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Italian Real Estate Overview 2021

Raffaella Pinto • 07/02/2022
2021 ended marking an unprecedented growth for the Italian economy, surpassing +6% increase in GDP. The fast-recovering economy, high level of Covid vaccination rate (among the highest in Europe) combined with Mario Draghi’s reliability earned us this unprecedented recognition.

As the Country’s economy continues to grow so does the real estate sector. 2021 data shows sound results in both occupier and investment markets. Investment volumes stand at circa 10 €Bn, +11% on 2020 and we start 2022 with preliminary agreements signed for over 2€Bn. Capital flows for real estate are still robust and Italy is well positioned to attract them, thus 2022 is projected as another good year.

The office market reacted positively throughout the year in both Milan and Rome, with an annual absorption which has returned to healthy pre-pandemic levels. Specifically, Milan reflected an increase of 11% on the 10-year average and circa +30% on 2020, while in Rome, figures were roughly 15% above the 10-year average and +40% on 2020.

Industrial & Logistics ended the year as the first asset class per investments, standing at almost 3 Bn Euro and take-up at 2.5 Mn sqm has been outstanding for the 5th year in a row.

Institutional investors continue to increase their positioning in the Living sector, building new stock by acquiring lands mainly in Milan. It is catching great interest from both domestic and foreign investors. Volume invested stood at around 635 €Mn.

The Retail sector, after a weak first half due to the restrictions, recovered in the second half from both occupiers and investors’ perspective thus leading to a more optimistic outlook for 2022.

Hospitality continue to show signals of recovery and confidence grows as we are approaching the end of restrictions from the pandemic. With 1.5 Bn Euro of investments, 2021 volume is one of the highest in the past years (excluding 2019). Overall, we are entering 2022 with robust fundamentals for the property sector.

One of the major growth slowdowns for the Italian real estate market, the size (in terms of investible stock, investible markets / cities, sectors) is slowly been overcome. In the last 10 years Italian Real Estate investment market reached an average of circa 7 €Bn yearly against 5 €Bn yearly from 2000 to 2009.

Growth drivers of the market in place are:

  • Urban Regeneration: a number of large mixed-use urban regeneration projects will be launched over the next 2/3 years and will create new investible stock.
  • Impact of demographic and consumer demand on new assets classes development.
  • Alternative investment products could be developed beyond traditional target cities.

Thanks to the economic recovery and the projects driven by the PNRR all these elements would certainly bring an increase of the average market size.

Opportunities will continue to be driven by the increasing demand for ESG driven investment which is reshaping the portfolio sector allocation for institutional investors. Retrofitting obsolete office buildings, re-purposing existing assets according to the new urban trends, addressing the living sector comprising all its nuances (affordable living, student accommodation, senior living, etc), tackling niche investments such as life-science, healthcare, data center, etc.

Reasons of concerns for the months to come: inflationary pressures, a possible hike in interest rate, supply chain disruption. Will prime yields continue to be sustainable? What if the cost of capital increases? Are just few questions to address, but we are confident that fundamentals have improved and therefore will back another good year.

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