Real estate forecast in Italy for 2024

The year 2024 has now fully unfolded and real estate market experts are taking stock and making predictions for the sector in the coming months, starting with the events of 2023. Macroeconomic and especially interest rate changes caused a decline in transactions last year, but the signs are moderately positive for the various real estate sectors in 2024, albeit with caution. Here's what experts predict for the real estate market in Italy in 2024 and which sectors to watch out for.

Residential real estate market in Italy

According to the research department of Tecnocasa, the year 2023 closed with a reduction in purchases and sales in the residential real estate market in Italy compared to the previous year. We are talking about 680 thousand transactions, which could further drop to 650 thousand by 2024, with prices rising by up to 2 percent. However, these are figures that indicate a healthy market: 'Interest rates, which are still high and for which an improvement is predicted by 2024, together with the caution of banks, are factors that make access to credit still difficult, especially for those who must turn to large financing,' explains Fabiana Megliola, head of research at the Tecnocasa Group. - This can lead to lower prices, especially for the more popular property types and larger sizes.

The reductions are not expected to affect smaller sizes that do not require significant capital. We do not expect significant price reductions for luxury properties that are in excellent condition and efficient, on which people are willing to spend a little more. Home prices will depend, according to Megliola, on the availability of an adequate supply of product. "New construction will be most likely in the big cities, while it may slow down in the hinterland and in provincial capitals, where construction costs are too high to ensure good market absorption. Prices for repair solutions requiring significant work are also expected to fall. In regions where there is still a lack of supply, prices will hold up despite the reduced affordability of costs, especially in large cities.

The situation may change the choice of investment in residential real estate, especially with regard to rental income. "Investments will remain an important part of the market in both short-term and long-term rentals, but in the latter case with greater attention to the solvency of the tenant, from whom more guarantees may be required," says Megliola. - In fact, many are switching to short-term rentals. The outlook is also positive for tourist resorts where, despite less intense demand in recent years, there is still some interest from foreign buyers. Rents will continue to rise due to good demand. Lack of supply, especially in light of the return of short-term rentals, will lead to further price increases. Of course, we will need to take into account the development of the economy, for which weak growth is still expected, the trend that inflation will take, and which direction business and consumer confidence will take.

Italian real estate investments in 2024

Expanding on our view of large real estate investments, Savills Investment Management (Savills IM) sees several sectors in 2024 offering lucrative opportunities that remain robust in terms of protecting capital and generating stable income. Key driver: the transition to zero emissions and ESG.

Consider the following sectors:

• Rental housing: historically, at least in the local market, this has been the prerogative of private individuals, but it still shows favorable dynamics of fundamentals that make the sector's potential attractive to all institutional investors. The need to create a modern product that meets the desires of users will make a decisive contribution to supporting significant amounts of new investment in the sector.

• Logistics: the rental momentum in major logistics centers will continue into 2024. Vacancies are virtually non-existent and existing stock is generally relatively old; the potential for modern, efficient, sustainable and properly located real estate is huge.

• Real estate: another area to look at is real estate sales. According to Andrew Allen, Global Head of Research, Strategy and Product Development, "Real estate is the allocation that today offers the best risk/return ratio, providing solid protection against underperformance. In a time of uncertainty and volatility, the certainty and stability of cash flow that the issuance of large real estate loans provides is now the most attractive type of investment for investors."

Offices in Italy

According to JLL's analysis, the office rental market amounted to about 680,000 square meters in 2023, with 426,000 square meters inMilan and 250,000 square meters inRome.

For 2024, the focus of tenants on the quality of offices and compliance with ESG requirements is confirmed, especially in light of the approaching 2030 deadline for achieving sustainability goals.

Alongside the consolidation of hybrid work models, Italy is confirming a significant return to offices, especially inMilan (85%), which is much higher than the average levels in major European and American cities. According to this trend, a rationalization of corporate space is expected, with an increase in subleasing and a search for quality space in well-serviced and connected areas.

"In the fourth quarter of 2023, the office rental market inMilan shows growth compared to the previous quarter (+39%) and is even higher than in the fourth quarter of 2022 (+10%); however, the year ends on a downward trend compared to the record levels of 2022 (-15%).