CBRE. Covid-19: Implication for Italian Commercial Real Estate
Fiscal policy expansion will be supported by the European Commision’s recent decision to trigger a clause relaxing European budget rules. Together with the Pandemic Emergency Purchase Programme (PEPP) recently announced by the Eurpean Central Bank (ECB), greater flexibility in the Italian government’s budget will enable the activation of public resources equivalent to between 8-10% of GDP.
This is intended to counteract the recessive impact of COVID-19 from H2 2020, leading to likely scenario of negative growth in H1 2020 followed by a “V-shaped” recovery, assuming the outbreak is brought under control within a reasonable timeframe. CBRE expects GDP growth to rebound to +3.7 in 2021.
The Italian real estate market entered 2020 in a strong position. Occupier demand in most sector was robust and ther was a considerable volume of capital targeting investment and development opportunities across all sectors.
There was a strong carry over of transaction from late 2019, with several letting and investment transaction expected to close in early 2020.
From an economic perspective, the COVID-19 outbreak is effecting the following three aspects of business in most sectors of the economy:
- the flow revenue, which is falling significantly;
- the weight of fixed costs on total costs (operating leverage);
- the weight of short term debt (financial leverage), which is rapidly increasing.
The extent to which Italian commercial real estate fundamtals will be affected will depend on how prolonged and severe COVID.19 outbreak will be and how severely the three metrics above will be impacted by the recession.
Investors and developer perception of risk could be impacted by a prolonged slowdown, hich would prompt many groups to review their strategy. A structural reduction in development activity could mean the market returns to a shortage of investment product that it had been slowly overcoming in recent years.