There is still a great deal of uncertainty over the year-end final figure and on estimates for 2021. There’s a growing consensus that activity will turn to be more robust from the second quarter onwards and significantly stronger in 2022, thanks to the stimulus provided by the support measures.
The start of the vaccination campaigns is affecting the medium-term prospects favorably, but the timing and intensity of the recovery remain uncertain. In Italy, the higher than expected growth in the third quarter of 2020 demonstrated the economy’s strong capacity to recover.
While there are no easy answers at this uncertain time, we remain focused on keeping our clients informed on the continually evolving commercial real estate landscape in Italy. In this report, we look at the market evidence from the second half of 2020 and establish an overall picture for the whole year. The pandemic has affected the property sector and it will leave a legacy for the industry, opening up to new opportunities that have materialized, as well as posing real challenges to the industry.
From the living sector to logistics and datacenter, 2020 witnessed a shift from the “traditional” real estate to new asset classes, more related to the macro trends affecting society. The living sector is the rising star of the year. Covid-19 has been an accelerator of an already ongoing process, that is now set to strengthen. The investment volume was more than four times that invested in 2019. We are facing an increasing number of investors placing the living sector on the top of their agendas.
Logistics is confirmed as the hotspot for all investors, a must have, backed by strong fundamentals. Within logistics, data center is proving attractive for a number of international investors although the Italian market is still at a very early stage. Despite that, Milan has a sizable upside for operators and cloud service providers alike, reflected in the increased demand for datacenter development in Milan.
Hospitality and retail are the most challenged sectors, with the latter experiencing an unprecedented cooling of investors’ demand driven by the worsening fundamentals linked to the pandemic and to e-commerce. Hospitality, on the other side, despite performing poorly compared to 2019, is still attractive for opportunistic investors and hotel operators. As a matter of fact, the latter still share a positive outlook on Italy as highlighted in the survey we carried out in October on a sample of national and international hoteliers active in the Italian market. There is still strong long-term confidence and desire by hoteliers to continue their expansion into the Italian market.
Office is the evergreen, attracting the largest share of capital both domestic and international which invested almost half of the total volume for the year: approximately €4 Bn. Investors are still cautious on the long-term view, but they are starting to look for opportunities. Core and core + are confirmed as the most resilient target and a number of deals took place in the second half of the year in both Milan and Rome, with a slight contraction for prime yield.
Overall, 2020 ended with almost €9 bn invested in the CRE in Italy, 30% below last year’s volume but also one of the best years ever over the past 20 years.
The huge liquidity available in the markets is continuing to drive investors toward real estate and this will not change in 2021. Setting growth plans to address the changes we are experiencing in society will be the most advantageous route to take (i.e. interventions under NGEU).
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