Italian office market moves out of town

Demand for offices in Italy is shifting away from expansion towards consolidation and rationalisation in both the Rome and Milan markets, according to Savills' latest office research report. The review noted an evolution of occupier requirements with tenants demanding high quality, well-connected and green accommodation. As a result, there has been a marked move to modern out-of-town locations.

Slowdown in demand due to negative business confidence is expected to hold back development activity in Rome and to cause a slight, temporary rise in availability in Milan. The research also noted that there was a greater level of investment market activity in Milan compared to Rome. The report suggested that this was due primarily to a relatively greater supply of quality, investment-grade product, coupled with a more mature market. Overall, the research found prime office yields have softened by 25 to 50 basis points since the end of 2007.

In Milan, demand has dwindled from the high levels seen at the end of 2007. The research found that this is due to an increase in smaller scale requirements (500m² - 1,500m2) and a fall off in the number of large requirements (above 5,000m2). Occupational demand was greatest from the financial sector, as well as the IT, technology and industrial sectors. However rents remained stable in 2008 with rental growth higher in the peripheral areas.

In Rome, the occupational market remained relatively stable with some rental growth. Overall, demand and supply in the city remained balanced.

Lionello Rosina, head of Savills, Italy, said, 'Despite the slowdown in the number of transactions, Milan and Italy continue to attract international investor interest. We do not expect a major yield correction as the market is not considered overpriced.'