Interest in the Italian real estate investment market has been on the increase in recent years, in spite of the historic perception by international investors that the Italian market lacks transparency. The introduction of a consistent and reliable benchmark of property investment is therefore considered to be an important step towards greater transparency.
Investment Property Databank (IPD) is now completing work that will provide indices and benchmarks of property performance for Italian investors by 2005 and will bring Italy in line with the 15 other countries where this service is already provided.
IPD and Nomisma- IPD’s Italian commercial partner - have recently launched a Consultative Index for the Italian commercial property market. The results of the IPD/Nomisma Property Consultative Index show a 2003 total return in the Italian market of 10.4%. This was made up of capital growth of 4.3% and an income return of 6.1%.
Overall Italian performance was, in fact, not far behind the front-runners during 2003. The top performers of the year were Ireland and the UK, whilst Sweden and Germany were the markets that recorded the poorest performance last year.In line with the all property results, offices achieved a return of 10.4%, capital values having risen by 4.4% during the course of the year. Results across individual cities suggest that Rome, with a total return of 11.4%, out-performed Milan, which achieved a return of 8.7%.
Retails and industrials lagged slightly behind offices, with total returns of 9.1% and 8.9% respectively. Despite having slightly higher income return than other sectors, capital values in both these sectors rose than by little more than 2%.
An examination of the components of performance shows that gross income grew by 3.4% during 2003. Across the sectors, offices recorded above average gross income growth at 3.9%, in part due to a decrease in the vacancy rate. Gross income growth was below average in the retail (1.2%) and industrial (2.1%) sectors.
Property was the middle-performing asset in the Italian market in 2003, its return of 10.4% ahead of that on bonds, at 4.6%, but below that on equities at 18.2%.
As far as the components of income return go, non recoverable operating costs accounted for 8.3% of gross income at the all property level, with retail suffering the highest costs (8.9%), followed by offices (8.8%) and industrials (8.2%).
Offices was the dominant sector of the Italian databank at the end of 2003, accounting for 61% of the total capital value. This is in common with many other countries covered by IPD. Both retail and ‘other’ property account for 15% of total capital value and industrial the remaining 9%.
The office sector also saw the most investment during 2003. This was despite a reduction in office sector investment as a percentage of the total net investment over the year, from 59% in 2002 to 43% in 2003. Net investment as a proportion of the total investment increased significantly in the retail and industrial sectors, suggesting a desire to diversify (from 8% in 2002 to 30% in 2003 for retail and from 11% to 20% for industrial).
The performances presented are based on a Databank with a capital value of €5.3bn at the end of 2003.
David Manstretta is a researcher at Investment Property Databank

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