Real Asset Insight #6 June 2020

‘The crisis has not changed
Italy’s structural features’
As a Paris-based Italian with a European mandate, Maurizio Grilli, head of investment management
analysis and strategy at BNP Paribas Real Estate, combines a deep understanding of the Italian
market with a European and international perspective. RAI sought his views on the outlook for Italy.
By Nicol Dynes
It has not been a good start to the year, but
market fundamentals are still solid. Do you
think there can still be a pick-up later in the
year and time to get back on track?
Fully reopening in Europe is likely to take some
time while the path to recovery is still steep as
the recession has only started. But talks of net
transfers are becoming a reality and a project for
the European Commission’s proposed recovery
fund is taking form.
While we cannot be precise about the timing of
the recovery, we suspect we shall have some
stronger data in the fourth quarter and, as a
result, that will translate into an improvement
of the demand for space and, consequently, of
investment demand as well. Let us not forget
that investors are quite fast to capture sentiment
changes and, if and when they realise that the
curve has turned, the investment market can
restart quicker than expected.
We expect local players to be the first to act,
to be followed by foreign institutions. Some
opportunistic-style investors will likely scout
opportunities but, for the time being, we do not
anticipate massive distress in the market.
2019 was the best year ever for commercial
real estate in Italy, with investment volumes up
40% to €12.2bn. How do you think 2020 will
compare? What are the main opportunities?
Overall, it is not a mystery that investment activity
will be lower in Italy this year. However, to a
certain extent, the crisis has not changed the
structural features of the Italian market. We still
believe that there is some pent-up demand for
offices and that a large part of office stock in
both Milan and Rome needs upgrading or heavy
refurbishment.
The logistics market will come out of this crisis
even stronger. It needs to be highlighted that
the share of online commerce in Italy lags
significantly other European countries such as
Germany and France. In this sense, this sector
should show strong growth.
The transformation currently witnessed by the
retail sector will accelerate, as most retailers will
increase their online presence and reconfigure
their brick-and-mortar presence. Some retail
formats will fare better than others: specifically,
we believe that the high street will, upon some
restructuring, be more resilient than other noncore
outlets.
Finally, there should also be a further
improvement of the prospects for some minor,
alternative sectors such as healthcare.
Foreign investors account for 75% of the Italian
market, but while they used to be mainly
opportunistic, there are now more institutional
players as the market has become more
transparent. What do you see happening this
year? Who is likely to have a stronger presence?
We need to see the dust settle first, investment
activity to strengthen and pricing to be stable.
While some foreign players will remain in ‘waitand-see’
mode for a while, the merits of a large
and increasingly transparent market will not be
forgotten.
A large amount of bonds held by European (and
global) investors and issued at relatively high
yields will come to maturity over this and the
next years. These investors are in a permanent
quest for yield and real estate naturally offers
attractive and stable income. As a result, we
expect part of this capital to find its way in Italy.
30 Real Asset Insight | Issue 2 July 2020