BRIEFING: Italian market gets its mojo back

A more flexible and transparent regulatory framework, together with an improving economic backdrop, are driving a new investment surge in Italy, delegates heard at PropertyEU’s Southern Europe briefing held in London on Tuesday.

The biggest challenge now is finding enough quality assets.

Italy has been a magnet for foreign investors in the last few months, achieving record quarterly investment volumes of €3.6 bn in Q1 2015.

‘Availability of capital has grown, while sentiment and the perception of risk have really changed,’ said Mauro Montagner, CEO of Allianz Real Estate Italy. ‘It has gone back to being a market to invest in. In the last four to six weeks I have received an incredible number of calls from investors who want information with a view to investing in Italy. There are plenty of newcomers in the pipeline.’

The most notable example recently was the sale of Palazzo Broggi in Milan, the former headquarters of Unicredit bank, to the Chinese company Fosun for €345 mln. There was intense competition, but the acquisition was then completed in six weeks. ‘We had never seen something like this before in Italy,’ said Montagner.

‘Our strategy in Italy is buying in anticipation of increased institutional activity,’ said Jason Oram, head of Southern Europe at Europa Capital. Foreign investors are looking at traditional sectors like offices and retail but some are also moving up the risk curve, going for secondary markets, buying land and initiating development.

Investments tend to concentrate in the Northern regions, where the economy is more dynamic and there is more liquidity, but it depends on the sector. While logistics does not venture south of Bologna, in the South there are excellent retail schemes and a promising hotel sector.

‘All asset classes in the Italian market seem attractive to foreign investors again,’ said Luigi Croce, partner and head of the real estate department at NCTM Studio Legale Associato. ‘It will be slow, but the main thing is that the process has started again and that we are now trying to keep investors in the country.’

The Italian authorities, realising that investors were leaving in droves, have started a reform process which is making the regulatory framework more flexible. New investment vehicles have been introduced, such as Sicaf and SIIQ. As part of the ‘Sblocca Italia’ (literally, 'unlock Italy') initiative in late 2014, lease regulations have also been modified, giving more rights to landlords. ‘The reforms are moving in the right direction: finally Italy is becoming a normal country regarding commercial leases,’ said Christian Mocellin, partner at NCTM Studio Legale Associato.

‘We are happy to see more landlord power and more security of income,’ said Arvi Luoma, executive director of International Investment at WP Carey. ‘Our problem is that we need transactions of size, and there are not many €100 mln-plus deals in the market.’ Oram pointed out that ‘the last few months have been very strong in Italy, with a dominance of retail transactions, so now the sector is looking thinner and thinner in terms of opportunities.’

The challenge may be overcome if and when the banks start selling their portfolios. In the meantime, as Vanessa Muscara, senior research analyst at M&G Real Estate, said: ‘There is no question that Italy is flavour of the month among investors, but the problem is finding something there.’