Savills: Italian commercial real estate continues its gradual consolidation in Q1 2024

• With around €1.9 billion transacted, Q1 2024 closes with a positive recovery of investment volumes continuing the trend that began in the last part of 2023
• Thanks to two important deals, offices return to be the first asset class followed by the mixed-use segment: together these two sectors account for about 60% of the total volume of the quarter
• Investors' strategies remain focused on sectors presenting solid fundamentals: logistics, areas to be redeveloped with a residential prevalence, and prime offices; these sectors are characterised by a steady demand and good prospects for value growth
• The Italian macro-economic scenario remains positive, supported by low inflation and household confidence; interest rates remain high and a possible reversal of monetary policy is likely starting next June

In the 1st quarter of 2024, about 1.9 billion euros were invested in the Italian commercial real estate market: a value not only in line with the average of the last 5 years, but also showing a significant recovery compared to the same quarter of 2023. The market continues to be characterised by a prevalence of transactions with a value below €50 million, which represent about 90% of the operations, while the 3 most important transactions of the quarter by value represent over 50% of the volumes.
Development projects, redevelopments of large areas, and changes of use affect over 50% of the volumes. The transactions of the former FS Farini and San Cristoforo railway yards place the mixed-use sector in second place for investment volumes.
International currency continues to be prevalent in terms of number of deals. In this quarter, there is still some caution in the market related to monetary policy, but the downward trend of inflation seems to be consolidated, and a reversal of rates is expected from June. The decompression of prime yields affected all asset classes in 2023, and for some segments the correction continued in the first part of 2024 as well.

With just a little over 500 million euros, offices return to be the first asset class, registering a growth in line with a market that, on the occupiers side, remains dynamic. Milan records a take-up of 93,000 sqm, down compared to the record volumes of 2022 but up 10% year on year. While low availability of prime product continues to curb absorption, strong demand for high quality spaces does not find correspondence in the current supply and supports the rents, which are expected to grow further in the coming months.

Logistics opens 2024 as the third asset class by investment volumes, representing about 17% of the total volume of the period, with international investors confirming themselves as the most active in the segment. The rental market remains dynamic, with levels above the average of the last 5 years (take-up in Q1 2024 is 550 thousand sqm), while limited availability of assets on the market continues to support rental growth (+8% YoY). The strong demand for rental spaces places this sector at the centre of investors' strategies, also thanks to price expectations more aligned between buyer and seller. Considering the positive KPIs of the segment, a compression of rates is expected by Q4 2024.

Driven by an international tourism expenditure that has returned to levels higher than those of 2019, with 200 million euros the hospitality sector continues to perform positively, registering volumes higher than those of the same period of 2023. The market in the main cities such as Rome, Milan and Florence continues to be slowed down by a very limited supply but, on the other hand, investors' strategies move towards new locations and innovative types of assets. 50% of the deals registered in this quarter foresee a value-add strategy.

The living sector registers a trend in contrast to the other asset classes. The volumes of the segment continue to be contained, since no transactions related to up&running products are recorded in the quarter, both for the student housing segment and for the new generation residential component. The latter collects over 80% of the asset class volumes, with deals related to transformation and requalification projects into BTS assets.

Volumes traded in the retail sector continue to be contained but the trend is positive, amounting to about €100 million; retail warehouses and supermarkets drive the volumes, but the share allocated to shopping centres grows again, with about 28% weight on total. Tourist and luxury destinations remain at the centre of both investors’ and retailers’ strategies, with a vacancy that remains close to zero in the luxury streets of the main Italian cities and a high street component that will be driving the segment in the coming quarters.

Marco Montosi, Head of Investment at Savills for Italy, says: “The consolidation of transaction activity is confirmed in the volumes of the first quarter, with an attention to those sectors that offer solid medium-term prospects. We detect a growing dynamism, albeit for small/medium-sized operations. Central is the role of Milan and Rome, also with reference to the two main operations of the quarter that contribute to over 50% of the total traded”

Elena Zanlorenzi, Head of Research at Savills for Italy, adds: “The Italian macroeconomic scenario remains positive: the slowdown in inflation and growth of employment support the expectations of businesses and households. The anticipated reversal of monetary policy seems to be approaching, although uncertainties remain regarding the new equilibrium point that rates will reach, as well as the speed of the descent. 2024 will see a gradual recovery of investment activity, more concentrated on the segments most linked to the macro-trends that influence the market.”