RCA Insights

Italy Referendum: The Risk for Commercial Real Estate

By on November 29th, 2016

Following “surprise” victories for President-elect Donald Trump and for the Leave campaign in the U.K.’s Brexit referendum, the next plebiscite – and therefore source of concern for market participants – is Italy’s referendum on Dec. 4.

The vote allows Italians to give their verdict on Prime Minister Matteo Renzi’s constitutional reform program and while this might appear to be a matter mainly of internal, political interest, there are good reasons for those in the international real estate industry to take note.

Why? Because Renzi said if he loses the referendum – which most commentators now expect – he will resign. The period of instability this would precipitate could have disastrous effects on Italy’s troubled and indebted banking system, with a negative effect on financial stability throughout the eurozone.

For real estate investors this comes at a time when the Italian market has witnessed substantial inflows over the last 24 months. The market barely saw any activity during the post-GFC period and then during the eurozone debt crisis in 2011-12, but investors returned in significant numbers from mid-2013 onwards. In fact, 2015 was a record year for the market, with more than €10b in transactions.




In relative terms, Italy is also one of the biggest cross-border markets in the world: 70% of the capital invested since the start of 2015 has been from overseas players and 20% of the total from new overseas entrants to the market. There is therefore, a growing cohort of overseas players with exposure to the risks arising from the referendum: RCA estimates that overseas investors hold Italian commercial real estate to the value of €50b.

Perhaps investors have started to take greater note of the risks posed by the referendum, with Q3’16 investment volumes of €1.0b the lowest since Q1’14. (Still, the drop-off is in line with a Europe-wide trend.) So far in Q4’16 we have recorded a relatively modest €650m.

On a trip last week to Bologna and Milan, I spied plenty of anti-Renzi graffiti and was given more than one leaflet from campaigners telling me to vote no in the referendum. And with anti-elite, populist movements gaining traction throughout the Western world, a vote against Prime Minister Renzi and his reforms should not surprise any owners of Italian real estate.

Tom Leahy

Tom Leahy

Senior Director, EMEA Analytics

Tom Leahy joined RCA in 2014. In his role as Senior Director for the EMEA region, Tom is responsible for the development and expansion of the market analytics service for RCA’s European clients.

Prior to joining RCA, Tom was an Associate Director and then Head of Research at UK-based property consultancy, Lambert Smith Hampton. He started his career as an analyst at research consultancy Property Market Analysis (PMA).