Value-added funds to target Italian retail in 2011: C&W

The Italian retail market will see more activity next year from value-added investors, claims Stephen Screene, head of Capital Markets Group at Cushman & Wakefield in Milan.

‘Retail investment so far this year has been led by core and retail sector specialists, but I think this will change in the next 12 months. There’s an investor gap in Italy for value-added funds who could source suitable product in the market place. I think we’ll see more activity in this segment in the coming year from selected international players like Pradera, Schroders and Henderson, to name a few.’

The Italian market witnessed a number of major deals in the first six months of the year including Corio’s acquisition of Le Vele & Millennium shopping centre in Cagliari, and the purchase of the Porta di Roma in Rome by German insurer Allianz together with Corio. Together these transactions accounted for some EUR 550 mln. Cushman & Wakefield was involved in both.

Despite the strong first half, however, the volume of retail transactions in Italy is set to drop over the full year by some 30% to around EUR 1 bn, Screene predicted. ‘2010 has been just as challenging as 2009. There’s hasn’t been the quality of product coming to the market that ticks all the boxes for the investors who are currently active here.’

Speaking at the Mapic retail fair in Cannes last week, Screene predicted that the Italian retail market would see a larger number of transactions in 2011 compared with this year, but that the lot sizes would likely be smaller. ‘The overall volume in 2011 will probably be in line with 2010.’

Screene said renewed interest from foreign investors and the bottoming out of rental falls had provided stability to the market, but added that investment volume had subsequently tapered off due to the lack of core opportunities available. Opportunistic investors have also been disappointed in Italy, he said: ‘They haven’t found as much product and distressed assets as they had anticipated. Italian banks have not been as exposed to the crisis as some others around Europe so there hasn’t been as much pressure for disposals. Foreclosures are also quite difficult to realize in the Italian market. Borrowers and lenders tend to work things out here.’

The balance of factors between owners, developers and occupiers is now more positive, Screene said. 'There are signs of increasing investor interest looking to Italy as well as some new entrants.' He also sees a greater role for opportunistic investors teaming up with developers in a joint venture. ‘The gap in price expectations has been getting smaller over the last 18 to 24 months and parties are becoming more rational in their decision making.’

Screene expects to see some bank disposals in the coming year, but said the volume would be limited vis-à-vis other markets. Other potential sources of product were international and local developers who have held onto their assets over the last 24 months, listed retail specialists, some owner occupiers nd German open-ended funds who are recycling their assets.