Hospitality & Alternatives can lead Italian ‘renaissance’
Ahead of the forthcoming Italia GRI 2019 investors’ conference in Milan, Paolo Scordino (Vice President at DeA Capital Real Estate SGR) shared his thoughts on Italy’s real estate market and macro-economic drivers with the GRI Hub. DeA Capital Real Estate SGR is one of Italy’s leading players in alternative investments, which operates in both private equity investment and asset management.
Do you think that Italy’s current political state has impacted the real estate market?
We believe the recent political instability has had a material impact on the real estate market. It has mainly affected the risk premium required by foreign investors to invest in the Italian market and the cost of debt / grade of leverage offered by the banks to finance real estate transactions. Having said that, I believe that lack of product still remains the primary obstacle preventing investments into the Italian market.
What is your view on the future direction of Italy’s economy and how does this inform real estate strategies?
The level of economic activity in Italy reflects the slowdown of European and global growth, which turned negative in the third and fourth quarters of 2018. The downturn in world trade growth and increased political risk are two key reasons for Italy’s negative results. However, despite the conditions, we are stagnant but not in deep recession. In 2019, the Italian economy should grow by 0.6% and the interest rates should remain stable.
Real estate strategies are mainly focused on the macro fundamentals of the markets in primary locations (such as Rome and Milan) that are performing significantly better than Italy’s secondary cities. Moreover, despite the recent yields compression, some Italian markets such as Rome still offer higher returns compared to other main European cities. It’s also worth pointing out that Italy also offers unique real estate opportunities in the hospitality market (hotels, student housing, smart residences) that so far has not expressed its full potential.
Where do you see Italy in the investment cycle and how does this impact investment decisions?
After the great result achieved in 2017 with more than €11bn of investments, 2018 saw the real estate market return to a level close to 2016 with €8.8bn, and this trend should continue in 2019. The market conditions are constantly changing, so investment decisions must be reviewed as a consequence, to overcome all obstacles preventing good returns. Due to the increasing competition on trophy value-add assets in the main Italian markets, investors and real estate players have to look for new investment solutions; for example, investments in different sectors such as residential, hospitality and logistics, or moving on primary locations in secondary cities. In order to match their target returns, most investors are focusing strongly on opportunistic (brown/green field and value-add) investments with a significant capex plan, and we believe that this could have a negative effect on the transaction volume.
Paolo Scordino will be joining over 130 senior executives for two days of candid discussions on the Italian Real Estate market at Italia GRI 2019 (Milan, 22-23 May).