Outlook 2023: e-commerce boost for Italian logistics sector

E-commerce growth will boost the already booming Italian logistics sector even more, delegates heard at GARBE’s Investment Briefing – Italy: Real Estate Outlook 2023, which took place yesterday on Real Asset Media’s REALX.Global platform.

Marco Grassidonio, Managing Director, GARBE Italy

“This year has been exceptional, with 2.2 million sq m of warehouses being traded in Italy, which is over 10% of the total stock”, said Marco Grassidonio, managing director, GARBE Italy. “Speculative developments are being pre-let before completion after a bidding war, so cashflow is pretty secure. There is still a lot of growth ahead for the sector in 2023.”

The Covid pandemic gave a real boost to online sales, but Italy still lags behind other European countries so there is still a huge growth potential to be exploited.

“We need at least 1 million sq m more logistics facilities to fill that gap,” said Grassidonio. “The most active players in the market are retailers, couriers and e-commerce.”

Last-mile assets are the most sought-after, given Italy’s high population density and large number of cities. “There’s only one thing we cannot build and that’s land,”said Grassidonio.

“E-commerce penetration is well below EU levels so there’s room for improvement and the market is likely to grow further,” said Giacomo Morri, faculty deputy and associate professor of practice in corporate finance & real estate, SDA Bocconi School of Management in Milan.

On the positive side, Italy offers a sizeable market with strong purchasing power, many industrial companies, a stable banking system and strong and growing demand. The weaknesses are the north-south regional divide, a culture of risk aversion and a cumbersome bureaucracy.

However, the positives outweigh the negatives, said Grassidonio: “The sector is experiencing rental growth above inflation, higher than expected, and this compensates for the factors like the lengthy and complex permits process or high construction costs.”

Foreign investors have increased their dominance of the market and now account for 75% of transactions in Italian real estate, compared to 70% last year.

Most investments are done in the North of Italy, which is a strong location for logistics as it is so well connected to the rest of Europe. “Cross-border investors tend to be very careful about investing in the centre and south of the country,” said Grassidonio, but these regions offer great opportunities as product availability is very low.

“Investment volumes have skyrocketed in the last few years but looking ahead logistics is still an interesting sector to invest in because of the continuing lack of supply,” said Morri. “There is still a real lack of Grade A modern assets.”

In the last five years investments have grown by 31%, but the current crisis due to economic and geopolitical uncertainty is leading to a pause in the market.

“The main reason activity is slowing down is the gap between sellers’ expectations, which are stuck at six months ago, and buyers’ expectations that factor in future risks,” said Grassidonio. “But we expect there to be a new window of opportunity in Q3 2023. Capital preservation is guaranteed because rents are growing faster than inflation, so despite yields compressing there is still a lot of upside in Italian logistics.”