Milan OFFICE Market Report H1 2017 Colliers International Italia
Occupier market OFFICE The best take-up volume in the first half year since 2012. Thanks to a strong employment growth, higher than the national average, the city of Milan confirms its good health in the first half year of 2017. This good condition adds to an unemployment rate close to 8%, a per-capita income significantly higher than the Italian average by some 10,000 and the positive effect of the after EXPO, especially in tourism, hotel and retail. In this positive context, take-up of office spaces in Q2 2017 was 99,000 sqm, stable compared to Q1 2017, but up by 11% over the same period of 2016. Since the beginning of the year take-up total volume reached another record: about 200,000 sqm, well above the level reached in the previous years. This peak was exceeded only in the first half year of 2011, when four transactions of more than 10,000 sqm (including Alcatel in Vimercate and Axa in Viale Luigi Sturzo) were closed. Since the beginning of the year, 123 transactions were registered, of which only three for spaces above 10,000 sqm. The biggest one was closed in the first quarter in CBD Porta Nuova: the new headquarter of Amazon will move from Via Ferrante Aporti to the totally refurbished building in Viale Monte Grappa. The other two transactions concerned assets in Bicocca. Agos Ducati leased some 15,000 sqm in Viale Fulvio Testi, while Prysmian took 12,000 sqm in Via Chiese; an abandoned industrial brownfield with a total surface of 22,000 sqm to set up their new headquarter. This last transaction shows how the new way of working allows the re-use of industrial buildings by creating common spaces for a more smart work; in this case, two large greenhouses for internal mobility. The need for quality, flexibility and efficiency remains. Throughout the entire 2017, 66% of the transactions involved grade A buildings, up to 57% on 2016. What emerge analysing 550 CBD prime CBD average transactions by geographical area and grade (see page 4) is 500 that the building quality rewards, much more in the central areas than in the other peripherical districts of the city. 450 400 350 300 250
Total take-up remains significant in Periphery (39,000 sqm), while is still decreasing to just 2,000 sqm in the Centre. This is the consequence of the lack of good buildings. However, analysing the transactions of the last months, we see that investors are already working to create new products, that, in the future, could be appealing for the potential tenants when the underground line 4 will be operative. Only four different sectors constitute 66% of the total takeup. The title of economic capital is confirmed by the high rate of companies from the industrial and financial sectors, followed by the high-tech and ICT sectors, each one with 16% of the total take-up. The well performing companies are the ones benefitting from the economic growth and that need adapted offices for their needs, with smart and appealing spaces in order to attract and retain the best employees. Concerning supply, the spaces released and more than 25,000 sqm of refurbished offices have raised the amount of vacancy volume, pushing up vacancy rate to 13.6%. However, the vacancy rate is not homogeneous over the different areas of the city. In particular, it stands at 4.1% in the CBD Porta Nuova. The activity increase and, in particular, the interest for grade A premises are pushing up prime rent in the CBD, which now stands at 510/sqm/year in CBD Duomo. The new office spaces under refurbishment close to Piazza Cordusio are marketed with an asking rent of 550/sqm/year. A take-up signed in this building could increase prime rent further by the end of the year. On the contrary, average rents are still fluctuating, standing at 370/sqm/year, down by 8% compared to Q1 2017. Analysing specifically the breakdown of transactions by rent band, emerges that the Milanese market transactions stand in two distinct ranges: from 150 to 230/sqm/year (with a total of more than 55,000 sqm) and from 375 to 500 (with more than 50,000 sqm). Few transactions are in the lower range (less than 150/sqm/year); this confirms the attention of the tenants to location and technical characteristics of the building. These factors are, in fact, the most influencing for the rental levels.
Supply Take-up Key Indicator H1 2017 1 3 5 2 1 5 1 4 4 2 3 2 Take-up and Supply by Grade H1 2017
The investment market OFFICE In the first half of the year, Milan accounted for 21% of the total Italian investment volume and over 40% of the office investment volume. During the first half of 2017, 1.6 billion were invested in Milan, of which 1 billion in office buildings. The city remains the most appealing location where buying an office building, attracting 43% of the total office investment in Italy. Three areas of the city attract about two thirds of the investments volume: CBD Duomo (23%), mixed portfolios (21%) and Hinterland (20%). With a total volume of 100 million, in these three areas there were three significant transactions: the old HQ of Luxottica in Via Cantù that will be refurbished by Hines, a portfolio of three Allianz buildings that will soon be released before starting the refurbishment works made by Blackstone, and the Palazzina V in San Donato that was bought by Kryalos SGR, an opportunistic transaction. In particular, analysing the rental situation of Milan s office transactions it emerges that 65% of investors are focused mainly on fully let buildings. The totally vacant buildings represents 26% of the amount, quite stable compared to 2016. It concerns prestigious buildings, located in the centre of Milan and with a great appeal for potential tenants, representing a total surface of about 70,000 sqm. About 71% of the office transaction volume comes from foreign investors, slightly lower than the Italian level, but above the average for the last few years (64%). The most active investor in Milan were Americans (41%), followed by Europeans with 28%, specifically German and French, who confirm their interest in investing in the Italian market. The strong activity in the CBD Duomo has slightly pushed downwards office net prime yield to 3.45%. Yields compression should have arrived to their lowest level: government bond yields should start increasing before the end of the year, reducing the risk premium that stands at 129 basis points, down from 397 bps in 2015, and thus pushing upward real estate yields.
Simone Roberti Head of Research simone.roberti@colliers.it Stefania Muzio Market Research stefania.muzio@colliers.it Colliers International Italia SpA Via Durini, 4 20122 Milano Tel. +39 02 6716 0201 www.colliers.com/it-it/italy