International capital flooding back to Italian market in Q2

The positive Italian story continues and foreign investors are flooding back to the market, Coima said yesterday in its quarterly market update.

“2024 has the potential to be a very attractive year for investors, as less competition and lower prices create positive conditions,” said Manfredi Catella, founder & CEO, Coima. “2023 is a year of consolidation and transition.”

Transaction volumes have fallen significantly this year: in H1 the figure was €2.2 billion, a 65% drop from the €6.2 billion recorded in the same period of 2022. Coima expects the yearly figure to be in the €5 to €6 billion range.

But strong fundamentals are giving new impetus to the market, Catella said, and the political and economic context is helping. The right-wing coalition is providing stability and continuity, in alignment with EU policies, GDP growth is expected to be 1.2% this year, higher than the EU average and well above the UK and Germany, and inflation and unemployment are on a downward path.

A substantial percentage of EU funds are being directed by the government towards urban regeneration. “There is funding for real projects and new thematic funds for urban regeneration and tourism & hospitality to combine public and private investments,” said Catella. “Also the disposal of public assets has started, which will create opportunities for investors for outright acquisitions or partnerships,” he added.

In the office sector, tenants are focusing on best-in-class, sustainable assets in well-connected locations. In Milan’s CBD, prime rents in Q2 increased 21% to €700/sq m and the vacancy rate is 2.7%. In Rome the vacancy rate is even lower (1.3%) and prime rents are €530/sq m, a 25% increase on pre-pandemic levels. Demand in Italy’s capital city has almost doubled (+95%) in H1 this year from H1 2022.

Demographic trends are also supporting the residential sector and in particular the rental market. A favourable tax regime, designed to lure professionals who live abroad back to Italy, seems to be working. In Milan the number of people in the 19-44 age range has increased by 8%.

“There are some large scale resi projects like Porta Romana, Sesto, Santa Giulia and Farini being built, but all these together cover only 40% of the expected shortage, so we need many more developments as well as conversions of offices to resi,” said Catella.

In Milan 40% of residents rent their home, compared to an Italian average of 25%, but supply falls far short of demand. The PRS sector is virtually non-existent, accounting for less than 5% of all rental homes in Italy.

The logistics sector also continues to be in demand, with a take-up of 1.5 million sq m in H1 this year, a 50% increase on the last five-year average, and the vacancy rate is 1.7%, much lower than the 3.5% EU average.

“In Q2 we have seen the comeback of international capital to the Italian market, as it accounted for over 70% of transactions, and there are more deals being done in Q3,” said Gabriele Bonfiglioli, chief investment officer, Coima. “Cap rates are expanding across asset classes and high quality sustainable assets in prime locations are still retaining a price premium, given scarcity in the market.”