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Non-residential investments have decreased, although not so much as expected

04 February, Il Sole 24 Ore

The final rush in the real estate operations in the last quarter of 2018 swept away the worries for a possible sharp decrease in volumes compared to the 2017 record performance with 11 billion.

According to Cbre, non-residential real estate investments in Italy were equal to 8.856 billion euro (resulting in a 22% reduction from 2017). Bnp Paribas Real Estate reports a good performance of the office sector in the fourth quarter of 2018 with volumes set a 3.5 billion, one of the best Q4 of the last five years and third best Q4 of all times.

However, the figures don’t match. Colliers estimates volumes for 8,1 billion, while Cushman & Wakefield for 8.3 billion and Redilco for 8.5. The issue of market transparency had re-emerged, and data sharing would be definitely useful for the sector.

Cbre reports that the retail was the segment that reacted the best to the market contraction. With volumes for 2.243 billion, it was one of the most performing asset classes of the past year (-6% from 2017).  The segment had been most impacted by the reduction of consumptions and by the rise of e-commerce which demands a certain caution from investors. Despite the fears for an end like the American malls, closing one after another, and the threat represented by the internet, the truth is that the segment is going through a radical change. The way of shopping is changing. There will be more virtual shops, while physical shops will only showcase products. Transactions in Italy had concentrated in shopping centres. These, however, have to re-think their future. Some of them have already been repriced, according to the experts. Volumes have fallen by 17% for offices, setting at 3.418 billion, and by 10% for logistics.

Concerning the office sector, Milan is still the primary market with investments for 2.077 billion. Rome maintains a good take-up level in a market that continues shrinking. Cbre is ready to bet on hotels, seen as the most promising asset class for 2019. “We’d registered volumes for 1.3 billion in 2018 (the number includes not only luxury hotels, as in the JLL estimate, but also hotel reconversions and NPLs)”, says Francesco Calìa, head of the Cbre hotel division – “At the beginning of the year, assets for sale were already 800 million”. According to Joachim Sandberg, C&W manager for Southern Europe, offices have been the segment that was impacted the most, registering a 35% decrease. “In 2019, we’ll be more selective on cities. Retail is perceived as risky, although this view is not justified for Italy. The issue will always be the shortage of product. We’ll have to wait for 2020-2021 for new products”.

In any case, 2018 confirmed the interest of international investors for Italy, seen as a core country in the European asset allocation, despite the uncertainties of politics which had characterised a good part of the past year and caused the spread to rise, deterring or delaying some operations.

According to Bnp Paribas, 2018 closed with investment volumes over 8.6 billion. Several factors had determined the reduction. Some are the shortage of product, the returns consistent with the trend of mature markets, and the absence of large portfolio operations. Bnp disagrees with Cbre about Rome. “Offices had grown by 30%. The Capital had benefitted from the high prices of offices in Milan in combination with more cautious international investors”, comments Cristiana Zanzottera from the Bnp research centre.

In 2019, the attention will focus on hotels, according to Colliers. The sector saw transactions such as the one for LaGare in Milan and Venice for 105 million and for the Castello in Casole. The largest operation, however, concerns Belmond. 50% of the hotels of the brand are in Italy, all trophy assets like Cipriani in Venice, Villa San Michele in Fiesole or Caruso in Ravello. But there are also other transactions in the pipeline. Capri Palace of the brand Mytha Hotel Anthology and the Aldrovandi hotel in Rome, always of the same group, are allegedly for sale.

Davide dal Miglio from JLL recommends caution with hotels, as the asset class is very fragmented in Italy. He says: “I believe that, when we talk about hospitality, we should also include student housing and senior living”. In 2018, JLL reported volumes for 83 billion. Transactions are for smaller amounts than in the past, 50 million on average instead of 70.

For what concerns prime net returns, offices in Milan in Q4 were stable at .3.30%. Returns for logistics are set at 5.25%. Sandberg concludes: “the problem with logistics is finding assets”.

Source: Il Sole 24 Ore

Translator: Cristina Ambrosi

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