Outlook 2024: more Italian players needed to grow market

The Italian market has performed better than other European countries but its real estate sector needs more domestic players, experts agreed at Real Asset Media’s European Outlook 2024 – Focus on Italy briefing, which took place in Milan last week and was hosted by CMS.

The CMS event in Milan: from left to right: Chiara Ambruzzi, Sandro Campora, Jean-Luc Saporito, Sameer Godbole

“If you look at the numbers, Italy has done a bit better than the EU and much better than Germany in 2023, but the underlying weakness is investment volumes, which are too low for a country like Italy,” said Chiara Ambruzzi, deputy general manager, head of real estate finance Milan, Bayerische Landesbank.

The country has attracted significant interest from foreign investors in the last few years, but it is still punching below its weight.

“The peculiar feature of Italy is the size of the market,” said Sandro Campora, country manager Italy, CBRE Investment Management. “€6.2 billion is objectively too small, and even the record 2022 figure of €12 billion is very low, compared to other countries. We need to bring investment volumes to Spanish levels.”

From this point of view, 2023 was a year of disappointment that just heightened the market’s negative characteristics.

“There are two distinct aspects to Italy’s performance in 2023,” said Sameer Godbole, investment director, Coima SGR. “The demand side has been strong, especially in the office and logistics sector, and from this angle Italy has performed better than other European countries.”

However, Godbole pointed out, from a capital markets point of view, things have not gone so well: investment volumes have been badly dented, although less than in the UK or in Germany.

Prospects for the year ahead are positive, at least for H2, as the expected decline in interest rates should kickstart investments as real estate becomes competitive again.

“The question now is how to increase investment volumes, and I think Italian investors should play their part,” said Campora. “Most transactions are done by foreigners, and Italian equity is largely absent. Private pension funds and insurance companies’ allocations to real estate are significant, in some cases as high as 20%, so we cannot ask for more. But the truth is that INPS, the state pension system, is not an active investor, and there are too few pension funds.”

To give an idea, €100 billion is the sum total of all Italian pension funds’ AUM, which is the same amount that is managed by just ten pension funds in Australia, a country with a population less than half the size of Italy’s.

“The problem is that pension contributions are not being invested in the market, so we need new players,” said Campora. “Until they emerge, Italy will not catch up with other EU countries.”

There are some positive signs that Italian investors are stepping up to the plate, but they are still the exception rather than the rule.

“At Coima we have a lot of Italian investors, not just foreign,” said Godbole. “We’ve found domestic institutions are very interest in urban regeneration. Our Porta Romana development is mostly financed by Italians. But this positive experience must be vastly expanded.”

Italians’ reluctance to invest even in a sector as successful as logistics is a measure of the problem.

“On the development front, Italians are just not present, yet companies like mine and a multitude of private equity funds find great opportunities in Italy,” said Jean-Luc Saporito, managing director Italy, Panattoni. “This has been an issue for 15 years. Italians need to be more far-sighted because there are huge opportunities they still just don’t seem to see.”