1. Real estate investors, from the sovereign wealth fund of Azerbaijan to Blackstone and UBS Group, are taking advantage of an increase in demand for offices in Milan that is pushing prices to new highs.

The lack of development in the financial capital of Italy is increasing rents, just as the shortage of prime real estate in some cities in Western Europe encourages global investors to enter new markets. The multimillionaire family Rovati, Amundi SA and Invesco Real Estate are closing in deals to buy office buildings in the city.

The real estate market in Italy endured a long period of moderate activity after the global financial crisis as banks delayed in liquidating deteriorated real estate loans, reducing the availability of credit. At the same time, investors focused on European cities where economic growth was strongest and political risk was lower. That led to prices in major markets such as Paris, Berlin and Frankfurt to record levels, making Milan look cheap in comparison.

These are some of the agreements that are currently being made:

The State Petroleum Fund of the Republic of Azerbaijan is close to selling the Palazzo Turati to Invesco for approximately 112 million euros

Amundi is in talks to buy a building in Via Gustavo Fara of UBS for about 50 million euros.

The Rovati family is about to agree on the purchase of Piazza Cavour from DeA Capital Real Estate Sgr SpA for around 170 million euros.

Blackstone offers for sale the new headquarters of Goldman Sachs Group Inc. in Milan, in Via Santa Margherita, in search of offers for more than 100 million euros.

The conversations continue in all these offers, and there is no certainty that the sales will be completed.

Despite the macroeconomic situation, Milan is not Italy, and in reality there are very few true A-grade vacancies in the central business district.

Annual rents in Milan reached 585 euros per square meter in the first quarter, 1.7% more than the previous year, while vacancy rates were reduced by approximately half a percentage point, according to data compiled by the Jones broker Lang LaSalle Inc. That followed a record year for leasing in the city in 2018, when approximately 381,000 square meters were rented, according to CBRE Group Inc.

Demand is limited by the limited availability of good quality products, so we expect yields to remain low or mild in the coming months, particularly for quality A assets.

Prime yields, a measure of annual rent compared to the price of a property, are around 3.6% in Milan compared to 3% in Paris and Amsterdam, 2.95% in Frankfurt and 2.9% in Berlin, according to show the JLL data for the first quarter of 2019.
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