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Zero interest rates spur boom in office prices

The real estate market is doing well and even better than before the crisis

Claudio Santucci, manager for the Capital Market division of Gabetti: “It will be like this till the inflation will get close to zero” 

 

Not all real estate is the same. In Italy, we are all (or almost) owners of first, second, and often third houses. Despite this, the residential segment is just a limited quota in the investment funds’ asset allocations, compared to other asset classes such as offices and retail. Taxation, uncertainties regarding civil justice (in the case of tenants with arrears) do not certainly stimulate the appetite of investors. Nevertheless, they were the ones that have moved capitals for 1.85 billion euro, +57% on a yearly basis, only in the period from January to March 2017, according to the report by the firm Ufficio Studio Gabetti. In 2016, 9.1 billion euro were invested in properties of the capital market segment, +13.6% compared to 2015: offices, shopping centres, properties for logistic purposes and hotels.

 

Hence, the real estate is doing well and even better. Claudio Santucci knows it well. He has been working for eight years in the Gabetti agency as manager of the Capital Market division and he witnessed in first person the victory of real estate on the financial markets. He started working in Gabetti in April 2010 coming from an international company, he holds a master in Real Estate Finance from Bocconi and a degree in Law. Claudio Santucci, aged 42, has a clear view of the evolution of the market: “ Real estate – he says – will have this appeal till the inflation will get close to zero. Nowadays it is negative on a monthly basis. This means that the big capital investments in real estate will continue to grow and they’ll be preferred among other types of investments”.

 

Offices are the best sellers. In the first quarter of  2017 they represented the 57.4% of the investments, for a total of approximately 1.06 billion euro, followed by the so called “mixed portfolios” for 12% of the total., with about 224 million euro, by retail properties (basically shops) with 211 million euro (11.4% of the total), the hotels with 157 million euro (8.5% of the total) and the inevitable “other purposes” with 94 million euro (5% of the total). The investments in health care and nursing homes are also interesting, they moved in the first quarter of 2017 75 million euro (the 4%) against the industrial and logistic segment that made 1.6% of the total with barely 30 million euro.

 

Don’t think though that in all these big real estate operation s the agencies are celebrating. Usually, the operations are more like “trading cards among SGRs”, as per Santucci’s definition. “Most of them are off-market operations, in which the potential buyer who’s interested in a specific property communicates through his advisor his interest to the property owners, all without the property is actually put on the market. The consulting firms that provide services to the buyers generally operate according different types of mandate: the advisory mandate, or the buy or sell side investment consultation; the brokerage mandate, or  the negotiation of the sale; the mandate of implementation and management  in a procedure for a specific bid; and the mandate for the so called sell & lease back operations”.

 

There is Milan, there is Rome, and there is the rest. Needless to say, the place to be at the moment is Milan. The city collected in the first quarter the 36.1% of the total domestic investments, 670 million euro. After the big operations of the former Expo, the Island and the Porta Garibaldi area, now it’s the moment for Cordusio Square, which is preparing for Starbucks, coming in 2018 in the former Poste building, along with a Waldorf Astoria ( a luxury hotel from the Hilton group), plus a series of prestigious retail brands that are impatient to land in Milan.

 

The big operations started a long time ago and Gabetti played a role in this, with a 34 million property from the former Beni Stabili Gestioni (now Investire SGR) sold to a real estate fund of the Invesco galaxy in November 2015. “it will be completely renovated in the next 18 months and it will become one of the symbols of the Cordusio area”, grants Santucci, which stresses: “Milan has never been so attractive: all the international institutional investors want to invest here, in terms of income, the last transactions even exceed the years 2006-2007”. Also for what concerns the industrial – logistic segment, the province of Milan in 2016 placed itself as the main destination for the investments in the industry ( followed by Emilia – Romagna). Thanks to the growing demand of logistic spaces in an increasingly strategic area for the transportation of goods. There are places where for the big brands, not only the international ones, is important at least to set foot.

 

On the other hand, Rome suffers from the poor infrastructures, the growing management difficulties and a bureaucracy that should be trimmed: “It’s the capital and it’s the most beautiful city in the world, but for an international investor is hard to understand how it may take years to obtain an administrative procedure for the development of  a real estate complex”, highlights Santucci. Perhaps this is the reason why the migration is starting: after Sky and TG5, also Esso is leaving, and Eni is evaluating how to do it. Despite this, the capital has collected in the period January to March the 16.4% of the total real estate investments for what concerns the capital market, for a total of 304 million euro. What about the rest of Italy? It’s one big market, explains the manager, “increasingly dynamic and interesting for retail and hospitality, and we hope it will be the same for offices too. There are some interesting cities in the South, such as Bari and Naples, especially for what concerns shopping centre and shops in the main shopping streets. Florence, for instance, the third main market and with its touristic and cultural vocation, in 2016 doubled the volume of capital invested, becoming the first Italian province for investments in hospitality”.  What are the forecasts for the future? This will continue for another year, one year and a half: “I see a further growth for the Italian market from now till the end of the year, with the consolidation of the operations currently in the pipeline. We at Gabetti, in particular, are working on some operations which we expect to complete by the end of the year. In all cases the seller is Italian and the investments come from abroad. Concerning the Italian market, we’re talking about big operations, each of them never below 20 million, in some cases above 50 million euro. It’s clear that if the there is an additional trend of stability, we’ll see a new consolidation phase for the real estate market with the return of the capital in several markets”.

 

Even then, there will be space for operations: “We expect great returns, especially if, with some creativity, we’ll be able to create operations different from the usual ones (offices and retail). I’m thinking about social housing, student and senior houses and more residential, for which there is a large space for growth in terms of investments, as well as more added value operations that will be interesting for the future”.

Source: Economy

Translator: Cristina Ambrosi

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