For Silvio Sancilio, Head of Capital Markets at Colliers Italia, the latest deals belie the idea that the retail market is at a standstill and suggest new strategies. The team will be present at MAPIC Italy on 18-19 May 2022.
Today, should an investor focus on properties with significant retail exposure? For many, the answer seems obvious: the retail market is at a standstill, so no. In actual fact, this is not the case. There are many factors to be taken into account, such as the building, its location and capital value. But there is another fundamental aspect to consider: the market has indeed slowed down, but the stasis is apparent. This is why.
One just has to take a detailed look at a number of significant deals — some of which took place in full lockdown period — to discover that this type of asset class is already proving to be the engine driving an increase in the value of real estate, particularly of mixed-use properties in prime locations. In fact, an adequate percentage of mixed-use retail exposure can make the difference, in a positive sense.
Currently, ideal mixed-use retail exposure is around 30%. We are talking about a type of property that has been particularly resilient to the post-pandemic crisis. After all, investors have continued to invest in offices. On the other hand, retail slowed down in the initial phase, almost coming to a complete standstill. But then certain investors changed strategy, taking a detailed look at the asset values represented by the property and the tenants involved.
Why focus on offices and retail, together? Is it because a property with a retail portion is synonymous with a central and consolidated position? Of course, but there's more. Even if the office portion is preponderant, it is actually the retail portion — the stores, tenants and brands — that positions the building. The higher the level of retail, the more the value of the property increases.
This trend emerged, paradoxically for some, in the middle of the pandemic. In 2021, Colliers Italia acted as advisor to support Macquarie, an Australian investment giant with assets under management worth €364 billion, with its first real-estate purchase in Italy, precisely regarding a mixed-use property in Milan. It was a €63 million off-market transaction in an asset class that has seen absolutely no lowering of prices. This is the building at Corso Europa 12, right in the city centre: 6 thousand square metres, 8 floors, high-end tenants, including an international law firm and a consulate, and retail spaces on the ground floor.
Does this mean that retail is fine, as long as it is not in a preponderant percentage? Not necessarily. It was a maxi deal at the end of 2021 that dispelled the idea that the retail market is at a standstill: the largest asset transacted last year was a virtually all-retail property, definitely purchased at market values without repricing. In November 2021, Blackstone, one of the world's leading investors, acquired Reale Compagnia Italiana, a historic Milan-based real estate company supported by Colliers Italia as real estate advisor. The transaction involved a portfolio of 14 assets in which the main property has a preponderant retail exposure. A transaction worth over €1 billion, with a strong concentration in the real estate complex in via Montenapoleone, consisting essentially of iconic fashion brand stores, and Cova, a patisserie taken over by LVMH Group.
This trend shows no sign of stopping. In fact, further off-market transactions in Milan are about to be concluded, increasingly more oriented towards the retail market rather than to the office sector.
Mixed-use retail exposure makes all the difference even for value-add investors. Actually, it is the high street retail portion that makes it possible to reposition a property. Offices, as fundamental as they may be, remain offices. Retail instead allows a property to be truly repositioned. This is demonstrated by Torre Velasca, whose new look constitutes a repositioning of the entire Piazza Velasca. Only a small portion of the 1960s iconic building’s 25 floors will play a key role: the space dedicated to retail. Exclusive clubs, top-class restaurants, luxury brands and flagship stores: the high street will be able to change the significance of the square for the entire city.
And then there is the pure retail sector that is coming back. In Italy, in Milan and, symbolically, in Via della Spiga, where Colliers Italia will manage the sale of the property at number 5. Here, a transaction supported by Niccolò Suardi has led to the return of the new Ralph Lauren boutique, which had not had a single-brand store in the city since 2015. A flagship store of about 1,500 square metres on five floors in a historic building with a ready-to-wear offer, decorative objects, home collection and a hospitality proposal, The Bar: a space on the ground floor overlooking an internal garden with American kitchen and coffee and cocktail bar open from morning until 10 pm.
An important investment, a long contract and a high-end tenant: in short, an attractive formula for institutional investors, end users and amateurs. Such a property today would attract very many investors for its investment rationale and charm.
To discover the new high street retail trends in Italy, come and visit us in the Purple Lounge at MAPIC, from 18 to 19 May 2022 in Milan, at Superstudio Maxi. The experts of Colliers Italia’s Capital Markets team are waiting for you: contact us for an appointment!