Coima: Italian RE market still attractive despite political crisis

Italy’s political crisis will not derail the economy’s positive growth trajectory and its real estate market will continue to attract international capital, Coima said in a market update to investors yesterday.

“We keep our belief in the strong fundamentals of the Italian market,” said Manfredi Catella, founder and CEO, Coima. “Returns from real estate will increase. Now is the time to screen opportunities and to be ready to invest.”

Manfredi Catella, Founder & CEO, Coima

Transactions reached a record volume of €6.2 billion in H1 this year, almost double the 2021 figure, largely driven by the office and logistics sectors. Logistics investments in Q2 increased by a staggering 264% yoy to €1.2 billion as strong rental growth is expected.

International investors continue to dominate the market and accounted for 80% of transactions this year and they tend to be institutions interested in prime core assets rather than opportunistic funds.

“We’ve seen a real slowdown in private equity activity, they’re taking a wait and see approach,” said Gabriele Bonfiglioli, CIO, Coima. “That means less competition and the opportunity  for broad-shouldered investors with a medium to long term outlook to secure assets in strategic locations at attractive prices.”

A slowdown in investments is expected in the next few months, given political uncertainty and rising interest rates. The resignation of the highly-respected prime minister Mario Draghi yesterday is not good news, but the structural reforms he started will continue because otherwise Italy will not receive the €200 billion in EU funds (PNRR).  

The path is therefore set. “Regeneration projects funded by PNRR are already underway,” said Catella. “€1.1 billion has been allocated to Milan for modernising city areas and €1.9 billion to Rome for interventions in infrastructure and cultural heritage.”

Gabriele Bonfiglioli, CIO, Coima

In many ways Italy is in line with European and global trends. For example, “the transition to green is compulsory and irreversible,” said Catella, infrastructure is closely intertwined with real estate and technology is becoming embedded in real estate products.

Another trend that is accelerating is the post-pandemic flight to quality. “We’re seeing that demand in every asset class and across the spectrum,” said Catella. “The bar will be pushed ever higher in terms of requirements.”

Offices are being upgraded to attract talent and prime rents have increased by 11% in Rome and by 8.3% in Milan. The upward trend will continue because the demand/supply imbalance will remain, given the limited development pipeline.

“We’re seeing strong interest from institutional investors who want to enter the residential market in Italy, which is underdeveloped,” said Catella. “The existing stock is not aligned with new demand and demographic trends, so there’s great demand for new product.”

This will lead to more speculative development but also to more conversions of outdated office buildings in secondary locations that have a residential appeal.