Italian Real Estate Overview H1 2020

Raffaella Pinto • 31/00/2020

COVID-19 has changed our lives. As a global community, we are finding our way forward, taking it one day at a time and accept we will continue to navigate through “unchartered waters” at least until the beginning of 2024, when 2019 GDP level should be recovered. In Italy the real economy will be hard hit and estimate for 2020 GDP reflects a contraction of more than 9% with the anticipated impact on the labour market still difficult to assess. There has been unprecedented levels of financial support from both the Government and the EU and we have seen some positive effects on households and businesses during May and June. The recently approved EU Recovery Fund marked a further positive step on the way to economic recovery and boosted confidence in the financial markets. We believe it will continue to support the economy in the second half of the year and create a positive position as we move through 2021 and 2022.

From a real estate perspective, Italy entered this crisis in a better shape than it did in the previous Global Financial Crisis: more solid fundamentals, a record ever year in 2019, huge liquidity to be deployed in the real estate sector, at least €20 bn equity according to a recent investment survey by Cushman & Wakefield Italy. Milan attracted unprecedented capital flows from foreign investors, and it is in the middle of a new renaissance. A number of regeneration projects are reshaping the city, which is moving outside the Municipality’s border and getting bigger: the Greater Milan. These are some of the factors that made the half yearly data better than expected and that will continue to underpin the real estate performance in the coming months.Investment has been supported by the strong pipeline seeded last year standing at approximately €4 bn, “only” 25% below last year volume.

Investors are changing strategies, with a more cautious approach and long-term view. We captured both investors and consumers sentiment and the outcome surprised us in a positive way. There’s a strong desire from people to come back to “normality.” Although fears about the spread of the virus are still present, we are getting used to living with it. Since the end of the lockdown, retail footfall recovered almost 80% of it was pre-covid and people still appreciate the “physical” shopping experience despite the growing online retail during the lockdown. It will be a different experience from the pre-covid: less leisure and more “focused on essential shopping”.

Hospitality sector, which is suffering most in terms of occupancy due to low tourist flows, continue to be under the investors’ spotlight. Tourism is one of the biggest industries in Italy, representing 13% of GDP, but the market is characterized by a fragmented ownership with lack of international hotel chain penetration and quality supply. This moment could represent an opportunity to enter the Italian hospitality market for international investors with an aim to create new quality supply and to potentially implement a new platform in the country.

The living sector is accelerating its steps towards institutional real estate. In the first half of 2020 6% of the investment flows into living from a negligible level in the previous years. Structural changes in demand combined with its resiliency are driving investors to this “new” sector. This will be the big challenge and opportunity facing the Industry for the future.

Overall, we’re seeing our world under big pressure from the ongoing changes but also demonstrating an amazing ability to adapt. From the workplace to warehouses and everything in between, there is no question that real estate is in the process of evolving. There are not winners nor losers, there are sectors that will be able to adapt to changes faster and other that will take more time. And this is not because of Covid-19, it’s the normal evolution.

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