ITALY HISTORICAL INVESTMENT VOLUMES IN H1 2022 BUT H2 WILL BE DIFFERENT

Q2 2022
Investment in Italian Real Estate (M
14,000
Real Estate investment volumes in Italy reached 6BN during H1 2022
for the first time in History. This represents an increase of 102%
12,000
compared to H1 2021 and way above the H1 average of the last ten
years (+83%).
10,000
Offices experienced a strong resilience over the semester with 1,850M
invested mostly in Milan (960M and Rome (480M . 8,000
Logistics continues to demonstrate its attractivity with 1,790M of
investments with deals in Q2 significantly larger than in recent
quarters. 6,000

Q2 itself accounted for 2,720M with a large dominance from Logistics 4,000
( 1,160M the highest ever volume for a single quarter - +192%
YoY) and Offices ( 610M, +81% YoY).
2,000
Stability across all sectors for prime yields compared to Q1, with
Milan Office CBD remaining at 3% and Italian Logistics at 3.90%. -
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 H1 2022
As anticipated at the end of Q1, first six months of 2022 showed
Q1 Q2 Q3
solid investment figures for the Italian market, with numerous
Q4 Average 5Y Average 10Y
deals initiated in 2020-2021 and concluded in H1.

10Y Government Bond > Prime Yield CBD, a warning signal for asset pricing levels ?
2008 crisis aftermath + European debt crisis
For the second time since 2007, 10Y Italian Government Bond yield 14,000 6.00%

Hundreds
established itself higher than the Office CBD prime yield (3.40% at the
12,000 5.00%
end of June 2022 vs. 3%).
It is true that Real Estate can still be seen as an hedge against inflation 10,000 Ukraine crisis
(which does not provide Fixed Income) and as a diversification tool in 4.00%
portfolios, but it raises question on future investment volumes. 8,000
3.00%
Current and expected economic conditions are set to worsen : high 6,000
Low investments
inflation (6.4% in June 2022), lower 2022 GDP forecast (Italy forecast 2.00%
4,000
2.6% for 2022 vs. 4.2% in March 2022), interest rates increase (ECB
should rise interest rates by 50/75 bps by end 2022). 2,000 1.00%

Given the time lag between Real Estate transactions versus traditional 0 0.00%
liquid investments the negative impact of this situation is not obvious
yet, but signs may start to appear during H2.
Investments Italian BTP 10Y Office Prime yield Milan CBD
The Manufacturing Purchasing Index (PMI) one of the
economic indexes most followed by decision makers and investors
The Italian PMI Index is falling and should be <50 in H2
dropped from 62 points in January to 51 in June. We believe that this
65
tendency should continue and that it should go below the 50 points
>50
threshold in H2, indicating economic contraction. 60
Optimistic view (expansion)
55
All these factors lead us to hold the view that investments in Real
Estate should be less important in H2 than in H1 and should 50
diversely affect asset classes (preferences for Offices and Logistics).
45

40 <50
35 Pessimistic view (contraction)

30
01/05/2017 01/05/2018 01/05/2019 01/05/2020 01/05/2021 01/05/2022

Source : BNP Paribas Real Estate Research, IHS Markit (PMI index) 1
 Q2 2022 AVG. H1 2012-2021 H1 2022
OFFICE 610M 1,150 M 1,850 M
+81 % +62 % +247 %
vs. Q2 2021 vs. H1 2021
A RESILIENT SEMESTER Office investment trend and CBD prime yields
6,000 5%
Investments in the Office sector reached 610M in Q2 (+81% YoY) and
1,850M in H1 (+247% YoY) the second best first semester after 2017. 4.15%
5,000
4%
3.50% 3.50%
Milan attracted 930M of capital in the first semester, a net increase
compared to H1 2021 (+107%), with a dominance of deals located in 4,000
prime locations (573M for CBD Duomo itself). 3%
Rome showed significantly higher investments than H1 2021, with 3.00%
3,000
figures close to 480M (+497%).
2%
Prime yields remain stable this quarter : 3% for CBD Duomo in Milan 2,000
and 3.50% in Rome despite one significant deal executed below this
figure. 1%
1,000

0 0%
2017 2018 2019 2020 2021 H1 2022
Total Investments (in M H1 Investments (in M
'Average H1 2012-2021 Milan CBD Prime Yield
Rome CBD Prime Yield

« A FLIGHT-TO-QUALITY » APPROACH ALREADY UNDERWAY The story repeats : During bear markets, investors are searching security

Given the macroeconomics uncertainty, a -to-quality approach is Bear market

6,000 60%
being implemented by investors. During this period, investors are
becoming more averse to risk and are looking for security of income : Bear market
5,000 Bear market 50%
Core and Core+ office assets located in established districts.

During bear market periods, the percentage of investments in Core 4,000 40%
and Core+ assets is higher than the 10Y average (36%). A similar
trend has been visible in Q2, with a total of 335M invested in such 3,000 30%
products (which represents 55% of total Office investments). We
believe that this tendency should continue in Q3/Q4, as we are already 2,000 20%
witnessing significant Core and Core+ deals closed in early July.
1,000 10%
Despite lack of product in CBD locations and the large investment
tickets required, such product allows owners to benefit from strong rent - 0%
indexation levels. 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Q1 Q2
2022 2022
In some areas, Core+ products could allow some pricing
opportunities. Investments in Core/Core+ (M Total Office investments (M
% of Core/Core+ Investments Average

Office Investments H1 2022 Prime yields Q2 2022

Milan Rome Milan CBD Rome CBD

930M 480M 3,00% 3,50%

+107 % +497 % Stable vs. Q1 2022
vs. H1 2021
KEY OFFICE DEALS IN Q2 2022

Asset Location District Investment profile Volume (M

Via Curtatone, 3 Rome Centre Core 174

Palazzo Mancini Via del Corso, 270 Rome CBD Core 139

Via Mazzini, 9/11 Milan CBD Duomo Core 121

Source : BNP Paribas Real Estate Research 2

 Q2 2022 AVG. H1 2012-2021 H1 2022
LOGISTICS 1,160M 259M 1,760 M
+192% +590 % +171 %
vs. Q2 2021 vs. H1 2021
SECTOR CONTINUING TO ATTRACT CAPITAL Logistics investment trend and prime yields
3,000 6%
5.75%
1,160M were invested in Logistics during Q2 (+192% YoY), it
represents the highest investment volumes for a single quarter in this 2,500
asset class, helped by large portfolio deals (4 portfolios >90M
5%
H1 2022 investments in Logistics represent now 1,760M (+171% vs. 2,000
H1 2021), with a strong dominance for prime markets (mainly
Lombardy and Veneto). 3.90%
1,500 4%
Investments in the Italian Logistics are so far still robust
because the market is still in the phase of development and 1,000
because Italy is catching up the pace in the e-commerce sector 3%
(CAGR 21-25 estimated at 6%, current online penetration only
standing at 52%). 500

0 2%
2017 2018 2019 2020 2021 H1 2022
Total Investments (M H1 Investments (M
Average H1 2017-2021 Prime Yield Warehouses

URBAN LOGISTICS SHOULD PROVE MOST RESILIENT

Increasing cost of raw materials should have a negative impact on
speculative developments (07/21 = Base 100)
In previous quarters, we have seen a significant drop in the big box
170 YoY evolution of prices
yield (from 5.75% to 3.90% in 2022) : it has now almost reached
160 Brent +45%
levels of urban logistics yield (stable at 3.80% in H1 2022). Bitumen +42%
150 Gasoline +23%
Given actual and future economic conditions, we believe that yields
140
should stabilize at current levels before witnessing a
decompression towards end 2022/beginning 2023. 130
120
However, this decompression should not be common across all
subsectors of the asset class. We believe that Urban logistics will 110
prove more resilient from economic turmoil for many reasons: 100
stronger rental growth expected as demand is more resilient, a
90
higher capital value/sqm and greater alternative use value in
most locations. 80
70
01/07/2021 01/10/2021 01/01/2022 01/04/2022
Bitumen prices Brent prices Gasoline prices

Logistics Investments H1 2022 Prime yields Q2 2022

Lombardy Veneto Other Warehouses Last-mile

630M 530M 600M 3,90% 3,80%

+189 % x47 +40 % Stable vs. Q1 2022
vs. H1 2021
KEY LOGISTICS DEALS IN Q2 2022

Asset Location Region Volume (M

Logistics Park in Oppeano 2 assets Oppeano Veneto 274

Portfolio SNATT 20 assets Mixed location Emilia-Romagna 125

Portfolio Barings 2 assets Cavenago & Cambiago Lombardy 125

Source : BNP Paribas Real Estate Research, Trading economics (raw materials) 3
 Q2 2022 AVG. H1 2012-2021 H1 2022
HOSPITALITY 320M 560 M 860 M
+23% +52 % +119 %
vs. Q2 2021 vs. H1 2021
Occupancy rate¹ (%) for Italian Hotels
« NOTHING BUT THE BEST IS GOOD ENOUGH FOR ME »
80%
70%
Investments in Hospitality reached 860M during H1 2022 (+119% 60%
YoY) and 320M only for Q2 (+23% YoY). As demonstrated by the top
50%
3 largest deals during this quarter (representing 90% of total
investments in Hospitality in Q2), investors opted for high-quality 40%
assets : 5 Stars Hotels located in touristic areas (Rome, Forte di 30%
Marmi).
20%
The Hospitality sector is continuing its recovery : higher occupancy 10%
levels, higher ADR and higher RevPAR in all major touristic cities 0%
(Florence, Rome, Venice) are being witnessed compared to 2021
data.

Hospitality indicators are progressively turning back to pre-

COVID levels helped by easing restrictions and by the
development of tourism.
Q3 figures will give a good indication on what to expect for the Economy Midscale Upscale
sector going forward, the rise of energy prices may negatively
affect the 3rd quarter that is usually performing strongly.
ADR² for Italian Hotels, taxes excluded (
170

150

130
KEY DATA AS OF MAY 2022 110

Milan Occupancy rate ADR RevPAR 90

70

77,1% 137,8 106,3 50

30

vs. May 2021 +57 pts +48 % +458 %

Rome Occupancy rate ADR RevPAR
Economy Midscale Upscale

81,7% 185,5 151,6 120

RevPAR³ for Italian Hotels, taxes excluded (

vs. May 2021 +61 pts +66 % +561 % 100

80

60
DEFINITIONS
40
 Occupancy rate¹ : Number of sold rooms divided by number of
available rooms
20
 ADR² : Room revenue divided by number of sold rooms
0
 RevPAR³ : Occupancy rate x average price or room revenue divided
by available rooms

Economy Midscale Upscale

KEY HOSPITALITY DEALS IN Q2 2022

Asset Location District Category Volume (M

Palazzo Marini Rome CBD 5 stars 170

Hotel Majestic Rome CBD 5 stars* 83

Grand Hotel Imperiale Forte dei Marmi 5 stars 35

*will be refurbished
Source : BNP Paribas Real Estate Research, MKG Destination 4
 Q2 2022 AVG. H1 2012-2021 H1 2022
ALTERNATIVES 130M 321 M 755 M
-77% +135 % -4 %
vs. Q2 2021 vs. H1 2021

ALTERNATIVES ARE STILL DRIVEN BY RESIDENTIAL H1 2022 Alternatives investments by product

6%
130M were invested in Alternative asset classes during Q2 2022, representing a
11%
decrease of 77% year-on-year. Despite a lower Q2 than last year, the first semester shows
a strong progression compared to the average of the last 10 H1 with 755M invested.

Residential remains the main component within Alternatives with 70% of total 13%
investments (530M in H1), mostly in Build-to-Rent as an end use. Senior Housing
represented a little less than 100M during H1 with investments in Rome, Turin and
Tuscany.
70%
The Residential pipeline for 2022 is solid but high levels of uncertainty prevail as the
escalation cost of raw materials should impact the margins.

Residential Care Homes

Development Sites Broadcasting operating center

Other
KEY ALTERNATIVES DEALS IN Q2 2022

Asset City District Price (M

Portfolio Wizard 3 assets (Residential) Milan Gambara 53

Build to Rent in Rome (Residential) Rome Talenti 30

Nizzoli, 68 (Residential) Milan Lorenteggio 24

STRONG RESIDENTIAL ACTIVITY ACROSS MAIN CITIES

Italy showed a strong activity overall with 181,767 Residential transactions in Q1 2022 (+12% YoY) but with
some disparities. Milan remains the most attractive city as it witnessed an increase of 36% of transactions from
5,647 to 7,681 in Q1 2022. From all the major 8 Italian cities, Rome is experiencing growth of 6% - only
Genoa is doing worse - while Bologna (+11%), Florence (+10%) and Turin (+9%) showed strong performance.

The « Hexagon model » illustrates the different phases of cities in terms of Residential transactions. Not all the
cities in Italy are in the same cycle : Milan is currently between phases 2 and 3, as we witness a rise in prices
and number of transactions. Rome towards the end of the cycle (between phases 6 and 1) because transactions
are still growing at a slower pace but prices are falling in some districts.

Rome Milan

City Q1 2021 Q1 2022 Variation (%)

Milan 5,647 7,681 +36%

Palermo 1,447 1,671 +15%

Bologna 1,495 1,661 +11%

Florence 1,210 1,333 +10%

Turin 3,515 3,822 +9%

Naples 1,923 2,099 +9%

Rome 8,673 9,226 +6%

Genoa 2,079 2,153 +4%

Top 8 25,989 29,646 +14%

Total Italy 162,258 181,767 +12%

Source : BNP Paribas Real Estate Research, Agenzia delle Entrate (OMI) 5
 Q2 2022 AVG. H1 2012-2021 H1 2022
RETAIL 230M 712M 420 M
+78% -41% +162 %
vs. Q2 2021 vs. H1 2021
UNCERTAINTIES ARE STILL WEIGHING ON THE SECTOR Retail investment trend and prime yields
3,000 7%
6.00%
Retail registered 230M of investments in Q2, 78% higher than Q2 2021. 6%

420M was invested in H1 2022, far more than H1 2021 (+162%) but still
below the H1 10Y average of 712M (-41%). 5%
2,000

High Street Retail continues in first position with 250M invested during 3.70% 4%
H1, but Shopping Centres (26%, 3 deals, all located in secondary locations)
are also starting to attract investors.
3.40% 3%

1,000
We maintain our prime yields for the moment for all Retail products : 2%
3.40% for Milan High Street, 3.70% for Rome High Street and 6% for
Shopping Centres. The lack of transactions makes a detailed analysis 1%
difficult but prime yields may decompress in the upcoming quarters given
the economic uncertainties and the yield premium that investors would
0 0%
require for Retail assets. 2017 2018 2019 2020 2021 H1 2022
Total Investments (in M H1 Investments (in M
'Average H1 2012-2021 Milan HS Prime yield
Rome HS Prime yield Shopping Centres Prime yield
As stated in Q1, sporadic large deals may positively affect the asset
class (like in Q4 2021). However, Retail should continue to remain at
low overall volumes, as some of the uncertainties remain.
policy to fight inflation (and then leading to a probable recession) H1 2022 Retail investments by product
will not help the global picture.

14%

26% 420M 60%

High Street
Shopping Centres
Retail Warehousing and Hypermarkets

Retail Investments H1 2022 Prime yields Q2 2022

Milan Rome Milan High Street Rome High Street Shopping Centres

70M 19M 3,40% 3,70% 6,00%

+153 % N/A Stable vs. Q1 2022
vs. H1 2021
KEY RETAIL DEALS IN Q2 2022

Asset Location Type Volume (M

Portfolio Dinamico BNP Paribas REIM 15 assets Mixed Mixed Retail 62

Project FOOD - 3 assets Mixed Supermarkets & Hypermarkets 38

Portfolio DeA Capital 7 assets Mixed Bank Agencies 28

Source : BNP Paribas Real Estate Research 6

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www.realestate.bnpparibas.it

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