Several factors are driving the change in investor perceptions of Italian investments. First, the relaxation of lockdown measures certainly helps increase confidence among consumers and businesses, signaling the progressive removal of almost all curbs on business and internal movement. Also, the appointment in February of former ECB chief Mario Draghi as prime minister raised hopes that Italy could more effectively use recovery fund monies to boost economic growth. Case in point, the European Union’s 800-billion-euro post-pandemic recovery fund, of which Italy is a major beneficiary. The Italian economy stands to receive some € 235bn to revive its economy over the next five years, out of which € 191.5bn in grants and loans from the EU’s recovery fund topped up by other EU aid and national resources. Half of the funds will be allocated to the real estate sector activities, such as energy upgrading, renovation of buildings, high-speed railways, and integrated logistics supply chains.
Also, structural reforms are planned to address inefficiencies in the country’s legal system and local administrations that have hindered growth. These include the digitization of public administration procedures and an overhaul of the Italian legal system to speed up legal cases, reorganize tribunals and modernize the court system.
Thanks to these reforms and investment spending plans favoring a consolidation of the industrial activity, the annual GDP growth estimates have been revised upwards for 2021, forecasting a growth of 5.9% (Oxford Economics, July 2021).
The real estate sector is in the front line to benefit from this economic rebound, and the first half of the year is pointing at trends that are here to stay. In particular, logistics are witnessing a growing market share, with an impressive increase in 2020 and in the first semester of the year to reach 25% market share (second asset class in volume, surpassing for the first time retail assets). In addition, this sector is benefiting from the increase in reliance on delivery platforms, online sales and urban logistics.
Located in the center of the Mediterranean Sea, Italy gives businesses a strategic gateway to consumers across the European Union, Northern Africa and the Middle East. In addition, much of the country’s extensive transportation network is among Europe’s priority logistics nodes. Due to its central Mediterranean position, 20% of the world’s maritime traffic, 30% of fuel traffic and 35% of container traffic pass through Italy’s ports. In aggregate, 432 million tons of goods and 1 billion people move through Italy’s 40 major ports and 42 airports.
Since 2020, the Covid-19 pandemic has put forward the need for strong supply chains as consumers were forced to order online, leaving many retailers looking to solidify and expand their e-commerce infrastructure. This situation has pushed demand for logistics space, resulting in an intense letting activity in the first half of the year with more than 1,200,000 sqm absorbed, up by 48% compared to H1 2020 and more than double the last 10 years’ average. Half of this take-up is related to existing assets, while build-to-suit represented one-third.
Besides this increase in take-up, the number of logistics deals was substantial, totaling 83 transactions, out of which 49 in the first quarter, which is the highest amount ever recorded within a single quarter. Moreover, among those transactions, more than half of them were related to assets below 10,000 sqm, confirming the significant interest for last-mile solutions.
As the main catalyst of interest, the North of the country remains the most attractive region. In particular, the area of Milan remained the most preferred destination with € 200m of volume, even if other destinations outside the most established hubs are more and more registering interest.
The operators’ interest was also mainly focused on the North of Italy, especially with the Lombardy region. With around € 750m of investments, the logistics sector recorded a tremendous growth in H1 2021 compared to H1 2020, representing more than double volume. Prime rents remained stable and after the strong compression of Q4 2020, prime net yields also remained stable in Q1 2021 but compression is forecasted by the end of the year.
- JLL, 2021
- European Commission, June 2021
- Wolters Kluwer, 2020