The Italian property market is expected to experience rising investment levels in 2014, further supporting the correction in property values seen in the first wave of deals over 2013, according to Joachim Sandberg, head of C&W’s office in Italy.

The Italian property market is expected to experience rising investment levels in 2014, further supporting the correction in property values seen in the first wave of deals over 2013, according to Joachim Sandberg, head of C&W’s office in Italy.

Speaking to PropertyEU in an interview, Sandberg said the disposal by Aberdeen AM in May last year of the Bodio Center business park in Milan to AXA underscored the extent of the repricing and prompted foreign opportunistic investors to re-enter the market.

In 2013, international players represented nearly 90% of deals completed in the country.

PropertyEU: C&W has been active in Italy for a number of years. What business lines is the company focusing on?
Sandberg We’ve been present in Italy since 1990 and we cover a number of services including property management, research, capital markets and valuation. We try to keep a balance between all these activities and honestly I believe we have a good balance today. However, we tend to be very active in property management because it provides a stable platform for recurring revenues. Also, the capital markets team is more active today than in the past. Italy is behind the rest of Europe in the property cycle but 'capital markets' is certainly an area of increasing interest. We are also active in property management across all sectors and while we are strong in the office segment we would like to increase the retail side of this business line.

PROPERTYEU: What are your targets for 2014?
SANDBERG: We will seek to replicate the growth we saw in 2013, i.e. a rise of 15% in revenues. We think we can grow in terms of revenue and profitability, also thanks to the expected recovery in the market, which will have an impact on capital markets and valuations. The latter has already seen a sharp increase in revenues of 20% over 2012.

PropertyEU: Recovery in Italy has been sluggish so far. What do you see as the main characteristics of the market revival?
Sandberg: I believe the Bodio Center transaction represented a turning point in the market. That was the first transaction showing the correction which had taken place in the market. Since then we have seen new opportunistic funds coming in and investment volumes have picked up again.

In the first three quarters of 2013, the market saw €1.8 bn worth of deals and it is expected to report another €1.5 bn of transactions for the last quarter. Investment volumes are expected to hit €3.5 bn for 2013, compared to around €2.5 bn in 2012. This may not be 'exciting news' but at least we feel that we have hit the bottom and the way forward is only up from now onwards.

In general, we are seeing a two-tier market, with international opportunistic funds focusing on portfolio and retail deals at good pricing, or yields of 8%, while domestic players remain focused on core assets. In the occupier market, take-up was slow at the beginning of 2013. This is also probably linked to the lack of new developments in the market, with the major exception of Porta Nuova currently being constructed by Hines. We anticipate that there could be a problem of shortage of supply for the next couple of years, which should put pressure on rents.

PropertyEU: The banking system in Italy remains largely closed for business. Do you foresee any change in banks’ attitude towards the industry?
Sandberg: We see that international banks have become more aggressive than domestic lenders. Although conditions have become slightly more favorable, spreads are still fairly high compared to 2007. At the same time the Euribor is at a record low so the overall cost of debt is still affordable.
Financing is being given on a case-by-case basis, and private players have difficulty in retrieving debt much more than institutional money. However, the likes of Goldman Sachs coming in and financing the Accor portfolio have definitely given a new boost of confidence to the market.