City News - Q1 2018

1

MILAN

RESEARCH

A PREDOMINANT SEARCH FOR QUALITY

The Leasing market

Take-up in Milan during the �rst quarter of 2018 reached nearly

88,000 square metres across 60 transactions, producing one of

the best starts to a year (+40% compared with the average over

the last decade).

The year-on-year decline of 12% in Q1 2018 was due to the

exceptional �gure of 100,200 square metres in Q1 2017, which

included Amazon’s relevant transaction of approximately 18,000

square metres.

Some 40% of the �rst-quarter take-up concerned the Periphery

sub-market (+99% on Q1 2017) owing to two transactions, each

of approximately 13,000 square metres (one pre-let and the

other owner occupation). There was also increased activity

(+18% year on year) in CBD Duomo in Q1 2018 because of a

greater number of completed deals (18 versus 13), including

two of over 2,000 square metres each involving major

international �nancial companies.

However, there was a year-on-year decline in take-up for CBD

Porta Nuova (-66%), Centre (-70%) and Semicentre (-50%). The

fall in take-up was certainly due to a lack of adequate supply,

particularly in CBD Porta Nuova, where on the contrary remains

strong the interest from potential tenants.

During the opening quarter, 40 of the 60 completed deals were

for spaces of less than 1,000 square metres, a portion that is in

line with the average over the last decade. There were three

large deals, all concerning surface areas of between 12,500 and

13,000 square metres.

Looking at Q1 2018 deals by rental bracket, there was an equal

split above and below 300 €/sqm/year.

A few deals in CBD Duomo which were concluded at particularly

high rents caused the prime rent increase in Milan from 550 €/

sqm/year at the end of 2017 to current 560 €/sqm/year. In the

city’s other sub-markets, prime rents remained stable at the

following levels: 500 €/sqm/year in CBD Porta Nuova, 450 €/

sqm/year in Centre, 300 €/sqm/year in Semicentre and 260 €/

sqm/year in Periphery.

The vacancy rate was also stable at 11.7%, due mainly to the

presence of several dif�cult-to-lease spaces in Periphery and

Hinterland. Indeed, 87% of the total lower-grade spaces (grade

B and C) available for lease in Milan (and equal to 1,020,000

square metres) is located in these sub-markets.

The vacancy rate remains particularly low, between 2% and 4%,

in CBD Duomo, CBD Porta Nuova and Centre. As a result of new

instructions, the total amount of grade A real estate available to

lease in these three sub-markets increased from 25,000 square

metres at the end of 2017 to approximately 32,000 square

metres in Q1 2018.

MILAN OFFICE MARKET Q1 2018

TAKE-UP: 87,943 sqm -> -12% on Q1 2017

VACANCY RATE: 11.7% -> = on Q4 2017

PRIME RENT*: 560 €/sqm/y -> +10 €/sqm/y on Q4 2017

OFFICE INVESTMENTS: €210 M -> -55% on Q1 2017

PRIME NET YIELD*: 3.50% -> = on Q4 2017

*Prime rents and prime net yields have to be read as an indication of market trends. The

levels are established as a mix between market sentiment and deals actually closed during

the reference period.

BNP Paribas Real Estate Research Italy

City News - Q1 2018

2

MILAN

RESEARCH

The Investment market

Investments in commercial real estate market totalled

approximately 450 million of euro in Milan in the first quarter of

2018, representing 30% of the nationwide 1.5 billion of euro

(down by 25% compared with Q1 2017).

The city performance in Q1 2018 was down 35% year on year

and 19% compared with the long-term first-quarter average.

Similarly to previous years, Q1 2018 saw volumes mainly

concentrated in the Office sector (48% of the city total).

Specifically, 210 million of euro was invested in the Office sector

in Milan, down by 55% from approximately 460 million of euro

in the corresponding period of 2017. There were three Office

transactions in Milan, of which two located in the Semicentre

sub-market that prompted prime net yields there to drop by 25

basis points to current 4.50%. Yields also fell in Centre (from

4.25% to 4.15%) and in Maciachini (from 5.25% to 5%). However,

the yields in CBD Duomo and CBD Porta Nuova have remained

stable at 3.50% and 3.75% respectively for a year now.

This downturn in Office performance can be explained primarily

by a lack of core real estate products on sale and the high cost

of available ones, including when compared with other

countries. Consequently, it is reasonable to expect investors

interest in the coming months to shift towards value-added

deals and non-central locations.

With regard to other commercial real estate sectors in Milan in

Q1 2018, there was one High Street Retail transaction worth

around 140 million of euro (part of a portfolio deal that also

involved Rome) and two deals in the Logistics sector.

A PREDOMINANT SEARCH FOR QUALITY

OFFICE

€210 M -> -55% on Q1 2017 48% of Milan total Prime net yield: 3.50%

RETAIL

€139 M -> -19% on Q1 2017 32% of Milan total High Street prime net yield: 3%

LOGISTICS

€57 M -> +130% on Q1 2017 13% of Milan total Prime net yield: 5.50%

BNP Paribas Real Estate Research Italy

ITALY TOTAL Q1 2018

€1.5 bn

MILAN TOTAL Q1 2018

€441 M 30% of Italy total

OTHER (student housing): €35 M -> +50% on Q1 2017 -> 7% of

Milan total

3

CITY NEWS - MILAN - Q1 2018

OFFICE MARKET MAP - MILAN

Disclaimer

This document has been prepared by BNP Paribas Real Estate Italy through its Research activity. Forecasts and opinions

are referred to the Research Department of BNP Paribas Real Estate Italy and can change without notice. Information and

opinions reported in this document are based on reliable sources. The following document was produced with informa-

tional purpose. It is not part of and cannot be considered as a underwriting offer and sale of real estate products, includ-

ing fund shares potentially examined. The opinion expressed does not engage any responsibility of BNP Paribas Real Es-

tate Italy and of BNP Paribas Real Estate Italy Research Department.

All rights reserved. This report is completely protected by copyright. No part of this publication may be reproduced, translated, transmitted, or stored in

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Contacts BNP Paribas Real Estate Italy

Piazza Lina Bo Bardi, 3 – 20124 Milan Phone: +39 02 58 33 141 Via di San Basilio, 48 – 00187 Rome Phone: +39 06 9826 2112 www.realestate.bnpparibas.it

Research Cristiana Zanzottera

Head of Research

Piazza Lina Bo Bardi, 3 – 20124 Milan

Phone: +39 02 3211 5357