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Italy Office Real Estate Market - Growth, Trends, COVID-19 Impact, and Forecasts (2023-2028)

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  • 150 Pages
  • March 2023
  • Region: Italy
  • Mordor Intelligence
  • ID: 5759345
The size of Italy Office Real Estate Market is USD 1.5 billion in the current year and is anticipated to register a CAGR of over 5% during the forecast period. The performance of the Italian office real estate market was greatly impacted by the COVID-19 pandemic. Particularly as a result of the crisis, non-residential investment significantly decreased, and sale prices, transaction volumes, and new finance activities have all been corrected. The number of new vehicles issued, the value of their stock prices, and the value of their real estate assets were all affected. This has also affected Spanish real estate investment trusts with a focus on this industry. In contrast, the commercial real estate market's connection to credit quality has not yet experienced a significant drop.

Key Highlights

  • Strong fundamentals drove quarterly take-up of over 108,000 sqm in Milan (+26% on Q3 2021) and approximately 40,000 sqm in Rome, matching record-level YTD results in Milan with approximately 370,000 sqm.
  • The pipeline for new projects is very strong in the markets of Milan and Rome. About 117,000 square meters were expected to be completed in Rome by 2022, in line with the volumes seen in 2018 and 2019; in Milan, the pipeline is expected to provide a sizeable amount of square meters. The risk of a sharp increase in vacancies in Milan as a result of new products entering the market is still low.
  • Up until now, the demand for high-quality premises has caused newly built offices to be quickly occupied. The percentage of recently finished or still-being-built offices that were fully occupied in 2021 was 81%.
  • The majority of the pipeline, primarily in the sub-markets that accounted for 43% of 2021 take-up volumes, appeared to be well positioned. Additionally, 38% of the floor space scheduled for delivery in 2022 was already occupied.
  • The difference in rent between grade A and grade B buildings will widen as a result of the growing demand for new, high-quality products that adhere to stringent ESG criteria. Prime rents had already increased from pre-pandemic levels by the end of the year, reaching EUR 620/sq m/year (USD 659.95) in Milan and EUR 475/sq m/year (USD 505.61) in Rome.

Italy Office Real Estate Market Trends

Occupier and Investment Focus in Milan

The activity recorded during the second quarter, with a take-up of 150,000 sqm (+ 35% on Q1 2022), reinforced the strength of the office market and brought the total figures for the first semester to a record value of 260,000 sqm (+ 60% on H1 2021).

The physical office space continues to be a key component of company structure and operations, but the new space planning philosophy is flexible and takes a fresh look at the workplace; now, employee wellness and sustainability are the main demand-creating factors.

The Centro Direzionale di Milano (CBD) was the busiest sub-market, accounting for 33% of total H1 absorption. However, there is a clustering of the market in commercial areas with convenient transportation, amenities, and an established by other tenants.

Following the pandemic-related slowdown, the demand for flex offices has since picked up; many centers are now completely booked, and operators have resumed projects that had been put on hold.

Prime rents increased during the second quarter and are now at EUR 660 (USD 702.66) per square meter per year (+3% vs. Q1 2022), driven by robust absorption and the availability of spaces, which reflects new office concepts and quality requirements.

Although the investment market has slowed down since Q1, Milan still contributes about 60% of the office volume invested in Italy, with half-year volumes hitting EUR 1.2 billion. Investor confidence in the city is still being driven by steadily rising absorption and rising rental rates.

Despite its high risk, the CBD is still attracting investors, whereas, in secondary locations, they are concentrating on stable assets. The second quarter saw a decrease in value-add acquisitions, which predominated in the first quarter due to the adverse effects of the current macroeconomic and geopolitical conditions, which hampered the availability and costs of funding.

The Need for Offices has Altered due to the Pandemic

The pandemic highlighted a number of long-standing trends in demand for office space. Firstly, there has been a greater understanding of the shocks that significant global events might bring, which has led to a greater emphasis on environmental and social sustainability. As a result, businesses have started to adopt or strengthen their ESG policies and have become pickier about the buildings they choose, based their decisions on sustainability and energy efficiency standards.

Secondly, the use of remote working has increased due to the necessity to stop the virus's spread. In order to boost employee engagement, the proliferation of "hybrid" work styles has reshaped occupier expectations about space efficiency and functionality.

The sustainability of buildings in such a setting entails not only reducing the environmental impact but also emphasizing employee health and well-being, particularly through the growing adoption of policies, procedures, and technologies that enhance the monitoring and reporting of underlying ESG performance and the comfort of interior environments.

By the end of 2021, the proportion of certified buildings in Milan's overall take-up increased from 11% in 2016 to roughly 41% by the end of 2021, exceeding the growth rate of the major European cities.

All newly constructed office buildings in Milan have ESG certification, and 60% of the stock that is being upgraded and renovated will also have this certification. However, as sustainability becomes more significant, certification is being used more frequently, even for stock updates. The office sector will continue to be marked by a trend of ongoing ESG performance assessment of existing buildings through 2022 and beyond.

Italy Office Real Estate Market Competitor Analysis

The Italian office real estate market is highly fragmented, with the presence of both global players and regional players, and the competition in the market is very high. Some of the major players in the market are Knight Frank, Astaldi, Webuild, CBRE Italy, and others. The market was anticipated to regain normalcy by the end of 2022. Companies are gearing up to meet future needs, and many companies are entering the market for further opportunities.

Additional Benefits:

  • The market estimate (ME) sheet in Excel format
  • 3 months of analyst support

Table of Contents

1.1 Study Background
1.2 Study Assumption and Market Definition
4.1 Market Overview
4.2 Market Dynamics
4.2.1 Market Drivers
4.2.2 Market Restraints
4.2.3 Opportunities
4.3 Industry Attractiveness - Porter's Five Forces Analysis
4.3.1 Threat of New Entrants
4.3.2 Bargaining Power of Buyers/Consumers
4.3.3 Bargaining Power of Suppliers
4.3.4 Threat of Substitute Products
4.3.5 Intensity of Competitive Rivalry
4.4 Industry Value Chain Analysis
4.5 Technological Innovations in the Office Real Estate Market
4.6 Government Regulations and Initiatives in the Industry
4.7 Insights into Rental Yields in the Office Real Estate Segment
4.8 Insights into the Key Office Real Estate Industry Metrics (Supply, Rentals, Prices, Occupancy/Vacancy (%))
4.9 Insights into Office Real Estate Construction Costs
4.10 Insights into Office Real Estate Investment
4.11 Impact of the COVID-19 on the Market
5.1 By Key Cities
5.1.1 Rome
5.1.2 Milan
5.1.3 Naples
5.1.4 Turin
5.1.5 Other Cities
6.1 Overview (Market Concentration, Major Players)
6.2 Company Profiles - Real Estate Players *
6.2.1 Knight Frank
6.2.2 Savills plc
6.2.3 Engel & Volkers Commercial
6.2.4 CBRE Italy
6.2.5 JLL Italy
6.2.6 Colliers Italy
6.3 Company Profiles - Developers
6.3.1 Astaldi
6.3.2 Webuild
6.3.3 Impresa Pizzarotti
6.3.4 Rizzani de Eccher*

Companies Mentioned (Partial List)

A selection of companies mentioned in this report includes, but is not limited to:

  • Knight Frank
  • Savills plc
  • Engel & Volkers Commercial
  • CBRE Italy
  • JLL Italy
  • Colliers Italy