Italy
Portugal
€2 BILLION INVESTED IN THE FIRST HALF OF 2023: COMMERCIAL REAL ESTATE IN CONTRACTION BUT BETTER THAN EXPECTED
OFFICES AND LOGISTICS DRIVE CAPITAL MARKETS
POSITIVE TAKE-UP: ROME AND LOGISTICS STAND OUT
The second quarter of 2023 witnessed an investment volume of approximately €1.1 billion in the Italian real estate market, showing growth (+19%) compared to the previous quarter but still contracting compared to the same period last year. The half-year result exceeds €2 billion, accounting for about one-third of the volume recorded in the record-breaking first half of 2022.
The reduced activity in commercial real estate investments, in line with other major European markets, shows signs of dynamism compared to Q1 that need to be confirmed in the second half of the year.
One of these indicators is observed in the Office sector, which, with approximately €300 million in the quarter, once again becomes the leading asset class in terms of investment volume, more than doubling the result of the previous quarter, with a total of €410 million for the semester. In this context, the market in Milan is notable for the return of significant operations, despite a slight increase in prime net yield (at 3.80%) and the temporary mismatch between supply and demand.
Expectations for the sector are also supported by the vitality of the leasing market. In the first half of 2023, Milan recorded an absorption of 202,000 square meters, of which 105,000 square meters in Q2 2023, showing growth compared to the first quarter. The H1 2023 highlights a demand for office spaces primarily focused on Grade A/A+ products in prestigious and attractive locations, with high-quality standards and international certifications for energy efficiency and sustainability, innovative layouts and space management formats. These considerations are especially valid for the leasing market in Rome, which, with a take-up of 69,000 square meters in Q2 alone and a total of approximately 162,000 square meters in the first half of the year, records its best first semester ever, driven by significant operations in terms of location, asset quality, and tenant standing.
Logistics continues to be a leading sector for real estate investments in Italy, representing the largest asset class for the semester with approximately €525 million invested (including €266 million in Q2) and accounting for about 26% of the total.
The take-up recorded in the first half of the year amounts to 1,478,000 square meters (including 852,000 square meters in Q2), marking a slight increase compared to the first six months of 2022 (+3%). Thus, the Italian logistics sector maintains its high dynamism characterized by strong demand struggling to find an answer in the limited availability of modern spaces, as evidenced by historically low vacancy rates.
The strong demand, combined with the general inflationary trend of the past two years, drives up prime rents in the main markets. The new prime rent in Italy stands at €65/sq m/year, observed in the markets of Milan, Rome, and Bologna. Increases are also recorded in Piacenza (€55/sq m/year) and Verona (€52/sq m/year), while Turin remains stable at €50/sq m/year.
The Living sector, with investments of €106 million in Q2 and a total of approximately €301 million in the first half of the year, shows a minor contraction compared to other asset classes confirming investors’ interest in the sector.
In terms of residential sales, Italy registered over 166,000 Normalized Transactions Number (NTN) in Q1 2023, marking an 8% contraction compared to Q1 2022. Although Milan shows a decline compared to Q1 2022 (-23%), it is important to note that the first quarter of last year recorded an absolute positive record in the city. In fact, Q1 2023 represents the third-best result in the past decade and a 5% increase compared to Q1 2021. Moreover, a qualitative analysis of the data highlights that this decrease mainly affected peripheral and/or medium-low-quality properties, in contrast with the stability of sales related to new construction projects. Rome also experienced a decrease in NTN, albeit to a lesser extent (-10%). However, when compared to the data from the period 2012-2022, Q1 2023 appears as the third-best quarter.
High liquidity levels and transaction volumes, which are only contracting compared to the exceptional performance of 2022, indicate market stabilization rather than a decline. However, considering the trend of interest rates, it will be necessary to wait for the extent of transactions and the state of fundamentals in the coming quarters to better understand the real market behaviour.
The second quarter of 2023 sees a recovery in investment volumes in the Hospitality and Retail sectors. The former attracted approximately €147 million in investments in Q2, with a total of just over €270 million for the semester, mainly distributed in medium-small-sized deals. The latter recorded investments of approximately €120 million during the quarter, showing improvement compared to the previous period, with a total of around €160 million since the beginning of the year, mainly driven by big-box and out-of-town segments.
The Alternative sector attracted approximately €175 million in investments during the second quarter, particularly concentrated in the Healthcare segment, where significant transactions by institutional players were recorded. In the semester, investments amount to €377 million.
In general, across all asset classes, there is an increase in investor interest in value-add operations that allow the creation of new product, such as land acquisition, vacant buildings to be repositioned, and development projects.
“As expected, the real estate investment slowdown in Italy and Europe continues in the second quarter of 2023,” said Giuseppe Amitrano, CEO, and Founder of Dils. “Despite the continuous rise in interest rates over the past 12 months and the persistence of a highly uncertain macro situation, we maintain a moderately positive outlook. We believe that overcoming the current phase is possible by adopting a medium-to-long-term perspective that considers the key drivers of innovation in the industry. The first is undoubtedly the green and socially sustainable transition, which offers significant opportunities for the repositioning and subsequent revaluation of the Italian real estate stock, among the most outdated in Europe. The second is the rethinking of the rigid distinction between asset classes through the introduction of new hybrid formats in the office and retail sectors, along with a particular focus on emerging and promising sectors such as healthcare, longevity, and education.”
