“Compared to the economic turmoil that inevitably affects market moods, bricks and mortar still represent a profitable investment, if thought of from a long-term perspective.” Diego Vitello, an analyst at Gabetti’s research office, provides a different reading than the interest rate bogeyman. “We believe that the real estate sector has embarked on a new real estate cycle characterized, not only by the increase in interest rates–declining in the second half of the year according to all forecasts–but above all by new stimuli that will make the market extremely dynamic in the next ten years,” Vitello explained.
Our country, as is well known, needs more innovative urban infrastructure, the age of the housing stock, and the scarcity of real estate products compared to the new housing demands from families and the business world. Weaknesses that, however, open up huge market space.
Cities (and neighborhoods) to invest in Italy
“Whether one wants to invest in a city or a particular neighborhood, the approach always remains the same: identify those cities that, starting with solid sociodemographic and economic fundamentals, have equipped themselves with a vision and a project for the future. Then the type of investment should also be judiciously evaluated: whether it is an investment from which to receive a profit in the short to medium term or projected in the long term, but with the prospect of achieving large margins on return.
In the first case, it is about targeting those cities where, regardless of current development projects, the demand for real estate is high,” explained Vitello, who then went into more detail. “In Milan, for example, profitability remains consistently high for the office and living sector, which ranges from income-producing residential to student housing to hotels. So too in Rome, where the office and hospitality sectors are growing strongly. Other secondary cities, on the other hand, are experiencing a moment of ferment: Bologna needs to consolidate its national dimension with a new boost of real estate offerings, Turin sees the housing market in strong recovery, Genoa and Naples, on the other hand, have launched relevant infrastructural and urban planning projects,” pointed out the analyst from Gabetti’s research office.
Diversifying the most profitable sectors
The real estate market, however, is vast: living, retail, luxury, etc., each in its sphere, have characteristics that differ from those of another sector while remaining within the real estate world. It is, therefore, essential to understand how to best diversify one’s portfolio by analyzing the risks and opportunities of each sphere.
“Looking at the potential of today’s market, I would target those sectors that are failing to meet demand in terms of quantity and quality. Within the living sector, there is a growing demand for income housing that, in our cities, is not finding an adequate supply. Student housing, for example, a segment of living,” Vitello commented, “has enormous potential given the growing number of off-site and foreign students who are finding it increasingly difficult to find housing through the private market. The hotel sector, another living segment, also shows inadequate supply, not so much in quantity, but in terms of product quality, especially concerning the new demand needs that have emerged post-pandemic (experientiality, co-working spaces, digitization). Rebranding and renovation activities allow repositioning in a higher bracket and real estate revaluation in the long run. In addition, an excellent investment opportunity is inherent in upgrading real estate to ESG standards. An opportunity that can be seen, on a large scale, across all sectors precisely because they are in demand by predominantly international tenants.”
Green homes theme: buy, sell, or wait
The topic of green homes is hugely topical following the approval of the directive to achieve energy class E by 2030 and class D by 2033 for residential buildings. Considering that most Italian properties have energy classes E-F-G at significant risk of depreciation, what makes sense?
“It depends a lot on the ability to spend purchasing real estate. There is no doubt that, in light of the path already mapped out by the European Green Buildings Directive, buying new construction remains the preferable investment. Moreover, it is not very convenient to wait for the depreciation of class G and F properties, assuming there is one, because the directive’s gestation period is still long and impassable,” replied Vitello. “Rather, a purchase and renovation investment today could leverage the incentives for redevelopment that, despite the stop of the transfer of credit and the invoice discount, remain in the form of the tax deduction (at 90 percent on the 2023 Superbonus) and go to determine a premium in terms of post-renovation property revaluation.
Renovation costs for upgrading from energy classes F or G to class C
One question, which investors are asking, especially in the recent period, is how much a renovation might cost. If one decided to invest now in a property (in Milan or Rome of 100 m2, energy class F or G), what would be the average cost to bring it at least to energy class C, meeting the needs of today’s individuals?
“According to our analysis, in Milan, considering a typical 100sqm apartment worth 450,000 euros, to get a class A, the monetary amount of renovation is about 38,000 euros, so 8.4 percent, with which it is possible to assume to carry out some energy retrofit work, such as replacing windows and doors and changing the boiler; or participate in the installation of a thermal coat on the facade or insulate the roof of a condominium, thus obtaining a higher energy class,” Vitello concluded.
