Booming demand for modern logistics facilities in Italy, coupled with low vacancy rates for core assets, is leading to a rush of foreign players into the country.
After announcing plans to invest €300 mln in a new logistics development in Verona, in the north of Italy, Hines’ senior managing director and country head Mario Abbadessa says the operation is only one of a few the company has lined up in the country.
‘We have a big logistics hub in Castel San Pietro near Bologna, and a second large one in Tortona, Piedmont,’ Abbadessa tells PropertyEU in an interview. ‘We are also in discussions on a couple of big acquisitions in the Emilia Romagna and Lombardy regions and we are on target to build up a €1 bn exposure to Italian logistics by the end of next year,’ he adds.
Castel San Pietro represented Hines’ first step into Italian logistics and was acquired only last year. Comprising two adjacent buildings of 37,000 and 45,000 m2, the scheme was developed speculatively and is expected to be delivered by mid-2022.
Following the latest acquisition in Verona, which was sourced off market, Hines plans to build four buildings for a total of nearly 500,000 m2 on the site, representing a total investment of €300 mln. The project – Hines’ largest so far in the country – will also be developed speculatively, underlining the investor’s confidence in the sector.
‘There is still quite a big gap between supply and demand in the case of energy-efficient, modern logistics facilities in Italy,’ Abbadessa explains.
‘The logistics property market is booming and this is partly because it is quite behind the rest of Europe in terms of provisions. Italy’s logistics stock is not in line with the overall international standards, core assets are therefore trading at a premium to other markets and the vacancy rate for these assets is only 2%,’ he notes.
Booming market
According to new research from broker Colliers, logistics transactions in the third quarter of 2021 accounted for almost 50% of investment volume in Italy - a new record for the market. Foreign investors such as Hines are dominating the investment scene, representing around 74% of total volume in the year to date.
Besides Hines, other recent entrants into the market include Goldman Sachs Asset Management which in September joined forces with Milan-based Kervis SGR's Milione alternative investment fund to acquire two development land plots in Northern Italy for €130 mln. The two partners said the deal was the first of a series of investments aimed at building up a €1 bn logistics portfolio across Italy over the next 24 months.
Similarly, global investment manager GLP spent nearly €500 mln this year to gain exposure to the country’s logistics sector, while Blackstone together with local asset management partner Kryalos have been flipping assets and just bought 95,000 m2 of logistics properties across the country.
‘Institutional investors see a great development potential in the Italian logistics market,’ comments Paolo Bottelli, CEO of Kryalos Sgr. ‘This is largely thanks to the vacancy rates which are nearly zero and the level of demand which continues to evolve.’
As competition from both local and international investors intensifies, yields for core logistics properties are coming under further pressure. Prime yields were said to be around 5% six months ago, 4.5% at present and expectations are that they will tighten further to about 4% by the end of the year, according to Hines’ Abbadessa.
He believes that taking the development route makes all the more sense in this scenario. ‘It is not easy to manage a development project directly in Italy but for companies like ourselves, with a strong track record in terms of new developments, it definitely makes a compelling investment case to capitalise on the lack of institutional logistics supply.’
