarding investment and management strategies and future prospects for this area. The survey included key industry participants, including real estate companies, fund and asset managers, and financial investors who are also diversifying into real estate nationally and internationally. Marco Daviddi, Strategy and Transactions Partner at EY Italy, commented, "Our research shows various opportunities for the revival of the retail segment in real estate investment strategies. Of course, Italy has a product quality problem, which, with the exception of the "high street" section, is considered to be qualitatively below the European average. And there is a sense of risk associated with online shopping (33% see it as the main risk in the sector), rising operating costs (31%) and declining consumer spending power (29%). At the same time, 85% of respondents are interested in investing to improve the performance of assets in the portfolio to mitigate existing risks. Revamping merchandising is one of the top goals (54% of respondents are interested), followed by energy efficiency (27%). Investing in digital technology is also becoming important to 60% of respondents, with a focus on operational efficiency. We were also pleasantly surprised by the confirmation that this segment remains in investors' plans - 63% plan to invest in the next 3 years, attracted by the opportunity to develop innovative products that could redefine the role and importance of such real estate complexes. "

There is a strong focus on ESG criteria, which underpins the strategies of 90% of respondents.

In addition, environmental issues and reducing energy consumption are important, which can be a key element for the industry. In fact, 61% of managers say they intend to invest in improving the environmental impact of their properties, mainly through reducing consumption. Social and ESG values are also in the strategies of 37% of investors who pay attention to issues such as inclusion and solidarity. In fact, 90% of respondents stated an intention to undertake activities in the near future that could have important implications in this regard, including charitable campaigns and attention to inclusion, thanks also to the role of shopping centers in certain contexts. As for divestment, 30% have foreclosures going on. Also, 30% of respondents are currently busy refinancing their retail real estate investments in Italy. The quality of retail facilities in Italy certainly affects investment strategies. Interviewees gave a positive assessment of "high street", considering it qualitatively equal to or above the European average, in contrast to "retail parks" and especially shopping centers, which are of generally average quality, equal to or below that of European facilities of this type. In general, the positive orientation and interest of operators in this sector seem to be driven primarily by the prospect of the higher returns that the retail sector in Italy can offer compared to other types of real estate. These prospects can counterbalance general risks such as the cost and availability of financing and increased management costs, as well as specific risks inherent in the field such as online commerce competition, the risk of reduced consumption and, as we noted, perceived average product quality. Overall, the survey shows that many investors are turning their attention back to the sector, especially those who have already invested heavily in the past, because of the prospect of the higher returns it can bring. However, some unique risks and the need for product customization, which make the market less liquid at present, suggest that trade recovery will be gradual and may only peak in the medium term.