According to Knight Frank, Milan's office investment volumes have surged during 2015, as improvements in the Italian economy have helped to attract a wave of cross-border activity.
After being one of a handful of European countries to be in recession in 2014, Italy has returned to positive economic growth in 2015 and its GDP is forecast to increase by c. 0.9% annually. The strengthening of the economy has encouraged a revival in investment market activity, and Milan office investment reached €1.4 billion in the first three quarters of 2015, comfortably exceeding the full-year total for 2014. Cross-border investors led transaction activity, taking a 90% investment share during this period.
As a result, Milan office investment is on course to reach approximately €2 billion by the year-end - a post-crisis record. International investors are expected to remain active in the coming months, but volumes are also likely to be boosted by increased domestic demand. The strength of demand has led to significant yield compression; prime office yields hardened to 4.5% in Q3 and could fall further over the coming quarters on the back of improved investor confidence.
The Milan occupier market has also shown positive trends, with office take-up during Q1-Q3 2015 totalling c. 190,000 sq m. Annual take-up for 2015 is expected to reach as high as 240,000 sq m, in line with the 10-year average.
Alessandro Riboni, Chief Executive, Knight Frank Milan, commented: "There is an ongoing interest of institutional foreign investors in the Italian market. We expect an increase in deals and in the values of the real estate market."
Heena Kerai, International Research Analyst at Knight Frank, commented: "Cross-border demand for Milan offices was the major driver of investment activity in the first three quarters of 2015. US buyers took the largest share of activity, accounting for 46% of transaction volumes, followed by European investors. While Italian investors have largely focused their demand on office assets in other Italian cities, we could begin to see them moving back to Milan, as market sentiment continues to improve."