Outlook 2023: Italy in a good position after strong rebound

More investors are expected to target the Italian market after a stronger than expected performance in 2022, experts agreed at GARBE’s Investment Briefing – Italy: Real Estate Outlook 2023, which took place this week on Real Asset Media’s REALX.Global platform.

Giacomo Morri, Faculty Deputy & Associate Professor of Practice in Corporate Finance & Real Estate, SDA Bocconi School of Management, Milan

“It has been a good year for Italy, with a strong rebound after the pandemic and 3.7% GDP growth,” said Giacomo Morri, faculty deputy and associate professor of practice in corporate finance and real estate, SDA Bocconi School of Management in Milan. “Investment volumes in the real estate sector are expected to be higher than the €12 billion peak recorded in 2019.”

Foreign investors account for 75% of deals across real estate. Most capital comes from Europe (61%) but Middle Eastern funds and US private equity companies also have a strong presence.

“Italy is attractive because returns tend to be higher than in the rest of Europe,” said Marco Grassidonio, Managing Director, GARBE Italy.

Offices continue to be the most attractive sector for both domestic and international investors. “In the last three years office rental levels have been stable, but there is such a shortage of Grade A, ESG-compliant assets that rents are now rising in Milan and Rome,” said Morri.

The search for quality is noticeable in the retail sector as well, as prime shopping centres and retail parks continue to be in demand.

“Retail in general has seen a reduction in investment volumes, but there is strong interest from luxury brands that want to have a presence in the main shopping streets in Milan, Rome, Florence, Venice and other tourist destinations,” he said. “Tourism is recovering strongly, which is a real positive for Italy.”

International tourists have returned with a vengeance after pandemic-related travel restrictions were lifted, and this is boosting the hospitality industry. Visitor numbers to Rome are expected to return to pre-Covid levels in 2023, with other cities following soon after.

“Transactions in the sector represent 16% of total investment volume in Italy, compared to an average of 5% in Europe, which shows the level of interest,” Morri said. “The market is very fragmented and made up of privately-owned and managed hotels, so brand penetration is one of the lowest in Europe.”

Big brands represent 21% of total keys, compared to 58% in the UK and 57% in France. “But the market is changing fast, and there are four new luxury hotels opening in Rome alone,” he said.

Morri’s advice to investors interested in the Italian market is to have a strong presence or a good partner on the ground. “Remember that Italy is divided in 20 regions, 107 provinces and nearly 8,000 municipalities, all with different rules in terms of zoning, permits and real estate development,” he said. “Local knowledge is absolutely essential in order to operate.”