Italy
Portugal
€3.6 billion invested in the first nine months of 2023: commercial real estate seeking opportunities in alternative segments
Logistics and healthcare lead the capital market
Solidity signals from take-up: the new logistics record stands out
According to the analysis conducted by the Dils Research Team, the third quarter of 2023 witnessed real estate investments in the Italian market reaching approximately 1.5 billion euros, marking a growth of 27% compared to the previous quarter but still contracting compared to the same period last year. The year-to-date result amounts to 3.6 billion euros, slightly over a third of the volume recorded in the same period in 2022, a record-breaking year. The reduced activity in commercial real estate investments continues, in line with other major European markets. However, the Q3 results indicate some dynamism primarily in the Logistics, Alternative, with Healthcare leading the way, and Living sectors.
Logistics confirms as the leading sector for real estate investments in Italy, with around 1 billion euros invested in the first nine months of the year (including 474 million in Q3), accounting for 28% of the total investment, despite prime yields still being in a growth phase.
In terms of space absorption, following an exceptional first half, Q3 2023 records a take-up of approximately 680,000 square meters in the Italian logistics market, a 34% increase compared to Q3 2022, setting a new record for the first nine months of the year, totalling nearly 2.2 million square meters, an 11% increase compared to the same period in 2022. Amid a general rent growth trend driven by high demand for modern and high-quality spaces, in Q3 we observe an increase in prime rents in the Verona market (€55/sqm/year), while other major markets maintain the values recorded in the previous quarter, with Italian prime rents at €65/sqm/year in Milan, Rome, and Bologna.
The Office sector’s investment performance during the quarter is modest, with approximately 80 million euros invested, totalling 492 million euros year-to-date. It ranks as the fourth preferred asset class for investors, pending the return of large-scale transactions in the key markets of Milan and Rome, estimated to exceed 500 million euros in the fourth quarter.
Expectations for the sector are also supported by leasing market dynamics. Milan‘s occupier market demonstrates dynamism in Q3, with approximately 110,000 square meters of take-up, confirming the levels reached in the first two quarters (for a total YTD of 314,000 square meters), projecting well over 400,000 square meters by the end of 2023. Vacancy remains extremely low in prestigious submarkets, driving space absorption towards areas with more product supply. Transactions involving Grade A/A+ properties represent over 75% of the market, reflecting tenant preferences for high-quality spaces with efficiency and sustainability certifications.
These considerations also apply to Rome‘s letting market, which, thanks to an exceptional first half, achieves its best-ever performance in the first nine months of the year, second only to the record year of 2019, with a total take-up volume of approximately 185,000 square meters. The third quarter reports leasing of 26,500 square meters, slowed down by the chronic lack of quality products in the most sought-after submarkets, where prime rent growth is expected due to ongoing redevelopment projects.
The Living sector, with investments of 223 million euros in Q3, over 80% of which are concentrated in Milan, and a total of around 541 million in the first nine months of the year, continues to grow its weight within the Italian investment landscape, confirming investor interest in the sector despite a decrease in overall volume compared to 2022.
Regarding the private residential market in Italy, the second quarter of 2023 closes with approximately 184,000 NTN (Normalized Transaction Number), marking a 16% decrease compared to the same quarter in 2022.
Milan also experiences a decline compared to the second quarter of 2022 (-17%), with 6,568 transactions, aligning with 2018 levels after the record-breaking years of 2021-22. The decrease primarily affects peripheral areas of the metropolis and less commercially appealing properties. On the contrary, demand for new construction projects remains stable, with a gradual reduction in both stock and short-to-medium-term pipelines.
Rome records a decrease of over 21 percentage points compared to the exceptional performance of 2022. Similar to Milan, when compared to previous data, the second quarter of 2023 ranks as the third best Q2 in the last decade. Thus, a stabilization trend rather than a significant downturn is confirmed in the market, with the need to closely monitor the effects of interest rate increases, which naturally result in temporary slowing of the B2C residential market.
Q3 2023 witnesses a recovery in investment volumes in the Hospitality sector compared to the first two quarters of the year. The quarter attracts approximately 215 million euros, with a year-to-date total approaching 490 million euros, reaching this volume upon finalizing a portfolio deal exceeding 100 million euros.
The Retail sector, on the other hand, records investments of around 86 million euros during the quarter, totalling about 244 million euros year-to-date, as investors continue to focus on big box and out-of-town segments.
However, the Alternative sector boosts overall volumes significantly, with 428 million euros in Q3 and over 800 million euros year-to-date, of which 560 million are concentrated in the Healthcare segment. For the first time, they rank as the second-favourite asset class among investors, thanks in part to a significant pan-European deal finalized in Q3.
In general, the first nine months of the year have seen investors seeking opportunities in unconventional asset classes in search of better returns, contributing to their consolidation in the Italian landscape. Q3 has shown a cross-sector polarization between large-sized portfolio deals (the top three transactions in terms of ticket size represent almost 40% of the total investment in the quarter) and medium-small-sized transactions, mainly attracting local investors and developers.
According to the Dils Research Team, the third quarter of 2023 sees an increase in investment volumes but does not reverse the slowdown trend observed in the Italian and European real estate. Despite ongoing macroeconomic uncertainty, the substantial reaching of the plateau of interest rates after the increases occurred over the past 12 months allows for a more stable outlook in the investment market for the coming year. A moderately positive outlook is primarily associated with the medium to long term. During this period, the real estate industry, which is highly interconnected with the society’s essential needs, must be able to anticipate the country’s future requirements. These can be identified in some of the major areas of public expenditure:
· Education – new campuses to complement an outdated public offering.
· Healthcare – solutions for an aging population and an increased focus on well-being.
· Digital infrastructure – enabling an upgrade of national network access, which will also be a key element in the ESG revolution.
All of this can be pursued through the introduction of new hybrid formats for the more established asset classes such as offices and retail, as well as by supporting investors in exploring less institutional asset classes, a trend observed during the first nine months of the year.
