As the dust settled on the British and French elections, Italy emerged as an attractive destination for global wealth. The country did it with sprezzatura, by offering a Special Tax Regime which is a flat tax rate of €100,000 for non-doms on income from abroad, rolling out an Inpatriates Regime – to attract returning Italian bankers – with a 50% discount on taxable income, and by continuing with investment or ‘golden visas.’ First introduced in 2017, these measures seem to be supported (for now) by the Italian political establishment despite political differences.
Italian real estate has been of the key beneficiaries of the cross-border investments. There are 3 main trends:
- In Q1 2023 there was a large repricing of real estate risk premium after the ECB raised rates in 2022 to tackle rising inflation. The volume of transactions fell as financing became expensive, and the yield on 10-year BTPs (Italian treasuries) blew out above the Prime rates for major real estate asset classes. As the year progressed, prices have stabilised and confidence came back to the market. As of Q1 2024, Cushman & Wakefield sees strong rebound, particularly in Milan and Rome Commercial and Office – which remains one of the best performing RE segments. That said, the gap between Prime and Non-prime assets continues to go wider (1). We at Oracle Capital, continue to find attractive low double digits yields for prime office assets sitting between Core-and Value add (so not adding much more risk beyond ‘pure-core’).
- Living space continues to be interesting and remained resilient in the downturn. This is driven by lack of flexible supply and continuing conversion of commercial into residential. Volumes in Milan remain subdued due to issues with planning and administrative uncertainty with the city council. Longer-term, EU regulations on environment should present interesting opportunities for value differentiation due to retrofitting and efficiency of newer constructions.
- Hospitality sector – showed a strong momentum in Q1 2024, with €210m of investments, a 20% increase year-on-year, according to C&W. We like this segment, particularly given the fragmented nature of hotel operations in Italy. There are less hotel chains and plenty of opportunities for the luxury segment. Italy is the 4th most visited country in the world with 57 million visitors last year. The country remains an attractive destination for the discerning tourist interested in lifestyle, food history and culture.
For these reasons we remain optimistic on the stabilisation of the Italian real estate, and we particularly like the segments above to harvest risk-adjusted returns.
1. Marketbeat, Italy, Q1, 2024 report by Cushman & Wakefield 02/05/2024.
