Italian Real Estate market and sovereign funds

The Italian Real Estate market is a well-established subject of interest by sovereign funds, albeit  some caution due to the slow economic growth and the result of the last constitutional reform referendum. Also the European scenario suggests to maintain a careful behavior, as elections in France and in Germany are close. However, low interest rates remain a source of optimism for the future of real estate market.

THE ROLE OF SOVEREIGN FUNDS

Sovereign funds have already invested in the Italian market and are going to invest again, picking up available opportunities: according to Bocconi University’s Sovereign Annual Report 2015, in 2015 sovereign funds concentrated 56.9% of their investments on Real Estate, hotels, touristic facilities,  infrastructures and utilities; sectors providing long-term returns, and paying an illiquidity premium on the investment. Direct or indirect investments are the preferred scope, thanks to the change in returns of the different asset classes.

Italy remains a “core” country together with United Kingdom, France, Spain and Germany, even though there are longer lead times required to obtain deals and to access debt, with Milan confirmed as the most interesting city.

According to PwC and Urban Land Institute, Milan is strongly growing, also thanks to the push given by Expo 2015, and reaches the 8th position in Europe’s most active real estate markets, accounting for 4 billion Euro invested between 4Q2014 and 3Q2015 (+4 places versus the previous year).

INVEST IN POLYFUNCTIONAL SPACES AND IN LUXURY BUILDINGS

Investors seem to prefer modern spaces in the Central Business District and the areas surrounding modern offices, public transports, luxury streets, hotels and shopping malls. The areas  showing higher growth trends are those around the Central Railway Station, Porta Nuova and City Life. In this view it is noteworthy the purchase of the Excelsior Hotel Gallia by Qatar’s sovereign fund and the INPS building in via Melchiorre Gioia in Milan, bought by Adia (ABU Dhabi Investment Authority), which is going to be demolished and re-built in the next years.

Rome is growing too (in PwC’s report it reaches 25th place in Europe), even though some factors may limit the recovery, such as strong fragmentation and low transparency. The residential market is getting interesting, with some notable acquisitions of historic buildings, to be converted into ultra-deluxe structures, facilities that are not very much present in the capital: the new Westin Excelsior, purchased by Qatar’s sovereign fund, fits this trend.

 

PwC & Urban Land  Institute,  «Emerging Trends in Real Estate – Beyond the capital», 2016