Investment into Italy’s real estate market is going from strength to strength with H1 2016 seeing over €3.4 bn of investment transactions. This is almost 35% higher than the same period last year, according to real estate advisor Savills.
'Favourable market conditions are fuelling the supply of product in the Italian market through fund liquidations or equity fund investors who are taking advantage of the point in the market’s cycle to dispose of some of the most liquid assets in their portfolios,' commented Eri Mitsosterigiou, director of Research, Savills Europe.
Significantly, cross-border investment into Italy accounted for more than half of the total investment volume in H1 2016, and close to 65% of all deals. Savills has recorded that international funds are increasingly dominating the market, with 80% of foreign capital coming from Europe.
'Our analysis suggests Italy is at an earlier stage in the cycle compared to Europe’s primary markets in France, Germany and the UK, therefore international investors are still identifying the potential for capital growth and better returns from core Italian product,' added Eri Mitsosterigiou. 'We believe that investment demand for the remainder of the year will continue to be driven by European investors, however we also envisage domestic investors to up their buying activity.'
Office investment grows
According to Savills, investment into the office sector in Italy this year accounted for circa 46% of all activity, over 40% ahead of H1 2015. The retail sector represented 26% of the total investment volume, also a 40% hike year-on-year. Interestingly, the high streets of Milan, Rome and Florence are dominating the retail investment market and the first six months of this year saw circa €505 mln invested, an increase of some 80% compared to the previous year.
Despite a fragile banking sector, a growing number of investors are confident about the economic recovery in Italy. They are attracted by better returns, the devaluation of the euro, interest rates at historic lows and larger liquidity in circulation thanks to the banks' expansive policies. The creation by the government of the private rescue fund Atlante should speed up the deleveraging process of the banking sector, restore confidence in the system and create a market for non-performing loans for investors who are interested in this type of product.
'Prime yields have hit record lows, if compared to the previous pricing peak in 2007. Nevertheless they compare favourably to the long-term government bond yields, which are also at historic low levels, meaning commercial real estate in Italy is likely to remain an attractive investment for the foreseeable future,' said Marco Montosi.
