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Italian Property Market Records Positive Returns During H2 Of 2012

News Posted On: 02 April 2013

Italian property news

IPD, a measurement group based in the United Kingdom, reports that commercial real estate in Italy delivered an overall return of only 0.5 per cent during the second half of 2012, marking a decrease of 1.3 per cent in comparison with the first six months of the year. The total returns for 2012 stood at 1.8 per cent, and IPD believes that it is a positive outcome considering the crisis that currently engulfs the Eurozone.

The Biannual Property Index of Italy showed that values of commercial properties continued to decline across the primary sectors during the second half of last year. Capital values fell by 2.4 per cent during the period (-4 per cent over the course of the year), while income returns were recorded at 2.9 per cent (6 per cent annual). The index also showed the underperformance of government bonds (13 per cent), industrial equities (13.3 per cent), and real estate securities (29 per cent).

Real Estate Market More Resilient Than Other Asset Classes

According to the Italian Country Manager of IPD, Luigi Pischedda, these figures quite clearly reflected the effects of the Italian government’s fiscal policies and the global financial crisis. The combination of both factors has had a telling effect on the Italian real estate market. However, Mr. Pischedda says that the real estate market is proving to be increasingly resilient when compared with other asset classes in the country. The Index recorded total returns of 3.3 per cent annually over the past five years, compared to 6.2 per cent per annum for bonds, -11.4 per cent per annum for general equities, and -20.4 per cent per annum for property equities.

Across three of Italy’s primary sectors, retail performed the best over the 2nd half of 2012, delivering an overall return of 1.1 per cent. The industrial sector followed in the second place with a total return of 0.7 per cent. The income return posted by the industrial sector was the strongest at 3.4 per cent. The office sector, on the other hand, recorded a negative overall return of -2.8 per cent. According to Pischedda, the negative results seen in the office sector were driven by weakening fundamentals and the broader economic context. The capital growth in the sector was negative, but sufficient to counterbalance the positive income element.

Combination of Factors Affecting Italian Real Estate

Pischedda said that the decline in capital growth reflects a reduction of economic activity in a large number of office-based businesses and a re-balance of power that favours buyers and declining demand. These factors have exercised heavy pressures on costs, vacancy rates, as well as rents. The primary business districts such as Rome and Milan have suffered further polarization over recent times as the country seeks to attract investment in its commercial real estate market.

Real estate analysts foresee no major improvements in the Italian property market in 2013. However, they do believe that a change in tactics may help in attaining sustainability.

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