The Italian Property Market A Question of Transparency

IRFItalian Research Forum

Agenda

Introduction to IRFClaudia Buccini, Associate & Head of Research – Cushman & Wakefield Italy

A European Lesson: Forum and Network across EuropeSusan Trevor-Briscoe FRICS, Associate & Head of Research - Savills Italy

IRF: Why, How, WhereValentina Puleio, Research Analyst – BNP Paribas REA Italy

IRF Proposed Definitions: Stock, Vacancy, Take-upRezarta Tasellari, Director & Head of Research – DTZ Italy

IRF Proposed Definitions: Prime rent, Prime yield, PipelineMirko Baldini, Director – CBRE Italy

Conclusion Raffaella Pinto, Senior Research Analyst – JLL Italy

Introduction to IRFItaly Research Forum

Claudia Buccini, Associate & Head of Research – Cushman & Wakefield Italy

Introduction

Italian Research Forum (IRF)

• The IRF started in 2003 – first approach C&W and JLL• Current and future market trends• Macro level market data

• Progressively structured: BNPP RE, CBRE, DTZ, Savills• Property market definitions

• Why have we decided to promote the IRF? • Improve market transparency • Professionally respond to our Clients’ requirements

• The Italian Property Market: the last ten years• Increasing volume of activity• International players• Credit Crunch

Introduction

Italian Research Forum (IRF)

• Transparency Confidentiality• Improve market transparency • Respect the confidentiality of sensitive information

• Sharing information Independency• Open discussion on facts and figures• Company background Interpretation of market trends

• Office sector as a starting point• Broader availability of information• Weight in the asset allocation • Retail and Logistics are the next steps

A European LessonForum and Network across Europe

Susan Trevor-Briscoe FRICS – Associate & Head of Research, Savills Italy

A European Lesson

o Different types of market

o Different setups for data exchange

o No data-exchange structure required

Forums established

Informal networks

A European Lesson

Russia

ITALY

France

Ire- . land

Spain

Germany

CEE: Romania

Ukraine

UK

Port-ugal

CEE: Poland

Netherlands

CEE:Czech Republic

CEE: Hungary

1. No data-exchange structure required

2. Forums established

3. Informal networks

A European LessonHigh transparency – e.g. UK

FEATURESo Independent data providers

(e.g. EGi, Focus)o Pre-existing co-operational

environmento Data collection - Data analysis

WAY FORWARDo Weakness - Basic datao Birminghamo Manchester?

A European LessonGood/Average transparency – e.g. Germany (GIF)

FEATURESo Structured data exchange organisationo Market acceptance and trusto Shared definitionso Agreed data serieso Independent publicationso Training seminarso Data collection

WAY FORWARDo Expanding membershipo Data analysis

A European LessonLow transparency – e.g. Spain

FEATURESo No formal agreemento Quarterly meetingso Exchange letting info.o Discuss marketso Researchers / Agentso Partial data collection

WAY FORWARDo Formalisationo Extend market coverageo Complete data collection

A European Lesson

o Data exchange Data analysiso Agreed definitions … Data series … Publications …o Privacy Confidentialityo Reliability Market acceptance and trust

Market maturity and transparency

Type of exchange structures

IRFWhy? How? Where?

Valentina Puleio, Research Analyst – BNP Paribas REA Italy

Italian Research Forum (IRF)

The main reasons for lack in transparency :

o Young market

o No law to publish data

o Unwillingness to share knowledge

o Competition

o Direct transactions

o Research “culture”

Italian Research Forum (IRF)

Why?

o Before international real estate firms came in Italy, there were really few official statistics on commercial property-related issues in Italy.

o Sources• Public

• Private

Italian Research Forum (IRF)

Our main activity

o Quarterly office market reports:• almost all aligned in the content • different according to the client’s distribution method

or in the timing of publishing o Letting and sales activity: providing information on:

• supply (stock, pipeline, completions, vacancy)• demand (take-up) • values (prime rents, average rents and prime yield)

o Covering two markets: • Rome • Milan

Italian Research Forum (IRF)How?

o Coordinating quarterly meetings• Players exchange information on the office market• Discuss deals and data

o Information shared:• Leasing Transactions• Key office indicators and Market views

o Confidentiality• Tenant information is not shared by the group if confidential• Only the business sector’s activity is shared

o Each company is not obliged to published data shared during the meeting

• Data is subject to revision before publishing• However, as for the key data, the gap between agents has been

reduced during the years

Italian Research Forum (IRF)

Where?IRF next steps

o In the Short term:

• Unique shared glossary for the Italian market

• Introduction of agreed rules for the Forum

• Involvement of other local real estate companies in the Forum

• Extension to other markets, beginning from Rome: some activity has already started in this direction

Italian Research Forum (IRF)

Where?IRF next steps

o In the Medium–Long term:

• Agreement on clear geographical definition of markets areas for Milan and Rome

• Increase the number of shared items: Investment transactions

• Publish an annual press release consisting of market facts and market trends

Italian Research Forum (IRF)

Market indicators:

o Stock

o Vacancy

o Take Up

o Prime Rent

o Prime Yield

o Pipeline

Italian Research Forum (IRF)

These are currently characterised as follows:

o Independently-determined Market Indicator figures for each company.

o Agreement of Market Indicators shared by all IRF participants has not yet been fully achieved.

o Quantity and quality of market evidence and other relevant inputs remains variable within the IRF group.

o Professional ‘expert opinion’ may differ between companies.

IRF Proposed DefinitionsStock, Vacancy, Take-up

Rezarta Tasellari, Director & Head of Research – DTZ Italy

IRF Proposed Definitions : StockEXISTING STOCK : Total amount (occupied and vacant) of completed office space in buildings mainly used for office purposes within a market as at the survey date (at the end of each quarter period).

o Includes:• Commercial and public sector offices• Purpose-built offices • Converted offices (from retail/residential/industrial to office space)

o Sources:• No public source for office stock that fits the RE definitions

o Weaknesses:• The cadastral definition for “office” is different from the RE definition • It is an estimated value• The information on withdrawal is usually only available in few cases

o State of the art:• Each advisor has an ESTIMATED total stock figure• Different methodology and geographical submarkets

o Actions:• Share and agree on a unique geographical definition of the market• Census of office building, dividing the Milan market by brokers

IRF Proposed Definitions : VacancyVACANCY : Completed floor space offered on the open market for leasing or sale, physically vacant for immediate occupation on the survey date (at the end of each quarter period).

o Includes:• All vacant accommodation inclusive of space for sub-letting

o Sources:• Agents’ mapping• Funds’ financial balance sheets• Websites of RE companies

o Weaknesses:• Different methodologies to calculate total vacancy• Immediate availability concept• Different geographical submarkets

o State of the art:• Each advisor has its vacancy data (different methodology and geographical submarkets)

o Actions:• Share and agree on a single geographical definition of the market• Revise and share current property databases

IRF Proposed Definitions : Take-UpTAKE-UP: Total floor space known to have been let or pre-let to tenants, or sold or pre-sold to owner-occupiers, during the survey period. A property is deemed to be “taken-up” only when contracts are signed.

o Includes:• Also pre-lets/ pre-sales (this refers to a space that was planned or in construction stage).• Lease renewals are counted as take-up with the additional size only.

o Sources:• Agents mapping• Press releases and newspapers articles (to be checked/confirmed by the landlords)

o Weaknesses:• This definition is still open to the influence of some variations within IRF • Normally is considered as “gross” area and sometimes also includes archive space • The exact taken-up space is often rounded up or slightly increased

o State of the art:• Exchange of the list of transactions made by each member’s own team• Maintaining the confidentiality of information

o Actions:• To share the “proposed” definition• To co-operate with local brokers in order to increase market knowledge/data• To agree on a single annual take up figure

IRF Proposed DefinitionsPipeline, Prime rent, prime yield

Mirko Baldini, Director – CBRE Italy

IRF Proposed Definitions: Prime Rent

PRIME RENT: The top nominal (not effective) rent for standard size (>500sq.m) property of highest quality & specification and best location in the market.

o Companies’ “market view” constructed by :• Market evidence (transactions closed and asking rents)• Expert opinions

o Weakness• Open to the influence of a series of variables (objective and subjective)

o State of the Art• Independently-determined Prime Rent figure by each IRF Participant different expert

opinion

o Action• IRF goals: an agreed IRF Prime Rent on an annual basis, using

– a definition– a method

IRF Proposed Definitions: Prime Yield

INITIAL YIELD: The achievable yield for fully let & immediately income producing property of highest quality & specification and best location in the market.

o Source• Rental Income ÷ Purchase Price

o Weakness• Gross Yield as market practice in Italy • No relevant transactions Quoted hypothetical yield - expert opinion

o State of the Art• Not “fact” but market view by each IRF Participants Different expert opinion

o ActionIRF goals:

• improve the transparency of investment volume • not harmonize the overview of Prime Yield

IRF Proposed Definitions: Pipeline

PIPELINE: Total amount of floor space for:– All developments under construction and/or– Potential schemes (incl. major refurbishments) in the future

o Weakness• No official source of information• Hard to obtain the details & to follow the changes of the project

o State of the Art• Independently managed pipeline data/info. by each IRF Participants

o ActionIRF goals:

• Share Office Pipeline • Expand collaboration to include developers and public authorities

Conclusion

Raffaella Pinto, Senior Research Analyst – JLL Italy

Conclusion

• What the European experience teaches us• Lack of official statistics across all the countries• Confidentiality is a shared issue• Geographical market definition a key issue to reach consistency

• What are the main weakness that IRF is facing in sharing definitions…• Geography issue supply• Quality issue supply• Confidentiality (privacy statement)• Subjective factor influencing definitions

• …and achievements reached• Agreement on take up definition• Agreement on the Goal of the Forum• Share increasing number of information's reducing gap

Conclusion

What are the next steps for IRF?

o Set ruleso Glossaryo Geographical definition of marketo Extend the working group to local playerso Annual press release on key market data shared within the

group

A greater involvement from our clients will help the IRF to grow further in order to reach the same goal: market transparency.

Conclusion

WHAT ’S YOUR COMMITTEMENT TO ACHIEVE A BETTER TRANSPARENCY IN THE ITALIAN MARKET?

Conclusion

THANK YOU

THANK YOU

Claudia Buccini, Associate & Head of Research - C&W Italy

Susan Trevor-Briscoe FRICS, Associate & Head of Research - Savills Italy

Valentina Puleio, Research Analyst – BNP Paribas REA Italy

Rezarta Tasellari, Director & Head of Research – DTZ Italy

Mirko Baldini, Director – CBRE Italy

Raffaella Pinto, Senior Research Analyst – JLL Italy