International investors target Italy

Cross-border investment is dominating Italy’s real estate market as total volume topped €3.4bn (£2.9bn) in the first half of 2016 – almost 35% higher than the same period last year, reported Savills.

International investment accounted for more than half of the total volume and close to 65% of all deals in H1 2016, while 80% of foreign capital came from Europe.

Eri Mitsosterigiou, director of research, Savills Europe, said: “Favourable market conditions are fuelling the supply of product through fund liquidations or equity fund investors who are taking advantage of the point in the market’s cycle to dispose of some of the most liquid assets in their portfolios.”

He said that Italy is at an earlier stage in the cycle than are France, Germany and the UK. This fact has prompted international investors to identify potential for capital growth and better returns from core Italian product.

“We believe that investment demand for the remainder of the year will continue to be driven by European investors. However, we also envisage domestic investors to up their buying activity,” Mitsosterigiou added.

Investment into the office sector in 2016 to date accounted for circa 46% of all activity, more than 40% up on H1 2015. The retail sector accounted for 26% of the total investment volume, up 40% year-on-year.

Investment into alternative commercial real estate sectors, including hospitality, accounted for almost 22% (around €761m) of the total volume.

The majority of the transactions so far in 2016 were on a single asset basis, while portfolio transactions accounted for 21% of the total, down from 35% in H1 2015.

Savills said that the supply of commercial real estate is set to increase over the next 12 months as funds take advantage of the improving market conditions, particularly the ones that purchased in the low point of the cycle in 2011-12.

Marco Montosi, head of investment, Savills Italy, said: “Prime locations of major Italian cities are most likely to benefit from this trend, while top yields for the best office and retail assets in Milan and Rome could stabilise this year following a few quarters of steep yield compression.”

A growing number of investors are confident about economic recovery in Italy, attracted by better returns, the devaluation of the euro, interest rates at historic lows and larger liquidity in circulation thanks to the banks’ expansive policies.

The private rescue fund Atlante, creation by the Italian government, is expected to speed up the deleveraging process of the banking sector, restore confidence in the system and create a market for non-performing loans aimed at investors that are interested in this type of product.

Montosi added: “Prime yields have hit record lows, if compared to the previous pricing peak in 2007. Nevertheless, they compare favourably to the long-term government bond yields, which are also at historic low levels, meaning commercial real estate in Italy is likely to remain an attractive investment for the foreseeable future.”

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