REAL ESTATE - Pressure on yields in the maturing Italian office market is pushing investors towards secondary cities and alternative sub-classes, according to a report published by property firm Savills.

Continuing demand for prime locations will sustain rent stability, with limited new supply "the main factor protecting the market from fluctuations", said the report. Yet with a lack of supply of prime office in Rome and Milan, investors are looking outside the main conurbations to cities such as Bologna, said Savills’ Italy researcher Susan Trevor-Briscoe.

"It isn’t that investors aren’t interested in prime, but they’re more willing to consider other locations and non-office property," she said, citing emerging interest in retail, logistics and leisure.

"Investors are opening towards alternative asset types. The market tends to favour opportunistic investors. Investors are becoming more imaginative. They’re taking more risks."

Interest in the Italian market is coming increasingly from pan-European pension funds that have already squeezed scarce opportunities out of domestic markets. "Local investors are mostly active already," said Trevor-Briscoe. "It’s a mix of local and international investors, but there’s a strong international presence. The increase is coming from global – mainly European –pension funds."

The report forecast that foreign investment in new developments such as Milanofiori Nord and Santa Giulia in Milan would contribute to the internationalisation of the market.

Trevor-Briscoe also echoed optimism recently expressed by insurer Generali that the REITs regime scheduled to come into existence later this year would increase liquidity and transparency.

Generali Property Investments director general Giovanni Maria Paviera told IPE Real Estate: "I think that for the investors any new transparent vehicle for investments in real estate is interesting at the moment and, obviously, also for Generali as an investor."

This optimism for the Italian market from a firm with offices in nine European markets lies in a combination of macro factors, notably the economic impact on office and retail rents – and the potential of what remains a relatively immature market.

"I’m optimistic for Italian real estate because it is underveloped – 80% of the annual turnover is in residential, so there is a good potential for the growth of the others sectors," said Paviera.