Investors 'neglect' big value-add real estate market in Italy

Real estate investment in Italy is a tale of two very different markets: a small core segment attracting unprecedented investor attention and a much larger value-add portion which is largely neglected, PropertyEU's latest Southern Europe Investment Briefing heard this week.

‘The market today is polarised between a few super-transactions trading at historical yield lows as competition pushes investors from other geographies, and the majority of the market which is still dominated by value-add transactions that need risk-takers,’ Paolo Bellacosa told the briefing in London this week.

Bellacosa is managing director- investment properties, capital markets at CBRE Italy. Click here to watch him outline how the Italian market is evolving

‘There is a lot of competition for trophy assets, while other kinds of assets might not get a single bid,’ agreed Dietmar Zischg, partner at CMS Adonnino Ascoli & Cavasola Scamoni. ‘But we are at the beginning of a new cycle and foreign investors have revived the Italian market, accounting for 70% of transaction volumes.’

Auctions

Bidding at auctions has become really competitive, according to Salvatore Ruoppolo, head of asset management, Intesa Sanpaolo REOCO. ‘A residential project in Milan, for which there had been no interest whatsoever just a few months previously, went to auction at €8 mln and the auction closed at €23 mln,' Ruoppolo said. 'This gives you an idea of the level of interest in the market, and not just in Milan but also in minor centres like Cantù or Pontedera. But I also have a 35,000 m2 shopping centre which is empty, with no tenants at all.’

Italy’s commercial real estate has plenty of obsolete stock that needs to be upgraded, but there is some sign of movement on that front. ‘The most successful deal of the last year has been the sale of a value-add portfolio for over €125 mln, the first deal of this kind in Italy,’ said Giovanni Maria Paviera, head of real estate at Cassa Depositi e Prestiti, the company that is facilitating the sale of state-owned assets to the private sector. ‘It is a sign of a deeper interest in the Italian market compared to a year ago.’

Cutting red tape

Regulators have taken steps in the right direction, cutting red tape and speeding up different aspects from planning permits to enforcement procedures, although the process of implementation can be slow. The road ahead for Italy involves enlarging the size of the market, building new product in alternative sectors and also widening the currently limited range of institutional players and partners thereby making the market more liquid.

According to Paviera, the best opportunities are to be found in residential and in student housing: ‘There is no offer of residential for rent in big cities like Milan or Rome, but a big and growing demand,’ he said. ‘We have hundreds of thousands of students but no products specific for them. Sectors that are well developed in all other countries are completely lacking in Italy, so the potential is huge.’

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