After a period of uncertainty driven by the global pandemic and geopolitical tensions, the Italian real estate market is starting to recover. Transaction volumes are rising, and a drop in interest rates has improved financing conditions.
In our recent webinar, Exploring the Italian real estate landscape, industry experts shared their views on the trends that will shape the sector in 2025. Our speakers included:
- Matteo D’Antuono, Group CFO at Dils
- Paolo Benedetto, Chief Strategy & Development Officer at IPI
- Andrea Francesco Castelli, Partner at PedersoliGattai
This article shares key takeaways from that discussion, providing an insight into the factors driving the market’s recovery.
Signs of stabilization
The global real estate market slowed in 2023, however it’s now showing signs of stabilization. This is reflected in investment volumes, which have recently reached their highest level in two years.
In Italy, the market has performed particularly well. “We’ve seen about €6.5 billion transacted in 2024, surpassing the entire 2023 total of €6 billion,” says Paolo Benedetto. “The third quarter of this year represents the best result for a single quarter in the last two years.”
“We’ve seen about €6.5 billion transacted in 2024, surpassing the entire 2023 total of €6 billion.”
Paolo Benedetto, Chief Strategy & Development Officer at IPI
This year, inflation has steadily fallen, and interest rates have started to drop — first with the U.S. Federal Reserve and then with the European Central Bank. These cuts are forecasted to continue in the coming months, and this will bring liquidity back into the market. “Europe is in a relatively stagnant phase in terms of economic growth,” Benedetto adds. “The focus is back on growth, which necessitates lower interest rates.”
The increasing transaction volumes, coupled with an improved economic outlook, put the sector on a clear upward trajectory.
A surge in retail
Retail has emerged as the leading asset class in 2024, with approximately €1.6 billion transacted so far. This has been significantly influenced by the largest single-asset transaction in Italy, a property on Via MonteNapoleone in Milan.
The landmark deal, valued at €1.3 billion, involved the sale of a prestigious property by Blackstone to the Kering Group, a global luxury goods powerhouse. Milan’s status as a retail hub is likely to attract further international investment, positioning retail as a cornerstone of Italy’s real estate market.
Offices rank as the second most prominent asset class. Historically, offices have been associated with the largest transactions in real estate, as rental income could support higher property prices. However, rising interest rates in recent years have made financing less accessible. This has led to smaller transaction sizes.
“Many transactions are now done ‘off equity,’ meaning with the investor’s own funds,” explains Andrea Francesco Castelli. “This has significantly reduced the average size of transactions.”
It’s worth noting that while offices are behind retail as the leading asset class, they would be in the top spot if not for the MonteNapoleone sale. Despite predictions that remote work would render offices redundant, they remain a key pillar of Italian real estate.
“Many transactions are now done ‘off equity,’ meaning with the investor’s own funds.”
Andrea Francesco Castelli, Partner at PedersoliGattai
Moreover, with interest rates predicted to reduce further in 2025, the average size of transactions will likely increase. This will make higher value office investments more viable.
Regulations in urban development
Urban development is fundamental to Italy’s real estate market. However, it faces significant regulatory hurdles and growing calls for reform.
The “Salva-Milano” investigation highlights challenges in Milan’s urban planning landscape. This aims to clarify urban planning regulations and address obstacles that have stalled construction projects. Although not yet concluded, it’s seen as a pivotal step for Milan’s real estate market. “Depending on the direction of the Salva-Milano, it could help or hinder urban development projects,” notes Castelli.
At the same time, there’s a demand for urban planning reform. Italy’s current planning framework dates back to the post-World War II era. Because of this, it’s designed to accommodate fast-growing populations and new developments. Today, however, the focus is shifting toward more sustainable and efficient urbanization.
“Depending on the direction of the Salva-Milano, it could help or hinder urban development projects.”
Andrea Francesco Castelli, Partner at PedersoliGattai
New sustainability mandates for logistics
The urban development regulations are tied to a growing focus on environmental, social, and governance (ESG) factors. This is more relevant in the medium and long term and will be a key consideration for investors in the coming years.
As the logistics sector grows, particularly in urban areas with limited space, it will need to reduce its carbon emissions to align with global sustainability goals. With greenfields becoming increasingly limited, the focus will shift to developing brownfields to minimize environmental impact. “The push for sustainability comes from two main factors,” says Benedetto. “One is from the users of the spaces, and the second is the increasingly strict European regulations.”
Lombardy, in Northern Italy, has partnered with the Italian Ministry of the Environment to develop a strategy for sustainable development. This has been introduced to address growing concerns over land use and environmental impact. Castelli adds, “Areas that already exist and need to be cleaned, decontaminated, or demolished will lead to logistics rents continuing to rise, potentially limiting supply.”
“The push for sustainability comes from two main factors: one is from the users of the spaces, and the second is the increasingly strict European regulations.”
Paolo Benedetto, Chief Strategy & Development Officer at IPI
This shift shows that the future of Italian real estate will be heavily influenced by ESG factors. As sustainability becomes a higher priority for investors, the demand for energy-efficient, low-carbon developments will increase.
The road ahead for Italian real estate
Italy’s real estate market is recovering, with rising investment volumes and improved financing conditions. Key trends such as the growth in retail transactions, the need for urban development reform, and an increased focus on sustainability are reshaping the sector.
As interest rates decrease further and regulatory changes take shape, Italy’s real estate market is poised for expansion, though significant challenges remain.
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