Investment volumes in the retail sector in the third quarter of 2016 totalled 827 million Euro, showing strong growth compared to the previous quarter and the same period of last year.
For the first time since 2014, the share of domestic capital invested (44%) represented almost half of the total for the quarter.
With around one billion in the pipeline, investment activity is solid. The total at year end could be around 2-2.5 billion Euro.
Development activity is still buoyant with around 300,000 square metres expected to be completed in Q4 and a further 230,000 square metres under construction with completion expected between 2017 and 2018.
The economic outlook for year end is still uncertain: the constitutional referendum which will be held in December and the problem of the banking system are the major threats that affect the recovery.
In Q3 2016 absorption in Milan totalled 53,233 square metres, down by 51% on the previous quarter but up by 26% on the same period of last year.
Take-up of office space in the business quarters of Milan in the first nine months of the year was positive, +27% compared to 2015 with a total absorption of approximately 217,000 square metres.
In the third quarter prime office rent rose to 500 €/square metre/per year as an effect of the renewal of certain trophy assets located in strategic areas as CBD and Porta Nuova BD which contributed to raising rents.
Development activity continues to be dynamic. Between July and September 44,000 square metres of office property were completed. These were renovations of the new HQs of two top fashion and consulting companies.
Investment activity in the Milan business sector slowed, with only 261 million Euro invested in the third quarter. Despite this, the total for the first nine months of 2016 was greater than the capital invested in the same period of last year.
Absorption in the third quarter of 2016 amounted to 41,095 sq m and was down slightly (-8%), on the previous quarter but was 23% higher than in the same period of last year. The results confirm the positive trend under way in the user market.
The take-up reported in the first nine months of 2016 was almost double (+85%) that of the same period of 2015, and was already higher (+16%) compared to the entire volumes reported for 2015.
Prime rents are higher in the CBD and stable in the EUR, at €400 e €320 per sq m/year respectively.
Take-up was driven by a transaction in the eastern part of Rome, approximately 10,500 square metres leased to a public company, plus two deals in the EUR area with two foreign multinationals, which accounted for around 57% of the total.
Investments were up in Q3 to approximately 87 million Euro; prime yields and good secondary yields are unchanged at 4.00% and 5.75% net, respectively.
The absorption rate declined (-35%) compared to the previous quarter, which saw record volumes; the volume absorbed in the first nine months of 2016 was over one million square metres, showing strong growth compared to last year and was at a record level in Italy for the logistics sector.
Lombardy, Emilia Romagna and Lazio are still the most desirable locations, each with over 70,000 square metres of absorption; Veneto with 15,000 square metres was left behind, because of a lack of product rather than a lack of interest.
The volume of investments in the logistics sector was down in the third quarter compared to the previous quarter with approximately 40 million Euro but there are still a high number of deals in the pipeline.
Net returns on prime property fell by 15 bps in the quarter to 6.25%.
Demand by investors, and not only specialist investors, continues to be very lively.
Almost 1.8 billion Euro were invested in Q1 2016, a decline of 6.7% on the same quarter of the previous year.
Quarterly volume confirms 36% more than the quarterly average for the past four years.
At approximately 1.3 bn Euro, foreign capital is still the major driver of Italian CRE investment volume in Q1 16.
European investors lead the quarterly foreign capital (51%), with German on the top of the list.
The office sector, with 46% of total quarterly volume, is still the investors’ preferred asset class while retail follows whit 32%, thus improving its market share compared to previous quarters; the mixed use properties sector (mainly non-core investments to be re-positioned) fell at 6% .
The beginning of 2016 has been marked by an increased cautiousness among investors compared to the end of 2015 but the interest in the Italian real estate is confirmed sound.