Italy’s office sector booms amid economic uncertainty

Italy’s office sector recorded the highest demand in the country in 2019, validating the strong interest from both domestic and foreign investors. Making up ~44% of the total investment volume, the commercial real estate sector attracted €5.3bn from banks, pension funds and endowments which have all committed to further increase their allocations to Italian real estate. The 2020 outlook for the office market looks incredibly promising, as data from Preqin suggests rental growth will outperform its 10 year average. 

Milan continues to be the leading Italian city for both leasing and investment, accounting for 71% of the total office investment volume with 54 deals. Rome had a lower number of deals closed than in 2018, but this can be chalked up to the city’s great performance in that year. According to one investor at a recent GRI Club Italy meeting, Rome remains attractively priced and will be their crosshairs in the coming months. The letting market has also continued to be active, with 2019 bringing the highest ever recorded values to both Milan and Rome. The Milan market recorded a take-up of 470,000sqm compared to its last 5 year average of 381,000sqm, and the latter recorded a take-up of 260,000sqm, the highest level in Rome in the last 20 years. 

But this may be part of a wider story in Italy. Total investment volumes reached around €12.3 billion in 2019: that’s a 46% increase on the previous year. Unemployment has continued to go down in the country, with market services, retail trade, and global companies all experiencing an improvement. This may be indicative of Italy leaving behind its economic troubles of last decade, as more companies are beginning to place HQ’s and pursue trade opportunities in the country.

The GDP recorded a slight expansion of .1% in 2019, with more slow but steady inclines expected for the next decade. The Italian Governing Council is expecting the key ECB interest rates to remain at their current level until inflation grows to 2%. Currently, worsening manufacturing and construction industries, as well as the growing number of coronavirus cases, are stunting foreign investment into the country, but the real estate sector is predicted to remain strong and drive the economy forward in the coming years.

Italia GRI will gather senior investors, developers and lenders active in Italian real estate for discussion and high-level networking on 13-14 May.

Article by Matt Harris