Italy is seeing renewed interest from retail investors as yields stabilise at 6.25-6.5% for prime shopping centres and 7-7.25% for retail parks, according to research from property adviser Savills.
The research shows that the supply of quality product in the investment market has improved, and this has caused prime yields to stabilise. Although overall transactional levels have continued to decrease since 2007, significant deals have been recorded such as Le Vele & Millennium shopping and leisure centres in Cagliari, and Porta di Roma in Rome. These transactions at EUR 103.3 mln and EUR 440 mln respectively were purchased by Corio and by a joint venture between Allianz Immobilier and Corio, showing renewed foreign investor interest in the Italian market.
Lionello Rosina, head of Savills Italy, said: 'Even though investors continue to be very selective and more cautious in their investment choices, looking mainly at prime product, they also appear more optimistic than in the past few years. The supply of quality product on the market is slowly improving and the interest of investors for the Italian retail market is growing.'
Retail tenants have, according to Savills, showed more caution in terms of development strategy, choosing prime, low-risk centres with a solid track record and high footfalls. Although expansions are very limited, new brands such as Banana Republic and GAP, which have chosen Milan for their first stores, have showed an interest in the market. Rents have begun to stabilise, following a decline in 2009 and in the first half of 2010, and prime market rents are at EUR 750 m2 /year for shopping centres and EUR 200 m2 per year for retail parks.
At end-October, development levels had dropped by 38% year-on-year with around 280,000 m2 of gross lettable area delivered to the market in the first 10 months of 2010. More than half of this figure was delivered to Southern Italy. Savills predicts that new development stock will continue to focus on Central and Southern Italy.