In Q1 2024 approximately €1.9 billion of investments were recorded in the real estate sector
Office, logistics and hospitality show favourable performances
Caution regarding new developments in Milan
The office occupier market remains positive, while logistics experiences a slight slowdown
According to the analysis by Dils’ Research Team, the volume of real estate investments in Italy in the first quarter of 2024 amounted to approximately 1.9 billion euros, double (+98%) compared to the same period in 2023. This confirms the trend of gradual market stabilization initiated in the second half of the previous year.
The main driver behind this result came from the closing of two significant transactions in the markets of Milan and Rome, which once again serve as the main centres of attraction for investments, attracting over two-thirds of the capital invested in Italy during the quarter.
The Alternative sector and the component of new Mixed-use developments together represent the most significant share in the investment volume of Q1 2024 with almost 600 million euros. The major contribution comes from the sale of the former Scalo Farini area in Milan, which will be characterized by one of the most significant urban regeneration projects in the next ten years. There is also a growing significance of real estate investments in the Education segment, which reached almost 50 million euros in Q1.
The Office sector continues the positive trend from end-2023, recording investments of around 530 million euros in the first quarter of 2024. Among these, the sale of a trophy asset on Via Vittorio Veneto in the CBD of Rome stands out, constituting the largest single-asset transaction ever recorded in the Office sector of the capital. The deal demonstrates the potential of the Rome market, which is increasingly attracting interest from international investors too. The prime net yield trend remains stable during this quarter, confirming the figures of 4.0% in Milan and 4.5% in Rome.
In the first quarter of 2024, Milan registered a take-up volume in the office market of approximately 100,000 sqm, a result in line with the same period of the previous year. The vitality of the occupier market is further confirmed by the high number of transactions, especially in medium and small sizes. The prime rent remains at 700 €/sqm/year with forecast of future growth, levels supported by the limited availability of A/A+ grade spaces, against an increasing demand for this category of products.
The take-up in the Rome market reached a volume of 34,000 sqm, a contraction compared to the record performance of Q1 2023 but still in line with the historical average for a first quarter. The high potential of the Roman market appears to be hindered by the scarcity of high-quality product, evidenced by the concentration of most transactions on B-grade buildings. After recent increases, the prime rent remains stable at 580 €/sqm/year.
In the first quarter, the investment volume in the Logistics sector amounts to approximately 300 million euros, recording a growth (+15%) compared to the same period in 2023. The sector is particularly supported by the Light industrial segment, which had already attracted increasing investments in the previous year and which, in Q1, sees the transaction of two significant sale and leaseback portfolios. After six consecutive increases, there is stability in the prime net yield, with a value of 5.5%.
From the take-up perspective, there is an absorption of approximately 540,000 sqm, a decrease compared to Q1 2023 (-16%). Lombardy remains the most demanded market, representing about one-third of the total take-up. Additionally, there is a growth in the prime rent in the Rome market, now standing at €66/sqm/year, while the rents in other major markets remain unchanged, with the maximum value nationwide observed in Milan and Bologna (€67/sqm/year).
After demonstrating remarkable resilience throughout H2 2023, the Hospitality sector recorded another positive outcome in the first quarter of 2024, driven by investments totaling 240 million euros, indicating a growth of above 90% compared to the first quarter of 2023. The asset class also confirms its widespread presence in terms of geographic distribution of investments, however, with a higher concentration of transactions in the first quarter in the north-western and southern regions of the country (accounting for approximately 40% each).
Living continues to prove itself as a rising asset class in investors’ preferences, with investments amounting to nearly 140 million euros in Q1. Of these, over 80% are concentrated in Milan, which remains the benchmark market for this sector. However, developers are showing increased caution due to a growing level of uncertainty related to administrative procedures, the consequences of which could impact the investment pipeline in new developments, mainly in the residential sector, thus limiting the supply of new housing units in the city in the medium term.
The majority of operations are of a value-add nature and involve the residential repositioning of tertiary assets that are no longer performing optimally. However, due to their characteristics and locations, these assets can continue to generate value, especially in the context of urban regeneration projects.
Regarding the property market transactions, 2023 closed with almost 710,000 transactions in Italy, down 9.5% compared to 2022, although still firmly above the pre-Covid annual average (approximately 535,000 transactions from 2015 to 2019). The total transaction value is estimated just below 100 billion euros: Milan and Rome are growing in terms of market share, each recording around 9 billion euros in transactions.
In terms of the number of transactions, in Q4, the residential market in Milan slowed its contraction, closing at -2.2% compared to Q4 2022, despite the annual performance standing at -13% due to the slowdown in activity recorded in the first half of 2023. No significant repricing phenomenon has been observed by operators: new constructions, in particular, show dynamic demand that continues to outstrip available supply, although an increase in the time required to close deals is evident. In terms of the average size of homes traded, smaller units continue to dominate the market share: over 60% of total sales in the city concern homes under 85 sqm, a figure markedly different from the Italian average.
Compared to other major Italian markets, Rome shows a delay in stabilizing transaction volumes: Q4 indicates a contraction of -11% compared to the same quarter of 2022 and an overall annual variation of -14%. Prices are essentially stable after a slight contraction in the first half of the year. In terms of size, there is a growing interest in larger homes, which are gaining market share and are less affected by the contraction in sales volumes.
The Retail sector attracted approximately 80 million euros of investments in Q1 2024, a volume that decreased compared to the positive fourth quarter of 2023 but still higher than the first quarter of last year (+90%). The phase of activity involving the Out of town and Supermarkets segments continues, often with the direct involvement of industry operators in end-user or sale and leaseback deals, in a context of strategic revision of their real estate portfolios. However, there is also increased dynamism in the High street sector, which records a significant pipeline of transactions to be finalized in the coming quarters, among which the announcement of the deal by Kering for the property on Via Montenapoleone in Milan deserves special mention.
After the strong push of the fourth quarter of 2023, characterized by a high number of transactions and an investment volume in line with the five-year average, Q1 2024 continued to show signs of gradual stabilization. The positive performance in terms of invested capital appears to be particularly linked to a small circle of medium and large deals, while the overall number of transactions recorded highlights the persistence of a phase of reduced activity by investors, waiting for a hoped-for new phase of less restrictive monetary policy, already partially anticipated by the markets with the end of the trend of growth in financing costs.
In the coming quarters, we anticipate that the market’s performance will be tied to the recovery process of more established asset classes such as Offices, Logistics, and Retail, which can positively contribute to the revival of investment activity through innovation of their formats, aiming for greater integration and hybridization of spaces. Additionally, we are betting on the continued growth of emerging asset classes such as Education and Infrastructure, and the resilience of the Living sector.