Commercial real estate in Italy: Prices, yields and market trends

Engel & Völkers publishes real estate market reports on a regular basis, thereby providing a comprehensive and well-founded overview of current market trends. In this article, we introduce you to some of the most important factors pertaining to the commercial real estate market in Italy, identify potentials and provide an outlook of possible future trends.

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Italy’s commercial real estate market: Overview

In comparison to previous years, economic growth in Italy has slowed in the first half of 2018. The overall growth rate of +0.2 percent reflects the gradual decline in gross domestic product. Despite this slowdown, there is an increase in added value in the industrial sector and service sector. The positive trend in the labour market continues.

With regard to property loans, the supply situation has relaxed somewhat. This has had a noticeable effect: In the first six months of the year, banks have paid out a total of 20 billion euros to Italian businesses, which corresponds to an increase of 12 percent.

Office space in Italy

The Institute for Economic Research, Nomisma, anticipates that prices for office space will rise in the coming years: At present, the average price change for such properties is -1.5 percent, which will move into the positive range by 2020 according to Nomisma. Rental rates will probably also be affected by this increase. Milan is one of the cities that has already reversed the negative trend – here, property prices have increased by 1.4 percent on average in the first half of 2018. In prime locations, the price per square metre ranges between 500 and 600 euros, in upscale locations the square metre costs between 375 and 500 euros. The average gross rental return remains stable throughout Italy and amounts to 5.1 percent for the fourth successive year.

Retail space in Italy

A price increase is also anticipated for retail space as of 2020. This development is again spearheaded by the city of Milan, which experienced an average purchase price increase of 1 percent.

Rental rates also exhibited positive growth for investors in leading locations: For the first time since 2008, three major Italian cities achieved rent increases: Milan (+0.8 percent), Venice (+0.2 percent) and Florence (+0.1 percent). The best gross returns were achieved in Venice. In prime locations, the city yielded returns of 8 percent, in secondary locations near the city centre a yield of 7 percent was attained. This is followed by the cities of Rome and Florence. The Italian capital achieved returns of 7.1 percent in prime locations and 7.5 percent in locations near the city centre. Florence achieved 6.6 percent in locations near the city centre and 7 percent for locations in the city centre.

Logistics space in Italy

Good gross rental returns were also achieved in the area of logistics: In this sector, the average value was a stable 7 percent in the first half of 2018. It is presumed that the logistics segment will become increasingly important in the coming years. The main reason for this is e-commerce: With a growth rate of 10 percent, Italy is one of the European countries with the highest values in this market. The increasing importance of online trade is also having a positive effect on growth in the logistics property market. In this way, logistics locations will probably also emerge in areas not yet classified as prime locations.

Rising prices for commercial real estate in Italy by 2020

Investors can look forward to rising prices: According to Nomisma, prices for retail and office space will rise in Italy by 2020. With regard to investment allocation, 40 percent of total investments were invested in the retail segment in the first half of 2018. This was followed by the office segment (37 percent) and logistics (15 percent). The most liquid market in the first half of 2018 was Milan with 43 percent of total investments, followed by Rome with 20 percent.

More well-founded facts on the commercial real estate market in Italy can be found in the new Market Report Italy by Engel & Völkers. Furthermore, you will also find informative insights and reports on all segments of the real estate market in the Market trends section.

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