Real estate, investors return to retail
Around 60% of the credit institutions interviewed financed the retail sector in 2023, of which 75% of the resources were allocated to shopping centres. This is what emerges from the updateEY Retail Property Investments Barometer Italyan annual survey already conducted at the end of 2023 by EY’s Strategy and Transactions department, aimed at assessing perception and trust inasset class Retail within the Italian real estate market, with the aim of capturing the sentity regarding investment and management strategies, as well as the future prospects of the sector.
The survey, which in October last year had already involved the main players in the sector, in particular real estate companies, fund management and asset real estate and financial investors at a national and international level, was extended at the beginning of the year to the main Italian and foreign credit institutions active and operating in the commercial real estate financing.
Making use of the collaboration of the National Council of Shopping Centers (CNCC), EY involved the main companies in the survey banking institutions historically active in providing finance to the Italian Real Estate sector, thus collecting perceptions and feedback on the potential of new financing for retail real estate initiatives.
The sentiment of credit institutions and the comparison with the prospects of investors recorded at the end of 2023
Without prejudice to the feedback collected on the investor side at the end of 2023, it is interesting to note how, from the survey conducted at financial institutions, some elements are common between the audience of owners/investors of shopping centers and the banks interviewed, while on others there is still a distance , and it is by working to reduce this gap that we can allow a restart of the transaction/investment market even in the short term.
In fact, the survey carried out shows how, despite a general “wait and see” approach on the part of both investors and financiers, the sector is showing signs of recovery, with returns that have presumably reached their peak: this will lead to a return of interest on the part of both parties involved in the investment processes (equity and debt side).
Comment Marco Daviddi, Managing Partner Strategy and Transactions di EY in Italia: “The Retail Real Estate sector shows elements of solidity despite the market challenges we are experiencing, with over 60% of managers planning to return to investing in the sector in the next two years. On the management side, the focus will move on two crucial fronts: energy efficiency and the optimization of commercial spaces to strengthen their appeal. This trend reflects a change of gear towards more sustainable and attractive asset management in the medium term and goes hand in hand with the requests of the financing banks, attentive to the dynamics of the sector and with a positive attitude – albeit cautious – in the presence of strong covenants and fundamentals of solid real estate. Market players are preparing to navigate a complex landscape, characterized by access to selective credit which must be guaranteed by a high space occupancy rate and particular attention to the energy efficiency of assets and the outgoing liquidity of investments. The meeting point between the characteristics of the investment opportunities sought by investors and those of the financiers will be the key to the creation of long-term value in the retail industry”.
In 2023, 60% of the credit institutions interviewed provided financing for retail assets, of which three-quarters in favor of shopping centres, 85% of which were directed at the refinancing of existing credit positions.
This can also be explained by looking at the forecasts for 2024 which, although they confirm what was said in the introduction, highlight how over 70% of the banks interviewed are interested in financing the asset class but in the context of operations whose investment profile is that of “core” type, in contrast with the wishes of investors who at the end of 2023 had shown a predisposition to make investments with a higher risk-return profile, of the “value add” or “opportunistic” type.
Comment Roberto Zoia, president of CNCC: “The shopping center industry is investing many resources to support the evolution started in recent years which concerns, on the one hand, the offer, increasingly focused on the experience, with an increase in services in addition to traditional shopping, and on the other real estate assets, which aim at redevelopment also with a view to greater energy efficiency, to enhance the structures and contribute to their attractiveness. The attention of the banking world, as revealed by the survey carried out with EY, continues to be fundamental to continue this virtuous process, combining investments and effective asset management strategies to position even more core products on the market, consequently also encouraging an interest for possible operations in the sector”.
An important reflection also emerges with regards to the key conditions for accessing new financing: credit institutions necessarily require a high employment rate (at least 90%) to finance new acquisitions or a pre-let rate above 50% and a certain exit for financing intended for value-add operations.
The common ground of meeting between the prerogatives of the large property owners of shopping centers and the banks interviewed is, however, that of the valorisation intervention policies in an ESG key: as already witnessed at the end of 2023 by the investors/managers, also for the institutions credit an intervention policy regarding sustainability and improvement of the energy consumption performance of the centers, as well as their qualification with the highest levels of certification (LEED, BREEM, Very good, etc.), is essential for the purposes of providing new finance, which has become increasingly stringent in its requirements in line with current and prospective regulations on the subject.