The Italian real estate market continues to offer investment opportunities with competitive returns. The current phase is characterised, on one hand, by a consolidation of capital values and rental growth and, on the other hand, by the persistence of structural gaps both in terms of product and sub-sectors. The real estate investment volumes recorded in Italy in 2018, equal to c. Euro 9 billion, confirm that the overall size of the commercial real estate market in Italy has consolidated in the last few years also increasing the competition and transparency in the sector, without negatively impacting the possibility for local operators to carry out “off market” transactions which can generate above market returns.
Milan is characterized by solid fundamentals between supply and demand, also in relation to the scarcity of properties in grade A, which represent only 10% of total stock for office use, but represent more than 70% of the demand from the tenants. This imbalance suggests that demand could exceed 2-3x the supply in the next few years which, will support rental growth in the short and medium-term. Lombardy is the third European region by size of the gross domestic product (GDP) and has recorded an average growth rate in the period 2013-2015 comparable with that of other regions of similar size.
The year 2018 saw a take-up level equal to about 380,000 square meters, up by 4% compared to 2017, a record value compared to the average of recent years. The vacancy rate in the Grade A office segment in Milan is at historical lows at a level of around 2.1%, a reduction of 50 basis points compared to the levels at the end of 2017. The office market in Milan saw prime rent reaching the Euro 585 / sqm level at December 31st, 2018, an increase of 6.4% in 2018. Green Street Advisors estimates that the combined rental and occupancy growth over the period 2019-2021 will be + 9.9% for Milano Porta Nuova and + 3.9% for Milano CDB. The investment market for Milan offices remains very dynamic with Euro 2.1 billion of transactions recorded in 2018, a level equal to 1.5x the average of the last 10 years. The net yield for the Milan prime office properties stands at 3.40%, down 10 basis points compared to the end of 2017 while the net yield for offices in good secondary locations stands at 5.00%, down 25 basis points compared to the end of 2017.
COIMA RES is currently the only real estate investment trust (REIT) listed on Borsa Italiana which exclusively operates in the commercial real estate in Italy with a strong focus on Milan offices.
At an international level, COIMA RES is part of a European Think Tank together with six other listed real estate companies operating in Europe in the office segment: