Italian out-of-town retail remains healthy - Savills

Retailer demand continues to be strong in Italy, particularly from international chains such as Fnac, Footlocker and Zara, despite lower consumer confidence triggered by the global economic downturn, according to a research report issued by Savills on Tuesday.

As development slows in the country, the property advisor expects strong retailer demand for existing shopping centres and retail parks with a focus on the quality of product.

Although 10 new centres have opened this year with a further 1 million m² in the pipeline, the new openings are mainly the result of previously approved and financed schemes so pipeline developments are likely to slow in the future.

'Although negative economic and financial conditions are causing uncertainty amongst retailers and investors, the Italian out-of-town retail market never reached excessive levels of oversupply, so we continue to expect successful trading for quality schemes,' said Lionello Rosina, head of Savills in Italy.

Prime shopping centre rents currently stand at EUR 800 per m² per year for units of 150 m² and EUR 300 per m² per year for units totalling between 1,000 m² - 1,500 m².

On the investment front, as seen in other sectors, yields have softened and pricing levels are unclear. Wherever there may be potential purchasers, top quality available assets are in short supply. 'There continues to be a mismatch between vendors and purchasers' expectations. Prime yields have undoubtedly moved out. But the extent of the yield shift, estimated on average at up to 100 basis points over a year, will be defined as activity recommences in 2009. Movement will be greater for secondary schemes, where as prime centres will be seen to suffer less,' said Susan Trevor-Briscoe, of Savills research.

The report shows that the overall Italian economy is weakening: consumer prices increased by 4.1% in August 2008 and general spending is down.

Looking forward, Savills predicts that the stalling of further development, along with the long planning process will mean that the sector will not suffer from oversupply. Prime rents are likely to remain stable at least for good quality schemes, where retailed demand will continue to be good. There will be ever more differentiation between primary and secondary quality schemes, as retailers looking to consolidate their brands seek quality locations.