Italy’s Recovery Plan - Real Estate’s Boom?

Chosen by heads of real estate as a future contributing factor to growth, what will the plan change about the market

February 22, 2023Real Estate
Italy’s National Recovery and Resilience Plan (NRRP) uses Next Generation Europe funds to make improvements to the infrastructure and sustainability of the country. Real estate is at the forefront of the plan, with an estimated contribution of over €54 billion made to urban regeneration. The sectoral impact of the plan is said to impact real estate activities and construction the most significantly - GRI members at the most recent Italian club meeting noted that this plan could have a positive impact on the country’s market overall.

The goal of the Recovery and Resilience plan is to increase the country’s GDP by 1.5% by 2026 and create jobs for 240,000 people. It will also put funds towards infrastructure improvements for the management of waste and water, transport and the energy efficiency of buildings.

The latter two are significant for the real estate market, as improvements to transport will assist in the growth of markets in tertiary and secondary locations. €34 billion has been allocated to sustainable mobility.

Questions about the impact of the Recovery plan can be discussed at Italia GRI 2023 in May, where the keynote speaker, Marco Valli (Global Head of Research and Chief European Economist at UniCredit) will speak on Macroeconomics.

The full Recovery Plan can be found here.

ESG Development for Residential Buildings

According to the International Energy Agency, during the pandemic CO2 emissions from the operation of buildings rebounded, and the sector is responsible directly and indirectly for around one-third of global energy- and process-related CO2 emissions.

Italy in particular faces ESG challenges for its buildings due to the age of the stock that is available - over 70% of residential buildings are over 50 years old. The Recovery Plan invests €15.3 billion into energy efficiency in residential and public buildings, and beneficiaries can benefit from tax rebates over the next 5 years if the energy savings of those interventions are higher than 30%.

The allocation of these funds could also affect the market in terms of new stock and increasing the stock available will no doubt affect the ‘green premium’ price, the price increase attached to real estate that complies with high levels of ESG criteria, which according to managers is 16% and 28% rise from standard prices.

Italia GRI 2023

Transport infrastructure

The main infrastructure targeted by the plan and the government’s quarterly budgets are railways, ports, and airports, with emphasis on sustainability, intermodality and modernising. Starting with rail routes such as the Verona-Brenner to the new Brescia airport hub. 

Furthermore, the entire infrastructure sector will experience growth over the next decade. Investment from the NRRP as well as other resources will stimulate infrastructure growth by an average of 1.7% a year over the next ten years, a rate higher than the eurozone average of +1.5%

According to the GRI Club members at the ‘Next Stop Italy’ club meeting, the NRRP will create excellent opportunities, particularly in the hospitality sector at tertiary and secondary locations. This is particularly true as Italians enjoy holidaying in their own countries. 

The infrastructure investments are already visible on the ground, with worksites open in half of Italy, from the Naples-Bari high-speed rail link, which improves the direct connection between the Tyrrhenian and the Adriatic Sea. There will also be a high-capacity rail link between Palermo-Catania and further works in the area around Genoa: this city was one of the cities mentioned by GRI Club members as having great potential. 

Bridging the North-South Divide

The NRRP is also supposed to help bridge the gap between northern and southern Italy, with the EU emphasising that the south should receive funds to this effect. 

Some have argued that the structure of bidding created an issue, as the north of Italy had an advantage for the more efficient administrations in centres such as Milan, and the local authorities of southern municipalities that struggled financially cannot co-finance as easily as the northern ones. For example, 259 out of 411 municipalities in Calabria, 237 out of 552 in Campania and 144 out of 390 in Sicily experienced financial difficulties in 2020. 

While Milan is considered the best real estate location in Italy with Rome following behind, an interesting note is that if the south lags behind in receiving funds from the NRRP, the cities located there are less likely to catch up with the successful northern markets.

The plan is underway

So far which is above average in the EU. The International Monetary Fund in fact raised their predictions for GDP growth following the release of the NRRP; in 2023, GDP is predicted to grow by 0.8%.

Overall, Italy’s long-term growth should attract more investors to the country for multiple asset classes. As well as seeing growth as a modern country with plentiful environmentally-friendly initiatives, something seen as absolutely essential by many investors.

To discuss international investment and growth in Italy, look to attend Italia GRI 2023

Written by Sarah Garnett