The office market in Italy has seen a sharp contraction in 2023, and Rome is catching up with Milan. Take up in the business and financial capital decreased by 8% to 480,000 sq m, but in the political capital it increased by 65% to 255,000 sq m, according to new figures by CBRE.
The figures also show that last year the office sector accounted for €1.2 billion out of total transactions of €6.6 billion, a 74% drop on 2022 and sharper decline than the -44% recorded by the wider real estate sector.
However, rents have remained stable, at €700 per sq m on average in Milan and €580 per sq m in Milan, while net yields vary between 4% and 4.5%, JLL research shows.
“In Q4 2023 the office rental market in Milan increased by 39% on the previous quarter and was 10% above Q4 2022 figures, but the annual figure is down 15%,” said Stefania Campagna, head of markets, JLL Italia. “Demand remains concentrated in a few areas, the city centre, Porta Nuova and City Life.”
The main trend in the Italian office market is sub-letting. Many companies, notably the main Italian banks, need less space as working from home has taken hold, at least for a couple of days a week. In Milan, for example, 42,000 sq m, around a tenth of total office space, has been sublet.
Unicredit, one of the largest banks in Italy, has sublet its iconic 20-storey tower B in Porta Nuova and has moved the 1,000 employees who worked there to tower A nearby and to other out-of-town offices.
“We have rationalised the space we occupy in line with the new ways of working,” said Salvatore Greco, head of group real estate, Unicredit. “We have reduced space by 700,000 sq m, and cut the number of offices from 26 to five, as smart working has reduced attendance to 60%.”
Intesa Sanpaolo, another large Italian bank, cut its office space by 258,000 sq m in the last two years while investing in a shiny new tower, “Scheggia” or “Shard”, which is high-tech and ESG-compliant.
Deutsche Bank, which had a 37,000 sq m office in Milan, has decreased its space by 40% and is subletting two wings of the building to companies in the fashion and tech sectors on 10-year leases.
The good news is that as soon as these modern prime spaces come on the market they are snapped up by companies in all sectors that are keen to move to a better location even if it means downsizing.
A prime building with good public transport access is easily rented out as this is an incentive for employees to come to the office. The vacancy rate, which is 8% overall in Milan, is much lower (2.6%) when it comes to prime offices.
Further polarisation of the market is forecast in 2024, with ESG-compliant buildings in good locations in great demand and the rest struggling to find tenants.