NEWSLETTER Macroeconomic scenario and real estate market

Transcription

1 NEWSLETTER Macroeconomic scenario and real estate market IDeA FIMIT sgr Research Department March 01

2 Contents 1. Macroeconomic scenario 1.1 Overview of the Italian economy 1. Bad bank loans and the credit squeeze 1.3 Financial markets: prospects for Real estate market.1 Real estate investments in. The growing appeal of retail investments 5 17/03/01 1

3 1. Macroeconomic scenario 1.1. Overview of the Italian economy In the third quarter of the year, the recession of the Italian economy came to an end. As of the second half of the year important signs were already being seen: the business confidence index increased in the second half of, going up from 90.9 in June to in December (005=100). The same is true for the manufacturers' PMI index which went up from 9.1 in June to 53.3 in December, the highest since April 011. Despite the positive signs and the expectations of a period of slow economic recovery, we need to consider that the Italian economy has lost a lot of ground over the last six years and it will take many years to get back to the levels reached in 007. The component which affected our economy more than any other was the contraction of private investments, owing mainly to the credit squeeze. The absence of investments had a significant impact on industrial production, currently stagnant at the lows of 009. Fig. 1.1: Trend in the business confidence index (005=100) and in industrial production (010=100) Source: Istat Today, the recovery in business confidence seems to suggest a turnaround. However, Italy does unfortunately continue to be less competitive at the international level and this leads to expect a more fragile recovery than in the core euro area countries. In the latter, wages have increased less than productivity. This development would have been almost impossible in Italy, owing to the sharp decline in productivity, because it would have meant cutting real (and nominal) wages. In addition, the different ways and conditions of access to the credit market and the high tax burden continue to represent a significant disadvantage for Italy. 1 Istat Markit Business Confidence Industrial Production Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Aug-1 Dec-1 Apr-13 Aug-13 Fig. 1.: OECD competitiveness index of unit labour costs (000=100) Source: OECD Real household consumption are at the lowest in the last 15 years, owing mainly to the record level unemployment rate: 1.7% in November, 1.% for under 5s (the highest since 1977). As of the second half of, there seems to have been an important turnaround in consumption trends, which followed the recovery of consumer confidence. Relaunching employment is one of the Government's priorities, and work is being done on important reforms. Thanks to the expected reduction in the unemployment rate predicted by analysts to start in the second half of 01, we can presumably expect the positive trend in consumption to continue. Fig. 1.3: Italian household consumption trends mln Source: Istat Germany Italy France Dec-00 Sep-01 Jun-0 Mar-03 Dec-03 Sep-0 Jun-05 Mar-0 Dec-0 Sep-07 Jun-08 Mar-09 Dec-09 Sep-10 Jun-11 Mar-1 Dec-1 Sep Household consumption (005 prices) Unemployment rate (%) Mar-0 Nov-0 Jul-05 Mar-0 Nov-0 Jul-07 Mar-08 Nov-08 Jul-09 Mar-10 Nov-10 Jul-11 Mar-1 Nov-1 Jul Bad bank debts and the credit squeeze The squeeze on the lending system continues to heavily penalise the Italian economy, particularly the real estate sector. Bad loans of Italian banks have risen to new heights month after month. In December, according to the Bank of Italy's Statistical Bulletin, gross bad loans amounted to approximately 155 billion euro, up 5% in the last 1 months, while bad loans net of provisions were approximately 80 billion euro (approximately 1% of the net assets of Italian banks). Considering also the large number of restructured, % 17/03/01

4 doubtful and past-due positions, it is possible to foresee a sharp increase in bad loans again in 01. In addition, it is important to consider that almost 0% of bad loans of nonfinancial companies relate to construction companies or those that work in real estate. Fig. 1.: Bad loans of Italian banks ,0 59,0 1,0 Source: ABI, Bank of Italy Negative signs continue to show also for business lending; in December, there was another sharp fall in bank loans to nonfinancial companies. The data published by the European Central Bank (ECB) show a drop on an annual basis of around 5%. Fig. 1.5: Change in loans to non-financial companies (YOY %) Source: ECB Gross NPL ( bn) NPL / Loans (%) 15,0 107, A new issue of liquidity by the European Central Bank (ECB), through new long-term refinancing operations (LTROs) aimed at supporting lending to businesses could be the only way to stimulate a real economy recovery Financial markets: outlook for , / 0/ 03/ 0/ 05/ 0/ 07/ 08/ 09/ 10/ 11/ 1/ Italy France Germany Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-1 Jun-1 Aug-1 Oct-1 Dec-1 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 The main effect of the expansionary policy of the ECB has been to boost the performance of the financial markets and drive down bond yields, attenuating the yield spreads of tenyear government bonds between the core and peripheral euro 9,0 8,0 7,0,0 5,0,0-5, area countries. Unfortunately, however, it seems that the injections of low-cost liquidity have not helped the recovery of the real economy in any way, which is trapped in a downward recessionary spiral that began in the second half of 011. The low interest rates dictated by the ECB's policies have brought down both the interest rate on government bonds and that on corporate bonds to record lows. Today, government bonds of the peripheral countries such as Italy, with a still significant country risk and weak fundamentals, also offer decidedly low yields. In the first terms of 01, the yield on BTPs fell well below the psychological % threshold, bringing the spread on the German Bund to less than 00 basis points, the lowest since July 011. Fig. 1.: Trend in ten-year yields on government bonds (%) 8 0 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Aug-1 Dec-1 Apr-13 Aug-13 Source: Bloomberg Fig. 1.7: European corporate bond yields (%) Source: Bloomberg Tasso BCE Eurozone 10 Yr Avg Italy 10 Yr Avg EU Corp. Bonds BBB EU Corp. Bonds AA Eurozone 10 Yr Gvt BTP 10 Yr EU Corp. Bonds A Average Jan-0 Jun-0 Nov-0 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Sep-1 Feb-13 Jul-13 Investors who decide today to invest in this asset class must take into account the risk of interest rates rising, owing to the tapering 3 strategy announced by the Fed. This has already had significant effects on the European interbank rate, which rose suddenly at the beginning of December. Growth in bond yields would impose latent capital losses on investors in the next few years. The equity markets also continue to perform 3 There has been a progressive reduction by the Fed of the monetary stimuli with which it releases liquidity into the system each month by purchasing treasuries and mortgage-backed bonds. 17/03/01 3

5 excellently, thanks above all to the low-cost liquidity released by the ECB. The Italian equity index ended with a performance of +1.% (up by more than 30% from the beginning of 011), boosting the asset management industry: at the end of December, total subscriptions from the start of the year reached 5 billion euro (the best result since 1999), enabling the sector to recover the outflows of the last two years (-5. billion in 011 and ). Fig. 1.8: Performance of the Italian equity index from 011 to today 50% 0% 30% 0% 10% 0% -10% -0% Dec-11 Jun-1 Dec-1 Jun-13 Source: Bloomberg 1,% 1,0% 0,8% 0,% 0,% 0,% 0,0% All this during a deep recession in the Italian economy, with private investments at the lowest since 1995 (owing also to the credit squeeze) and household consumption at the lowest since We can expect a share price correction, when, thanks to the first signs of economic recovery, the ECB's expansionary policy will come to an end. Fig. 1.9: Change from the previous quarter in Italian Gross Domestic Product (%) 0, 0, 0,0-0, -0, -0, -0,8-1,0-1, 0,3 0,1 FTSEMIB Index 0,3-0, -0,7-1,1-0, -0,5 BCE Rate -0,9-0, -0,3 0 0,1 the whole of, investments reached billion euro, up by 1% compared with. The positive signs came above all from the trend in commercial transactions in Italy and Spain, which more than doubled the volume of investments compared with. In,Italy and Spain together accounted for.7% of investment activity at the European level, compared with 3.% in the previous year. Fig..1: Trend in non-residential sales in some of the major European countries ( bln),3 Q1 +% 5,3 Q Source: CBRE Q3 5, +19% Q 30,1 1, -5% For the Italian real estate market, was a year of excellent performance, which confirms the return of interest on the part of foreign institutional investors, above all in the retail product. The volume of institutional non-residential investments in, considering purchase transactions completed through the transfer of real estate fund units, amounted to approximately.7 billion euro (approximately. billion in ), of which approximately billion represented by investments in the retail sector, with most being concentrated in the fourth quarter of the year. Fig..: Breakdown of real estate investments by planned use in 15,3,1 +18% 5,, +83% UK Germany France Spain Italy Industrial / Logistic Other Hotel % 9% 1% Mixed 13% % Retail,7 Source: Bloomberg, Istat. Real Estate Market Source: CBRE 7% Office.1. Real estate investments in Direct investments in non-residential properties in Europe in the fourth quarter of amounted to 53. billion euro, up by % compared with the previous quarter and by 19% compared with the same quarter of the previous year. Over In, foreign investors accounted for 7% of the total and showed great interest, above all, in transactions to purchase large retail products: shopping centres, retail parks and factory outlet centres. This positive trend will continue in 01, thanks to the price adjustment recorded, above all for secondary assets. 17/03/01

6 Fig..3: Origin of foreign capital in Fig..: Benchmark yields (%) Europe 37% Middle East %,8 5, 7,0 8,5 7,8,0 8,5 3,8,8 37% Source: CBRE In Italy, repricingbegan late and in a more gradual manner compared with other peripheral countries such as Spain, but, today, it seems to have reached levels capable of attracting foreign investor interest, especially for commercial assets. The price correction, which, from 008 to today, has accumulated approximately -17% for office planned use and - 1% for commercial use, will continue in 01, offering even higher yields to investors. Tab..1: Main non-residential real estate sales (> 100 mln) in in Italy Name / Address City Main use Source: IDeA FIMIT Research Department, various sources.. The growing appeal of retail investments The yields offered by the Italian real estate market, above all in the retail sector, currently represent one of the best investment opportunities, compared with both the property market in the other major European markets and other investment classes. Nomisma GLA (sqm) Price ( Mln) USA & Canada Yield (%) Seller Buyer Porta Nuova- Qatar Investment Varesine Milan Mixed n.d. 00 n.d. Hines Italia Authority Development Portfolio 15 Various Retail >8% Auchan Morgan Stanley Shopping Center Province of Rome BNPP REIM/ Fondo Rome Office n.d. Province of Rome HQ Upside Via del Corso/ Via Rome Retail n.d. Gruppo Benetton H&M Tomacelli Henderson/ Mcarthur Simon Property La Reggia FOC Caserta Retail n.d. 15 n.d. Glen Four Seasons Qatar Investment Florence Hotel n.d. Fingen Florence Authority Valecenter/Airone Shopping Mall Carrefour Limbiate Padova/ Venice Monza Brianza Retail ,% Sonae Sierra Retail % (7,1% netto) Market Central Da Vinci Franciacorta Outlet Village Brescia Retail ,8% Corriere della Sera HQ Noventa di Piave Venezia Retail n.d. 119 n.d. Cbre Global Investments Rome Retail ~9% AIG Lincoln GWM Aberdeen Asset Management / Fondo DEGI Europa Milan Office ,7% RCS Media Henderson/ Mcarthur Glen The Blackstone ING Insurance The Blackstone The Blackstone Simon Property Le Bolle/Poseidon Salerno/ Palermo Retail n.d. Gruppo CESI Local investors Via Livio Cambi, 1 Milan Uffici n.d. Idea Fimit Sgr / Fondo Omicron Plus Unicredit Hotel Eden Rome Albergo n.d. 105 n.d. Starwood Hotel & Dorchester (Brunei Resorts Investment Agency) Prime shopping centres Germany Prime shopping centres UK Prime shopping centres Italy Source: CBRE, Bloomberg Non prime shopping centres Italy Non prime High Street Italy There are two retail transactions in particular, completed by opportunistic foreign investors in the last few months, which constitute an important precedent and have put the opportunities offered by the Italian real estate market in the spotlight. The first concerns the purchase of the Franciacorta Outlet Village Factory Outlet (Brescia) by Blackstone for 1 million euro, with a yield of approximately 10%; the second, the purchase of the Market Central Da Vinci shopping centre (Fiumicino, Rome) by GWM for 130 million euro, with a yield of approximately 9%. Investors' interest in the Italian real estate market and, consequently, the volume of investments, will tend to increase considerably in 01, thanks also to domestic institutional investors such as insurance companies, which need to sustain the yields of their investment portfolios, for 80% invested in debt securities. For 01, we can probably still expect a negative performance for the real estate market as a whole, while we can hope for even greater interest on the part of foreign institutional investors, but focused exclusively on the best products. The yields on European government bonds are at record lows, with the ten-year BTP which, despite the still considerable country risk of Italy, currently yields just 3.5%. In this historic moment, Italian real estate yields have a very high spread, not only with respect to government bond yields, but also with respect to the real estate yields of the major European markets. In addition, the constantly rising property prices in the UK market, the largest European market, depressed the yields of real estate investments and generated growing fears of a potential bubble risk. This will force large international investors to invest in other European markets, in particular in the southern European markets which are now recovering. In terms of planned use, the preferred sector will continue to be retail. The year 01 should be an excellent one for investments in commercial real estate, as the unemployment Prime Office Italy Prime logistic Italy BTP 10 Yr (ytd avg) FTSE MIB Dividend Yield 1M 17/03/01 5

7 rate is likely to decrease, while very positive signs have already been seen since the second half of as regards consumer confidence. This will have positive effects on the recovery in consumption, which is the main driver of performance in the commercial real estate sector. Unlike the retail sector, the recovery in properties for office use, in terms of both sales and prices, requires recovery in private sector investments. These, in turn, require loans from banks which will continue to be scarce in 01. Since 007, the contraction in consumption has been just 8%, compared with a 7% contraction in private investments. As regards the geography, the more appealing locations will continue to be the major Italian cities such as Milan, Rome, Florence, Venice and Bologna and, as far as the retail sector is concerned, the richest provinces of northern Italy with greater spending power. Disclaimer The information contained in this document (henceforth the Document ) are reserved for the subject to which it is provided and must never be divulged, wholly or in part, to third parties, or copied, distributed, transferred or reproduced, in any case, without prior written consent from IDeA FIMIT. The information contained in the Document was up-to-date at the dates indicated in the same and IDeA FIMIT considers in good faith that on these dates the said information was correct. IDeA FIMIT, its directors, managers and employees, however, provide no warranty, explicit or implicit, as to the correctness, accuracy or completeness of this information and therefore may not be considered in any way liable for losses, damages, costs or expenses deriving from use of the information provided in the Document. The content of the Document does not constitute an offer or an invitation to invest in the units of funds managed by IDeA FIMIT. 17/03/01