_Milan’s office landscape burgeons

Over recent times, significant capital has targeted assets with development upside transforming Milan’s skyline and expanding its supply of premium quality stock.

Porta Nuova in Milan represents one of the largest urban redevelopment projects in Europe. The project was developed by Hines Italy over an eight year period at a project value worth more than €2 billion. In 2013, Qatar sovereign wealth fund acquired a 40 percent stake in the project, and in early 2015, the fund proceeded to acquire complete interest. This transaction contributed Milan’s record year in 2015, as over €4 billion was invested into its office market. Recent trends show that an uninterrupted weight of capital is entering Milan’s commercial market, reflecting the continued search for value in a strengthening market.

Although domestic investors have traditionally been the primary protagonists in Milan’s office sector, a host of international outfits have become more prominent. Funds from the US, France, Germany and sovereign wealth funds from the Middle East have recently become more active. Notably, cross-border capital accounted for 75% of the total investment volume in the first nine months of 2016.

As Milan is a less well-established destination for international capital than other European centres, such as London and Paris, it is becoming increasingly attractive to global investors who are identifying the value for capital growth and better returns in the city’s real estate market. As the market continues to strengthen, the availability of core product is expected to increase, particularly as funds who purchased at the low point in the cycle will seek to capitalise on the current market conditions.

Although the risks from the Italian banking sector remain a long way from being resolved and represent a substantial downside risk to the Italian economy, a growing number of investors are confident about the market. Investors are drawn to Milan in view of better returns, the devaluation of the euro, low interest rates and larger liquidity in circulation as a result of the banks’ expansive policies. Prime yields in Milan have fallen to record lows, even when compared to the previous pricing peak in 2007. Yet still, when compared to government bond yields, commercial real estate in Milan provides a good value proposition.

Read more in the Milan Office Market Outlook Q4 2016 here