Property Times Rome Office Q Less market activity, more supply

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1 Less market activity, more supply 14 February 212 Content Economic overview 2 Take-up 3 Rents 5 Immediate supply & vacancy rate 6 Future supply 7 Definitions 8 Author Magali Marton Head of CEMEA Research magali.marton@dtz.com Contacts Magali Marton Head of CEMEA Research magali.marton@dtz.com Tony Mc Gough Global Head of Forecasting& Strategy Research +44 () tony.mcgough@dtz.com Hans Vrensen Global Head of Research +44 () hans.vrensen@dtz.com The decline in activity of the Rome office market highlighted in Q3 has been much more pronounced in Q4 with a quarterly volume of transactions around 16,5 sq m, its lowest level since 29. However the office market ended the year with a performance of 169,5 sq m, well above its annual average recorded between 23 and 21, around 12, sq m (Figure 1). This good performance was linked to major transactions (from 1, to 35, sq m) recorded at the beginning of 211; since then, this kind of transaction has virtually disappeared and the market activity is now concentrated on deals up to 6, sq m. The Greater Eur and the Centre are still dominant in terms of market share in Q4 and accounted for 77% of the quarterly volume of take-up. These 2 submarkets have captured the main transactions of the quarter. No significant changes have been reported on the rental values level, except in the Fiuminico and Tiburtina areas where the top values have declined. The prime rents in the Centre / Semicentre are still at 42 / sq m / year but our forecasts anticipate a decline by 5% in 212 and 6% in 213. Subdued market activity since 3 quarters and increasing supply explain this downward trend. Office vacancy rates are still under control in Rome despite an upward trend to 6.7% at the end of 211 from 6% in 21. However office completions expected in 212 and 213 are huge with 24, sq m of office space to be delivered in the coming year. Figure 1 Office take-up Rome Q1 Q2 Q3 Q4 Source: DTZ Research 1

2 Economic overview Difficult year 212 The Italian economy has re-entered recession in Q3 211 leading down the GDP growth to a modest.4% in 211 from 1.2% in 21. Prospects are now clearly negative about the future performance of the Italian economy with a-1.2% decline forecast for 212 and a muted figure for 213, due to deteriorating conditions in the banking sector. Credit conditions will tighten leading a decline by 3.5% for investments in 212 as consumption is expected to fall 1.2% over the same period. After a 1 st review from A+ to A in September, Standard & Poor s downgraded again the rating on Italian bonds to BBB+. In this context, the refinancing in the first four months of 212 of the 16bn of maturing government debt should be problematic as Italian bonds yields will stay high. Failure to refinance this debt would trigger a dramatic chain of events, including a potential but more and more credible breakup of the Eurozone. Table 1 Economic indicators Indicator 211 Forecast GDP Unemployment rate Consumer prices Savings ratio Industrial production Private consumption Source: Oxford Economics - January 212. On the business side, prospects have been downgraded as well and employment is expected to decrease by -1.6% in 212 and -.7% in 213. At the same time, unemployment rates (8.2% at the end of 211) will reach 1% by 213. The industrial production will also slip on the negative side with a decline by 3.2% in 212. Source: Oxford Economics 2

3 Take-up Continuous slowdown... The slowdown of the office market activity registered in Q2 and Q3 has been more pronounced in Q4 with only 16,5 sq m of take-up (Figure 2). Only 4 transactions of office space above 1, sq m, accounting for 12,1 sq m, have been reported this quarter. The main transactions (Ministero Economia e Finanza in the Centre, MBDA and ACCENTURE in Tiburtina), which have boosted the market performance at the beginning of the year, have disappeared and the biggest deal over the last quarter has been the 5,9 sq m of office space pre-let by COFELY GDF SUEZ. The roman office market recorded this quarter its lowest level of take-up since 29 when the annual volume of take up reached 55, sq m. However, the performance of the Roman market recorded in 211 with 169,5 sq m is still well above its annual average (12, sq m). Small and medium size deals have registered a sharp decline in Q4, to respectively only 4,5 sq m and 3,2 sq m from 9, sq m and 11, sq m of office space transacted in Q3. As in Q2 and Q3, the market has been active, but of low level, in the Greater EUR and Centre submarkets this quarter with 8,4 and 4,4 sq m of take-up respectively. Combined together these 2 areas accounted for 77% of market share (Figure 4). Grade A office spaces are becoming dominant on the Rome market and have concentrated 9,5 sq m on the 16,5 transacted over the quarter, thanks to 2 deals above 1, sq m. Grade B office space deals are still numerous (1 deals) but now mainly concern small and medium-size surfaces. Figure 2 Office take-up Rome Q1 Q2 Q3 Q4 Figure 3 Office take-up by size Rome Q1 211 Q2 211 Q3 211 Q4 211 Up to 1, sq m 1, - 2,5 sq m More than 2,5 sq m Figure 4 Office take-up by submarket Rome Centre/S.centre Greater EUR Periphery Fiumicino Tiburtina 3

4 Map 1 Office transactions in Rome, 211 PRIMA PORTA LABARO PONTE DELLE TAVOLE TOR LUPARA PICHINI LA GIUSTINIANA BUFALOTTA TRAGLIATA CESARINA SANTA LUCIA TESTA DI LEPRE DI SOPRA CASAL BOCCONE POGGIO FIORITO SANT'ALESSANDRO COLLE VERDE LAGHETTO MAZZALUPETTA SETTEVILLE NORD LE CERQUETTE GRANDI CASALONE SANT'ANTONIO TESTA DI LEPRE DI SOTTO VALLE SANTA SELVA NERA Centre SETTECAMINI SETTEVILLE CASE ROSSE PANTAN MONASTERO CASALOTTI CERQUETE STAZIONE DI SALONE CASALONE CASTEL DI GUIDO CASTELVERDE East of GRA Tiburtina VILLAGGIO PRENESTINO MASSIMINA COLLE PRENESTINO PRATO FIORITO TAVERNELLE CASALE LUMBROSO TORRE ANGELA VALLE FIORITA TOR BELLAMONACA Take-up (sq m) FONTIGNANI LA PISANA Greater EUR GIARDINETTI TORRE NOVA TOR VERGATA VILLA VERDE FINOCCHIO CISTERNOLE 35, SERRA SPINO ROMANINA PIANA DEL SOLE PONTE LINARI 9,7 PONTE GALERIA GREGNA DI SANT'ANDREA VERMICINO Q1 2,7 TORRICOLA MORENA FRASCATI Q2 Q3 Q4 DRAGONA MOSTACCIANO VITINIA CENTRO GIANO VALLERANELLO CASAL BERNOCCHI TRE PINI ACILIA TOR DE CENCI SPINACETO CASTEL DI LEVA CIAMPINO GROTTAFERRATA 3 6 km Source : DTZ Research, Navteq 4

5 Rents Demand down and vacancy rate up push down the prime rents in 212 and 213 No major changes have been registered on the Rome office market as the prime rent has stabilized at 42 /sq m/ year for Grade A office buildings in the Centre since the beginning of the year. No deal has been registered this quarter at this level of rent. Despite the downgrading of the Italian economy which seems not to have impacted the trend of rents until now will not fully impact the rents going forward as pessimism spreads across the business sphere and is getting the occupier demand down. Based on our forecasts, prime rents should decrease by 5% in 212 and 6% in 213. Following this trend, prime rents will reach 4 / sq m / year in 212 and 375 / sq m / year in 213 (Figure 5). Figure 5 Rents by submarket - Rome /sq m year Centre/S.centre Greater EUR Tiburtina Periphery Figure 6 Average rents by submarket Rome In the Greater EUR submarket, rents have remained at the same level, between 24 to 3 / sq m / year depending on the quality of the building. /sq m / year 42 Some changes have been registered in the other submarkets of Rome and rental values in Tiburtina and Fiumicino have contracted for the top values, moving from 22 to 2 / sq m / year in Fiumicino and from 16 to 15 / sq m / year in Tiburtina (Figure 6) min max 5

6 Immediate supply & vacancy rate Rising vacancy rate in 211, but still at a low level The 4 th quarter of 211 has seen immediate supply increasing sharply to 67, sq m of office space, up from 6, sq m identified at the end of 21 (Figure 6). Numerous vacations of second-hand office space have been noticed during this quarter, pushing up the immediate supply. The largest part of the office space available is located in the Greater EUR with only 295, sq m available whilst the supply is reducing on the Centre and Semicentre submarkets, with only 55, sq m of office space currently available. The level of immediate supply has also changed in the Periphery and Tiburtina with respectively 155, sq m and 16, sq m Figure 7 Immediate supply - Rome Figure Q4 211 Centre/S.centre Greater EUR Periphery Tiburtina Vacancy rate Rome % 8, The significant rise of office supply in the Greater Eur pushed up the vacancy rate to 6.7% at the end of 211, up from 6% a year ago (figure 7). Subdued activity on the take-up side combined with the completion of huge office buildings expected in the course of 212 should lead to a continuous increase of the vacancy rate in the short term. However, the Rome office market doesn t suffer from a high level of vacancy compared to Milan now close to 1% - and therefore should keep intact its attractiveness for local and foreign investors. 7,5 7, 6,5 6, 5,5 5, Q

7 Future supply Low level of completion in Q4 211 but huge projects to be completed in 212 No completion of office buildings was recorded in Q3 211 and one building of 5,32 sq m was delivered in Rome in the last quarter of the year. This completion brings the annual new office supply to 43,3 sq m in 211 (Figure 9). This new office supply has been located mainly in the Greater Eur (11, sq m) and Fiumicino (23, sq m) submarkets. Beyond 211, the future pipeline is expected to be higher, with more than 24, sq m of new office space identified as potential completions and 9,3 sq m currently under construction. Two major projects should be delivered at this time: 46,5 sq m in the Campidoglio phase 2 in the periphery and 35, sq m in the second phase of Europarco located in the Greater EUR area. The remaining supply to be delivered in 212 is planned or at the planning permission stage. Thus, part of this supply should be postponed to take advantage of more favorable market conditions in terms of prime rents expected in 214. Figure 9 New offices deliveries - Rome Centre/S.centre Greater EUR Periphery Fiumicino Tiburtina Figure 1 Development office pipeline Rome Semicentre Greater EUR Fiumicino Periphery 7

8 Map 2 Office market in Rome - submarkets TRAGLIATA TESTA DI LEPRE DI SOPRA MAZZALUPETTA LA GIUSTINIANA PRIMA PORTA LABARO BUFALOTTA CESARINA CASAL BOCCONE PONTE DELLE TAVOLE PICHINI TOR LUPARA SANTA LUCIA POGGIO FIORITO COLLE VERDE SANT'ALESSANDRO LAGHETTO SETTEVILLE NORD Rome market expands in four submarkets: Centre- Semicentre, Greater E.U.R., East of GRA-Tiburtina and Periphery-Fiumicino which includes all the remainded aread within Grande Roccardo Anulare (GRA) and the area around Fiumicino. LE CERQUETTE GRANDI CASALONE SANT'ANTONIO TESTA DI LEPRE DI SOTTO VALLE SANTA SELVA NERA Centre SETTECAMINI SETTEVILLE CASE ROSSE PANTAN MONASTERO CASALOTTI STAZIONE DI SALONE CERQUETE CASALONE CASTEL DI GUIDO CASTELVERDE East of GRA Tiburtina VILLAGGIO PRENESTINO COLLE PRENESTINO MASSIMINA PRATO FIORITO TAVERNELLE CASALE LUMBROSO TORRE ANGELA VALLE FIORITA TOR BELLAMONACA LA PISANA Greater EUR GIARDINETTI TORRE NOVA FINOCCHIO VILLA VERDE FONTIGNANI TOR VERGATA CISTERNOLE SERRA SPINO ROMANINA PIANA DEL SOLE PONTE LINARI PONTE GALERIA GREGNA DI SANT'ANDREA VERMICINO TORRICOLA MORENA FRASCATI CENTRO GIANO VITINIA MOSTACCIANO VALLERANELLO CIAMPINO DRAGONA ACILIA CASAL BERNOCCHI TRE PINI CASTEL DI LEVA GROTTAFERRATA TOR DE CENCI SPINACETO Definitions Stock Take-up Immediate supply vacancy Prime rent New deliveries Future pipeline Stock includes all office space that currently exists on the market. New deliveries are added to the office stock surface on a quarterly basis. The surface is registered as being taken up when a lease or sale contract has been signed. Pre-let office spaces are also included. Renegotiations and sub-lettings are not calculated in take-up data. The surface is registered as being immediate supply when it is currently (at the end of the quarter under consideration) available/free to be proposed for letting. Buildings that need light refurbishment are also included, but projects are not included until they are officially delivered. This represents the rent that is achievable for a standard unit (min 5 sq m) of high-quality space located in the main sub-market. Where possible real transactions are used in order to support the prime rent. Single extraordinary transactions are not considered. The sum of newly built space delivered on the market within the current quarter and ready to be occupied/let. The sum of office space currently under construction and the identified schemes (where construction has not begun yet) for which planning permission has been obtained 8

9 Contacts Managing director Paolo Insom paolo.insom@dtz.com Office agency occupier services Massimo Livi massimo.livi@dtz.com 9