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High hopes for Italian real estate’s prospects in 2021

Palazzo Poste.

The Italian real estate market is starting the year in a positive mood. Despite the challenges, transactions ended 2020 above the ten-year average. And, in spite ofthe question marks over the future of offices owing to the shift to home working, the last two weeks of December alone saw office transactions worth over €800 million take place in Italy.

One particular reason for optimism is the return of domestic investors to a market that used to be dominated by Asian and US investors.

Among the latest deals, a consortium led by Mediobanca bought the historic Palazzo Poste (pictured above) in the centre of Milan for €247.6 million and Ubi Banca bought offices in Milan for €400 million.

The other reason for optimism is that international investors did not disappear. There was a bidding war for Palazzo Poste with international buyers involved and, just recently, Allianz Real Estate bought an office building in Rome for €200 million while Axa IMRA acquired an industrial portfolio for €270 million.

Office sector remains largest despite 25% decline

The office sector saw a 25% decline last year to €3.8 billion, but it remained the biggest asset class with investment volumes 20% above 2018 levels according to provisional figures released by Cushman & Wakefield.  

Logistics attracted considerable interest as e-commerce boomed, and there were many deals. However, valuations remained low compared to offices.

However, thanks to some large deals, total investment volumes in Italy reached €8.5 billion, a sharp drop compared to the €12 billion figure reached in 2019, but still above the ten-year average.

The worst-performing sectors, unsurprisingly, were hotels and retail.

The hotel sector plunged 75% from the record levels of 2019 when investment volumes reached €3.2 billion. Travel restrictions imposed because of the pandemic killed the tourist season and stopped virtually all business travel as well.

Retail only attracted €1.26 billion in investments in 2020, a 43% drop compared to two years ago and a decline which was accelerated by the long weeks of lockdown with shops and shopping centres closed.

The expectation for hospitality and retail is that 2021 will be a year of transition and ‘healing’ and that recovery will come in 2022, once the pandemic is well and truly over.

For the market in general, recovery should come earlier. “I am moderately optimistic for 2021,” said Joachim Sandberg, head of Cushman & Wakefield in Italy. “Interest rates are still extremely low and there is a lot of capital ready to be invested. The market is small, but it has huge potential.”