10. Mai 2012 
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The office market in Milan shows low activity
In Q1 2012 the real estate investment activity in Milan was still scarce, as it was already in the end of 2011, with direct investment in non residential properties standing at around € 140m, representing 32% of the Italian volume. In the first quarter, just 57,000 m² of office space were taken up. The volume is quite below (-46%) to the level registered in Q1 2011. Vacant space increased strongly, since companies that signed in the previous months are liberating space and moving to their new office. Unfortunatly, this trend will carry on during the whole year, fuelled by new projects that will be completed. Therefore, the supply increase will put a strong pressure on rents in 2012.
In Q1 2012 the real estate investment activity in Milan was still scarce, as it was already in the end of 2011: investment volume was in line with what recorded in the previous quarter. In fact, the direct investment in non residential properties was around € 140m, representing 32% of the Italian volume. Recorded transactions regarded mainly office building entirely (or almost entirely) leased. Furthermore, as it was already during the last few years, the areas of the city attracting more investments were the surroundings of the Central Station or the peripheral areas, only if well connected by public transportations.
Italian property funds are still almost the only type of investors still buying properties in Milan. In particular, the two main transactions recorded in Q1 in Milan were closed by an Italian property fund whose main investor is a pension fund. Such investor typology is maybe today one of the few still affording medium/large size investment operations (higher than € 30m). On the contrary, foreign investors are still more active on the vendor side than on the buyer side. For example, the largest transaction recorded in Milan was regarding an office building in via Regina Giovanna acquired by the Inarcassa RE fund and sold by the German open ended fund Deka Immobilien.
In the first three months of 2012 none transaction was recorded in the Milan CBD. However, the general situation, both on the real estate market and the financial market, has not changed much in the last three months, still being quite critical on both sides. For that reason we believe that prime yields in Milan CBD have been stable in Q1 2012 at 5.4%. In other areas of the city as well, prime yields are still stable. However, it is likely that, given the current market condition, prime yields will start rising again in the coming months of 2012.
In the first quarter, just 57,000 m² of office space were taken up. The volume is quite below (-46%) to the level registered in Q1 2011, but higher than in Q1 2009, another recession year as 2012 should be. Indeed, since employment will continue reducing, motivations that push companies to move will remain the same. However, companies try to take advantage of the current real estate market situation to fetch better rental conditions during the rinegotiation process. Of the 33 deals recorded, just two concerned offices larger than 6,000 m²: an ICT company in the Torre Orizontale in Rho and a media company in the Maciachini Center.
Vacant space increased strongly during the first quarter of 2012, standing now at 1,395,000 m², representing 11.6% of the office stock. In the first three months, just 30,000 m² of new office space were completed: the Vodafone village at Lorenteggio. Since this new development was already pre-let, the supply increase was the result from companies liberating space and moving to their new office. In 2012, numerous projects will be completed, of which just a part are already pre-let. Moreover, since net absorption is expected to be negative in 2012, vacant space will continue increasing in the next quarters.
Supply increase is putting pressure on landlords that do not want to see their premises vacant and accept to reduce their asking rents since incentives given are not sufficient anymore. Therefore, in the first quarter CBD average rents decreased by 5% compared to one year ago. This trend is also observed in the Semi Central, with a drop of 12% compared to Q1 2011. Rents are resisting better in the Periphery since there were some important transactions in new premises. While in the Hinterland there are still some important deals around € 200/m²/year, in particular in Sesto San Giovanni.
In Q1 2012 the real estate investment activity in Milan was still scarce, as it was already in the end of 2011: investment volume was in line with what recorded in the previous quarter. In fact, the direct investment in non residential properties was around € 140m, representing 32% of the Italian volume. Recorded transactions regarded mainly office building entirely (or almost entirely) leased. Furthermore, as it was already during the last few years, the areas of the city attracting more investments were the surroundings of the Central Station or the peripheral areas, only if well connected by public transportations.
Italian property funds are still almost the only type of investors still buying properties in Milan. In particular, the two main transactions recorded in Q1 in Milan were closed by an Italian property fund whose main investor is a pension fund. Such investor typology is maybe today one of the few still affording medium/large size investment operations (higher than € 30m). On the contrary, foreign investors are still more active on the vendor side than on the buyer side. For example, the largest transaction recorded in Milan was regarding an office building in via Regina Giovanna acquired by the Inarcassa RE fund and sold by the German open ended fund Deka Immobilien.
In the first three months of 2012 none transaction was recorded in the Milan CBD. However, the general situation, both on the real estate market and the financial market, has not changed much in the last three months, still being quite critical on both sides. For that reason we believe that prime yields in Milan CBD have been stable in Q1 2012 at 5.4%. In other areas of the city as well, prime yields are still stable. However, it is likely that, given the current market condition, prime yields will start rising again in the coming months of 2012.
In the first quarter, just 57,000 m² of office space were taken up. The volume is quite below (-46%) to the level registered in Q1 2011, but higher than in Q1 2009, another recession year as 2012 should be. Indeed, since employment will continue reducing, motivations that push companies to move will remain the same. However, companies try to take advantage of the current real estate market situation to fetch better rental conditions during the rinegotiation process. Of the 33 deals recorded, just two concerned offices larger than 6,000 m²: an ICT company in the Torre Orizontale in Rho and a media company in the Maciachini Center.
Vacant space increased strongly during the first quarter of 2012, standing now at 1,395,000 m², representing 11.6% of the office stock. In the first three months, just 30,000 m² of new office space were completed: the Vodafone village at Lorenteggio. Since this new development was already pre-let, the supply increase was the result from companies liberating space and moving to their new office. In 2012, numerous projects will be completed, of which just a part are already pre-let. Moreover, since net absorption is expected to be negative in 2012, vacant space will continue increasing in the next quarters.
Supply increase is putting pressure on landlords that do not want to see their premises vacant and accept to reduce their asking rents since incentives given are not sufficient anymore. Therefore, in the first quarter CBD average rents decreased by 5% compared to one year ago. This trend is also observed in the Semi Central, with a drop of 12% compared to Q1 2011. Rents are resisting better in the Periphery since there were some important transactions in new premises. While in the Hinterland there are still some important deals around € 200/m²/year, in particular in Sesto San Giovanni.
Quelle: BNPPRE Germany
