Cross-border investors flock to Milan - Knight Frank

Milan office investment volumes have surged during 2015 as improvements in the Italian economy help attract a wave of cross-border activity.

After being one of a handful of European countries to be in recession during 2014, Italy has returned to positive economic growth in 2015 and its GDP is forecast to increase by 0.9% annually, according to research by Knight Frank.

The strengthening of the economy has encouraged a revival in investment market activity and Milan office investment reached €1.4 bn in the first three quarters of 2015, comfortably exceeding the full-year total for 2014.

Cross-border investors led the transaction activity, taking a 90% investment share during this period, the research shows.

Office investment in Milan is on course to reach €2 bn by the year-end – a post-crisis record. Knight Frank said international investors are expected to remain active in the coming months, but volumes are also likely to be boosted by increased domestic demand. The strength of demand has led to significant yield compression; prime office yields hardened to 4.5% in Q3 and could fall further over the coming quarters on the back of improved investor confidence.

The Milan occupier market has also shown positive trends, with office take-up during Q1-Q3 2015 totalling 190,000 m2. Full-year take-up in 2015 is expected to hit 240,000 m2, in line with the 10-year average.

'There is an ongoing interest among foreign institutional investors in the Italian market. We expect an increase in deals and in the values of the real estate market,' said Alessandro Riboni, CEO of Knight Frank Milan.

Heena Kerai, international research analyst at Knight Frank, commented: 'Cross-border demand for Milan offices was the major driver of investment activity in the first three quarters of 2015. US buyers took the largest share of activity, accounting for 46% of transaction volumes, followed by European investors. While Italian investors have largely focused their demand on office assets in other Italian cities, we could begin to see them moving back to Milan, as market sentiment continues to improve.'