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Investments have decreased but less than expected
04 February, Il Sole 24 Ore
The final rush of real estate operations reported in the last quarter of 2018 had swept away the fear for a plummet in the volumes registered in 2017, namely 11 billion.
According to Cbre, the real estate investment volumes in Italy in the residential segment was equal to 8.856 billion euro (-22% from 2017). Bnp Paribas as well reports a dynamic situation. With volumes for 3.5 billion euro, it confirms one of the best quarters in the last five years and the third in absolute.
Figures, however, don’t match. Colliers estimates volumes for 8.1 billion, Cushman & Wakefield 8.3 billion and Redilco 8.5 billion. As we can see, there’s again the problem of market transparency, and it might be certainly useful for the market to share data.
According to Cbre, retail is the segment that reacted better to the market contraction. With volumes for 2.243 billion, it’s one of the best performing asset classes (-6% from 2017). The segment had been impacted by the contraction of consumptions and the growth of e-commerce that imposed a certain caution among investors. There is concern that shopping centres might end up like the American ones, registering closures after closures, along with the threat of the internet. The truth is the segment is going through a radical change. The way of shopping is changing. In the future, there will be more virtual shopping and more small shops just showcasing the products. Experts report that some of these assets have already been re-priced. Volumes have dropped by 17% for offices (3.418 billion) and by 10% for logistics. Concerning the office sector, Milan remains the favourite market by investors with investments for 2.077 billion. Rome keeps a good take-up level in a market that continues contracting. Cbre is ready to bet on the hotel segment, the most promising asset class in 2019. “We reported volumes for 1.3 billion in 2018. This result includes not only the luxury segment, as in the JLL report but also development projects, asset conversions into hotels and NPLs”. According to Francesco Calia, head of the Cbre hotel division, so far, there have been already hotels for sale for about 800 million”. For Joachim Sandberg, head of the C&W Southern Europe division, offices have been the most impacted asset class with a 35% decrease. He says: “We’ll be more selective in 2019. Retail is perceived as a risky investment, although this vision of Italy is not justified. The real issue will be the scarcity of product. New products will be put on the market only in 2020-2021”.
Nevertheless, 2018 confirmed the interest of investors in the Italian market, seen as a core country in the European asset allocation, despite the political uncertainty which characterised a good part of last year and that caused the spread to rise, deterring or delaying some operations.
The figures from Bnp Paribas show that 2018 closed with investment volumes equal to 8.6 billion. Several factors determined this reduction, including the lack of product, the returns aligned with those of the mature markets, the absence of large operations. Bnp disagrees from Cbre on Rome. “Here, offices had grown by 30%. The Capital benefitted from the very high prices of offices in Milan, in a context of increased caution from international investors”, states Cristiana Zanzottera, head of the research centre.
Also for Colliers, hospitality will be one of the most interesting sectors in 2019. The industry reported transactions such those for LaGare in Milan and in Venice for 105 million and for Castello di Casole. The biggest deal so far, although there is only a preliminary agreement, concerns the brand Belmond, holding 50% of the assets in Italy. All the hotels are trophy assets like Cipriani Hotel in Vence, Villa San Michele in Fiesole, or Caruso in Ravello. There are also other transactions in the pipeline. The Capri Palace of the brand Mytha Hotel Anthology is allegedly for sale for 100 million, so is Hotel Adrovandi in Rome, of the same group.
Davide Miglio from JLL recommends caution with hotels, as it’s a very fragmented sector in Italy. “I believe that we should also include student housing and senior living when talking about hospitality”. In 2018, JLL reported volumes for 8.3 billion. Transactions are for lower amounts than in the past: 50 million instead of 70.
Concerning the net returns of prime properties, offices in Milan registered a steady trend in the fourth quarter with 3.3%. The performances for logistics are set at 5.25%. Sandberg concludes: “also for logistics, the problem is finding new products”.
Source: Il Sole 24 Ore
Translator: Cristina Ambrosi