REAL estate investors from Azerbaijan's sovereign wealth fund to Blackstone Group Inc and UBS Group AG are cashing in on a surge in demand for prime Milan offices that's pushing prices to new highs.
A lack of development in Italy's financial capital is driving up rents just as a scarcity of prime real estate in some western European cities encourages global investors to enter new markets. The billionaire Rovati family, Amundi SA and Invesco Real Estate are all closing in on deals to buy up trophy office buildings in the city, people with knowledge of the transactions said, asking not to be identified because the discussions are private.
Italy's real estate market endured a long period of subdued activity after the global financial crisis because banks were slow to clear up soured property loans, reducing the availability of credit.
At the same time, investors were focused on European cities where economic growth was stronger and political risk lower. That pushed prices in major markets like Paris, Berlin and Frankfurt to record highs, making Milan look cheap by comparison.
"Despite the macro situation, Milan is not Italy, and actually there is very little true grade A vacancy anywhere within the central business district," said Max Nimmo, an analyst at Kempen & Co. "This is putting upward pressure on rents, and despite the already quite low yield, investors are willing to buy that growth."
Monthly rents in Milan reached 585 euros (S$893) a square metre in the first quarter, up 1.7 per cent from a year earlier, while vacancy rates declined by about half a percentage point, according to data compiled by broker Jones Lang LaSalle Inc. That followed a record year for leasing in the city in 2018 when about 381,000 square metres (4.1 million square feet) was rented, according to CBRE Group Inc, another broker.
"Demand is capped by the limited availability of good quality products, so we expect yields to remain low or slightly decrease in the coming months, particularly for quality grade A assets," said Gabriele Bonfiglioli, head of investment management at Milan-based landlord COIMA RES SpA. "In terms of capital values Italy, and Milan in particular, is lagging behind other European markets. Prime capital values in Milan have a discount to Paris of about 50 per cent." BLOOMBERG