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Where in Milan the office market is growing

12 November, Corriere della Sera

There is a growing interest around the office segment in Milan. In the first six months of 2018, sales rose by 34% on yearly basis. Prices, after having dropped by 22% in the last ten years, have now stabilised and, in some cases, even increased.

The figures are taken from Fimaa- Borsa Immobiliare, and they distinguish between offices classified as A/10 and located in mixed-used buildings (defined here as professional studios) and offices located in office buildings. Concerning the first category, the best performance in the last five years was reported by Garibaldi-Solferino (+9.3%) which benefitted from the Porta Nuova operation. Among the offices of the second category, the best area is Washington-Vesuvio with +5.4%.

Rents reported excellent results. According to Bnp Paribas Reim, rents concerned a total surface of 320 thousand Sq m in the first nine months of the year, registering a 25% increase. We must remind that the data has been impacted by the reserved office spaces in the third tower in City Life. Rents for prime offices are their highest, reaching 570 euro/Sq m in the most sought-after locations in the city centre and Porta Nuova, registering a 7.5% increase.

On the contrary, yields are at their lowest, according to Cushman&Wakefield, and they’re comprised between 3.75% and 5.5%. This means that an office in an excellent location is valued up to 15 thousand euro/Sq m. Prime offices target institutional investors, as the transactions generally concern whole buildings and not single offices. However, considering that prices for offices of lower quality are cheaper and the gross returns higher, we wonder whether it’s worth for an investor with a medium budget to buy an office to rent.

We must take into considerations some factors. Firstly, the proposal for the Budget Law introduces the flat tax for non-residential properties only for commercial units (cadastral class C/1 up to 600 Sq m). It results that, if the proposal is not modified, taxation is very penalising since the income is 95% taxable for Irpef and additional taxes. Moreover, the Imu tax in Milan is very expensive since, unlike houses, the cadastral values for offices are very similar to the market ones, if not higher in some cases. Another penalising element for offices in mixed-used buildings are the tables of ownership thousands, as their creation dates back to a time when offices were valued more than houses, while now it’s quite the opposite. An alternative might be buying an office originally classified as a house and then transformed. In this case, as it frequently happens in Milan, one might evaluate whether to return to the initial use of the property.

Source: Corriere della Sera

Translator: Cristina Ambrosi

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