Of southern Europe’s sheltered economies, perhaps none is more happily sitting under olive trees and watching the grapes grow than Italy. With Germany, it is the economic laggard of the eurozone.
Like the rise and fall of the Roman Empire, Italy’s heavy industrial age has been and gone. Where other countries have replaced theirs with gleaming glass and steel office buildings and retail parks that need distribution hubs to keep them going, Italy has been resting on its laurels. Many of the former steelworks and car plants around Milan have both permission and detailed architects’ drawings for mixed office and retail schemes. Some include logistics. But most remain gleams in planners’ eyes.
It is a parochial market, unwilling to allow the kind of transparency which will put it on the European stage. Italy is characterised by being the country with the least outsourcing in its logistics industry in the whole of Europe, according to research company Datamonitor. Some 20 per cent of logistics is outsourced in Italy, compared to the European outsourcing leader the UK at 45 per cent. In 2006, the European Commission said Italy had the second highest density of small-to-medium-sized enterprises after the Czech republic.
It has about an eight per cent cash share of both the European imports and exports markets. Exports per capita in 2006 were €6.3 million, putting the country on a par with Spain and a little lower than Lithuania, according to research company Experian. Imports per capita in 2006 were also €6.3 million, about the same as Bulgaria and Portugal.
Property consultant Knight Frank puts both Milan and Rome at the cheaper end of European distribution prime rents at €57/sq m/yr. Out of 21 European centres in its latest market monitor, only Paris is cheaper. Property consultant King Sturge says the figures are €65 for Milan and €60 for Rome. Property consultant CBRE puts it at €62 in good locations around Milan, Rome and Bologna. Rents in secondary and peripheral locations are, it says, in the range €40-50.
Research institute Scenari Immobiliari said last year that there is around six million sq m (2.4 sq miles) of industrial land in Milan. But Alfa Romeos and Maseratis are no longer made there.
Hines” scheme Porta Nuova, unveiled in May, is one of the big ones. Totalling 290,000 sq m of ”Some property companies are keen to get into the Italian market. Segro has opened an office in Milan and bought a 70,689 sq m business park from European fund manager Europa Capital Partners”land around the Garibaldi train station. Due to be completed in 2012, it will consist 360,000 sq m of offices, residential and commercial space.
This kind of development is fuelled by research from economic research centre CERTeT, part of Bocconi University in Milan, which calculates that the renovation of former industrial areas in Italy generates €2.90 for each euro that is invested. But few developers move without a pre-let.
Some property companies are keen to get into the Italian market. Segro – formerly Slough Estates – has opened an office in Milan and bought a 70,689 sq m business park from European fund manager Europa Capital Partners for €84.5m at an initial yield of 7.4 per cent. Located in Lombardy, just north-east of Milan, it has capacity for a further 50,000 sq m of development. It currently comprises 37.5 acres of office, light industrial and laboratory space. Segro also owns three small sites in Rome, Parma and Bologna, which it bought last year as part of a €103.2m sale-and-leaseback with paper and packaging group Antalis. Segro has appointed Marco Simonetti as its Italian country manager, who previously worked at international logistics developer GSE Group, which has built two logistics centres totalling nearly 50,000 sq m in northern Italy for Michelin.
In 2005/2006 ProLogis completed 79,000 sq m at ProLogis Park Romentino, between Turin and Milan. The park totals 110,500 sq m of industrial space. Among occupiers is one of the rare Italian 3PLs, Logistica Europa SpA. King Sturge’s Alastair Manning says: ”ProLogis has concentrated its activities in the north of Italy around Milan, Padova, Turin and Bologna reflecting the major regions for industrial production and retail activity. Increasing sophistication in the retail sector has led to a big demand for logistics property in Italy. The sector is under-developed and presents opportunities for developers willing to build speculative schemes with large footprints. However the generally weak Italian economy has kept demand for warehousing space fairly constant over the last four years and in 2006 an estimated 525,000 sq m was taken up across Italy.”
CBRE has identified new logistics hubs emerging around Milan in the Novara area, west of Milan, with more than 150,000 sq m of stock; in the Piacenza region, south of Milan, with more than 500,000 sq m of modern premises; and around Padova/Verona area has 400,000 sq m developed. The central and southern regions are less developed with the exception of Rome, Naples, Bari and Catania.
Manning says: ”The Milan market continues to be the focus of industrial and distribution activity in Italy though increasing activity is being seen in other centres such as Bologna and Verona. During 2006 a sluggish economy kept development in the warehousing sector slow with only approximately 400,000 sq m being added to the Italian market, the majority of this around Milan. Land remains available for development and though international developers are present within the market, local developers offer competing facilities and have good access to potential development land.”
Occupier demand has been subdued recently and is likely to continue to be so, as a result of economic conditions across Europe and in Italy itself. Demand is focused on Grade A, flexible, well located distribution facilities. In fact, the majority of leasing activity over the last couple of years has been for newly developed space. However, as the total current stock of Grade A logistics space is only around five million sq m, the pressure to deliver more modern warehousing facilities is rising. With average annual take-up of only around 350,000 sq m, there is potential for oversupply, especially in micro locations of a lesser importance and with poorer infrastructure links. And if it”s bad in Milan, imagine what it must be like in the south…
Despite growing interest in the Rome market, the market in Southern Italy remains relatively undeveloped. Though a few international developers such as Eurinpro have explored development opportunities around the Rome area the majority of industrial space remains in smaller units with a high level of owner occupation. The weak Italian economy has kept occupier demand limited and therefore interest from international developers in the market has been sporadic and focussed on the established logistics areas around Fiumicino Airport.
Cushman & Wakefield is marketing logistics space in Rome close to Fiumicino Airport, the city and main road links. The complex, currently under construction, is made up of 320,000 sq m of warehouse space, of which 290,000 sq m is for logistics and 30,000 sq m for freight forwarding activities.
One of the few larger schemes under development is Fiano Logistics Park, developed by AIG/Lincoln located approximately 15km from the ring road around Rome and along the A1 spinal motorway. The first stage of the development has been completed with some 25,000 sq m leased to a variety of occupiers including pharmaceutical producers and associated logistics, and publishing companies. The total leaseable area is expected to be 60,000 sq m when fully built out and the total scheme is expected to complete during 2008.
Frampton’s prediction is that improved infrastructure will open up new logistics hubs in Italy, particularly in southern Europe. ”Increased emphasis is likely to be placed on rail transportation, which is becoming important as a result of growing road congestion,” he says. ”Northern Italy, especially, is well-placed to establish new satellite hubs along the trans-European Corridor Five (Lisbon to Kiev, running via Turin-Milan- Verona-Trieste). Hubs that offer integrated transport facilities and flexibility are expected to prosper over the medium-term, whilst those that also offer cost-savings are expected to perform even better.”