The growth of alternative asset classes is a positive for Italy as it benefits the whole country and not just the main cities, 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.
“Alternatives are more in demand from our clients, and we are seeing a lot of interest in student housing,” said Dietmar Zischg, partner, CMS Adonnino Ascoli & Cavasola Scamoni.
Such interest is sparked by a growing awareness of the huge gap between demand and supply.
“Italy’s provision rate is the lowest in Europe so there’s a huge potential for the sector to grow,” said Mario Pellò, head of GA, real estate Europe, Nuveen. “The real issue is understanding demand. Where historically student housing has been of low quality, in recent years the focus has been on developing high-quality, modern and expensive PBSA. It’s like wanting a watch but having a stark choice between a plastic toy watch or a Patek Philippe.”
Price levels can be too high for most students, and there’s a big market in the middle that is not being developed.
“There’s an increasing interest in Italy in sectors where you can add value, not just from the building, but also from the operational side and student housing is the perfect example,” said Michele Beolchini, head of product development and fund management, Investire SGR.
Investire is active in three segments across the asset class: low-cost social student housing, mid-range accommodation aimed at Italian students and high-quality PBSA that targets mainly international students able to afford higher rents.
“The market is still underdeveloped,” said Beolchini,. “There are still not enough pension funds, insurance companies and other institutional investors willing to buy assets and find operators that will make them profitable. We need more core money.”
Build and they shall come, said Pellò: “Nuveen would be happy to buy ready-made assets if they were available, but lack of product is forcing us to develop them.”
Addressing regional imbalances
“There are many foreign pension funds dedicated to student housing in Southern Europe, Italy included, because they can see the supply/demand imbalance,” said Zischg.
The development of PBSA, at all levels, will help address the imbalance between big cities like Milan and Rome, which tend to attract most of the investment in all real estate sectors, and the rest of the country.
“The good thing about student housing is that the demand is equally strong or even greater in Bologna, Parma, Turin, Florence and many other University towns in Italy,” said Pellò. “While logistics and retail tend to focus on specific areas and corridors, student accommodation is needed across the country.”
The same applies to senior housing and healthcare, another sector that has a huge potential to grow right across the country, not just in the big cities but in smaller towns and in secondary locations.
“Healthcare, like student housing, can be developed all over the territory of Italy,” said Lorenzo Baroni, founding partner, Silver Fir Capital SGR. “We’ve invested in Parma, Piacenza, Venice and in smaller towns where you wouldn’t buy an office. The dynamics of the sector are different, it relies on long leases and good catchment areas.”
The sector is highly fragmented, which tends to be the case in Italy, with no large-scale operators. It is difficult to buy portfolios, so investors have to make acquisitions asset by asset.
“Developing new product is extremely complex,” said Baroni. “But there’s a lot of interest from foreign institutional investors. In some cases the sector is accounting for 20-25% of their European allocations, which shows quite a strong commitment.”
Italy has the oldest population in Europe so demand for healthcare assets and retirement homes is driven by demographics, but investors’ interest is not matched by availability of product.
“It is very difficult to find ESG-compliant, modern assets which are badly needed and Italian bureaucracy doesn’t help,” said Beolchini. “We need to solve this equation because there’s plenty of capital ready to be invested.”