12 October, Il Sole 24 Ore
This is the moment of the Italian real estate market, especially for foreign investments, even if in a lighter form compared to the forecasts.
According to the figures recently published by Cbre, the property market closes the first nine months of the year with investments grown by 34%, for a value of 7.115 billion euro against the 5.239 billion of the same period of 2016. A result that shows volumes increased by 266% in the industrial and logistical segments, +44% for offices, and +75% in the segment including assisted living facilities, schools and telephone exchange buildings, as well as +25% for hotels. However, it’s not certain whether by the end of the year the volumes will reach ten billion euro. According to the report by Bnp Paribas Re, the volumes for the third quarter are set around two billion euro, about 6.8 billion in the first nine months with a forecast for the year’s end assessed around nine billion.
The global uncertainties are weighing on the outlook. Real estate must face important challenges and the fourth edition of “Quo Vadis Italia”, the annual forum organised by Dla Piper, will focus on the challenges connected to the changes in the Italian real estate industry. There will be the interventions of the main protagonists of the Italian real estate scene. The event will gather investors, asset managers, developers and users.
What are the perspectives for real estate? “We can say that the international investors are back and they’re still aiming at core assets – explains Olaf Schmidt, Co-Managing Director Europe and Middle East and Co-Responsible for Dla Piper’s real estate division – the problem is that the returns have significantly reduced and for many investors they do not reflect the country risk so that they prefer investing in competing countries”.
Olaf Schmidt makes the example of offices. “The average 3.9% offered by an office in Milan is not always enough to compensate a 3.4%, for instance, in Frankfurt. So that there are many requests, but only a few end with a sale”. On the other hand, there are more and more institutional investments for the so-called new asset classes, such as student accommodations and Rsa (assisted living for elderly), or health care: “In Italy we’re still at the first steps – continues Schmidt – but the returns and the potential are very interesting”. However, the real news concerns development, from which international investors used to keep away from due to the (too) many uncertainties. “There is more trust – explains Schmidt – just look at the Australian Lend Lease in Santa Giulia and the reconversions by Hines or the shopping centres developed with international capital. Finally, there is a huge interest for the real estate assets owned by banks”.
Dla Piper stresses how now banks are really selling the properties they own, mainly portfolios with a mix of some luxury assets and many smaller properties: “They’re so discounted compared to the market value that the investor doesn’t even do due diligence and he buys straight away, only to obtain the important assets contained in the portfolio”, concludes Schmidt.
What do the international players think about? “We’re positive – says Cyril Hoyaux, Head of debt fund management Europe of Aew Europe – not for the abundance of capital, rather than for the macroeconomic fundamentals and the low political risk. Compared to the United States and Asia, the European market offers more political stability and still convenient interest rates. Plus, it offers a good upside”. How Italy position itself in this scenario? “Milan is a different market from the rest of the country – he says – it’s the only one truly international. The rest is very fragmented”.
An important opinion on the matter is that of Ubs asset management, managing 642 billion euro assets, 75 of which real estate. “We’re positive regarding real estate investments – explains Thomas Wels, Head of Real Estate & Private Markets at Ubs Asset Management -, even though with a different perspective from the past. Today, real estate is still interesting if included in a multi-asset portfolio, even if we’ve started seeing some changes in the financial sector. This means that real estate is going back to the fundamentals and its profitability will be the main factor for the total returns of real estate assets, rather than capital gain”. Ubs is currently investing 45% of its real estate assets in the United States, 36% in Europe, and the remaining in other countries. How is Europe perceived? “It’s slightly behind in the real estate cycle compared to the United States and the United Kingdom, this means that there are still a lot of opportunities, even if focused on income growth – explains Wels -. We think that, in the short term, the euro will have better performances. We’re looking at Spain, while France has great potential if reforms will be implemented”.
What about Italy? “The economy is getting better – he explains – but with slower rhythms compared to the other countries in Europe. If we analyse the data at aggregate level, there hasn’t been any recovery in the Italian real estate market in the last three years. Still, there are differences at local level: the grade A office market in Milan has significantly grown for what concerns investments in the last three years. More in general, the investment activity in Italy is at very high levels because Italy is one of the main markets in Europe and it offers many opportunities. Moreover, the retail sector, still not very dynamic and liquid, is gradually opening to international investors and it may offer good chances in the North and in the South of the country, especially in tourist destinations and students cities. Ubs plans to invest in the Italian property market in the next 12 years, especially in offices in Milan and in retail in Northern Italy.
Source: Il Sole 24 Ore (by Paola Dezza and Evelina Marchesini)
Translator: Cristina Ambrosi