February, 2023

Retail snapshot
Q4 2022 – Market Overview
Milan, Italy

© 2023 Jones Lang LaSalle IP, Inc. All rights reserved.

 Table of content

1. Our Key Takeaways 3

2. The Italian Economy 4

3. Retail Capital Markets 6

4. Looking ahead 11

2 | Retail snapshot – Q4 2022 © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
 1. Our Key Takeaways

1
The Italian economy shows some resilience
The Italian economy held up surprisingly well in 2022, ranking
above other key eurozone countries (France and Germany).
GDP growth posted a +0.5% in Q3 2022, mainly driven by domestic
demand. Net exports on the other hand were a negative driver.
Carry-over annual GDP growth now stands at +3.9%.

2
Retail warehousing remains appealing to investors
From the capital markets perspective, the retail sector is still in
recovering mode since the covid-19 pandemic lows. Investment
activity may be a bit softer in the first half of 2023, with Investors
looking for assets with strong fundamentals and good defensive
qualities.

3
Retail leasing market shows some degree of resilience
Retail rents are expected to remain stable in most European
countries in 2023, albeit pockets of solid growth may appear,
depending on the affordability of rents. Solid growth is expected to
return in 2024.

3 | Retail snapshot – Q4 2022 © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
 2. The Italian Economy

The Italian economy held up surprisingly well in 2022 despite high global uncertainty
and rising energy prices: carry-over annual GDP growth now stands at +3.9%.

The Italian economy posted a GDP growth Contribution to GDP growth

of +0.5% in Q3 2022, mainly driven by Q3 2022 QoQ %
domestic demand with consumption and 2.0
investments in expansion. Foreign demand
(net exports), on the other hand, was a 1.5
negative driver. The carry-over annual GDP
growth for 2022 now stands at +3.9%. 1.0 Inventories

Private investments played a key role so 0.5 Net Exports

far, mainly due to tax incentives in the Govt
0.0
residential construction sector and the Investments
execution of the National Recovery and -0.5
Resilience Plan. Whether this will continue in Consumption
2023 remains to be seen, as rising interest -1.0
rates will feed through to private sector.
-1.5
As regards fiscal policy, the current 2022-Q3
approach seems to be in favour of measures
designed to support households and firms to Source: JLL Research elaborations on ISTAT data
offset energy prices.

Contribution to GDP growth QoQ %

5.0

4.0

3.0

2.0

1.0

0.0

-1.0

-2.0
2021-Q1 2021-Q2 2021-Q3 2021-Q4 2022-Q1 2022-Q2 2022-Q3
Consumption Investments Govt
Net Exports Inventories GDP at market prices

Source: JLL Research elaborations on ISTAT data

4 | Retail snapshot – Q4 2022 © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
 Industrial production data in November highlights another negative expansion of -0.3%
MoM (-3.7% on a calendar adjusted YoY basis) – the third consecutive contraction – albeit
at a slower rate – since last summer.
The change of the average industrial production over the last three months versus the
previous three months remains in negative territory around -1.0 %.

Industrial Production - Nov 2021 to Nov 2022

8.00%

6.00%

4.00%

2.00%

0.00%

-2.00%

-4.00%
Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22

IP MoM % IP YoY %

Source: JLL Research elaborations on ISTAT data

Annualized headline inflation (HICP) reached 11.6% in December (down from 11.8% in
November). Looking ahead, headline inflation may start to decline following the recent
reduction in gas prices since the summer peak, however the pass-through to the core
inflation component should take longer to materialize.

Inflation - Dec 2017 to Dec 2022 Forecasts (Italy) 2023F 2024F

4.0 14.0 Gross Domestic Product 0.0 1.0

12.0
3.0
10.0 Industrial Production -0.3 4.5
2.0 8.0
6.0
1.0 Consumer Prices (%) 5.2 1.1
4.0
2.0
0.0
0.0 Govt Balance (% GDP) -4.9 -3.6
-1.0 -2.0
Dec-17 Jun-20 Dec-22 10yr govt bond yield (% EOP) 4.0 3.7
Inflation QoQ % (lhs) Inflation YoY % (rhs)

Source: JLL elaborations on ISTAT data. Source: Oxford Economics as of 19th Jan 2023.
Data: annual percentage changes unless specified.

5 | Retail snapshot – Q4 2022 © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
 3. Retail Capital Markets

The European retail market enters the current slowdown from a position of strength.
Although retail investment volumes for 2022 grew by 15% year on year to €37.2 billion
(+15%YoY), the slowdown observed during the third quarter accelerated in the
final quarter of 2022 as various transactions have been halted.
The Italian retail sector is still recovering from the post-pandemic lows. In 2022 investment
flows amounted to €0.8 billion (-44% YoY). Of these, around 24% were in-town
transactions while the remaining 76% were out-of-town.

Retail Investment Volumes (€ Mln)

2,500 2,112
2,000 1,680

1,500 1,222 1,290

1,000 759

500
0
2018 2019 2020 2021 2022

High Street Supermarket Shopping Centre Warehousing and Other

In-town transactions reached €160mln spanned across four deals, two in Milan while the
other two in Rome and Bologna. Out-of-town transactions reached almost €0.6bn
spanned across 14 deals; In terms of deal size, more than 60% of transactions had a
ticket lower than €25mln. The average deal size decreased too.

Deals by Size vs Average (€ Mln)

€ mln
100% 5% 100
23% 15% 24% 14%
80% 20% 80
23% 12% 10% 23%
19%
60% 5% 60
19% 24%
40% 31% 40
65% 59%
20% 42% 41% 20
27%
0% 0
2018 2019 2020 2021 2022

<25 >100 Between 25 and 50 Between 50 and 100 avg. deal size

Source: JLL Research elaborations

6 | Retail snapshot – Q4 2022 © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
 Since the start of the year, around 75% of the retail investment volumes into the sector
were from foreign investors (of which 32% are newcomers) whereas the remaining 25%
were coming from domestic capitals.

Retail Investment Volumes by Source of Capital (% tot)

100%

80%

60%

40%

20%

0%
2018 2019 2020 2021 2022

Domestic International
Note: we exclude transactions with unknown origin of capital

Prime net yields moved out across all retail submarkets starting from Q4 2022.

Italian Retail Prime Net Yields (%)

10.00 10.00

9.00 9.00

8.00 8.00

7.00 7.00

6.00 6.00

5.00 5.00

4.00 4.00

3.00 3.00
2008 Q4 2010 Q4 2012 Q4 2014 Q4 2016 Q4 2018 Q4 2020 Q4 2022 Q4
High Street MI High Street RM Shopping Centre Prime
Retail Warehouse Parks Shopping Centre Secondary

Source: JLL Research elaborations

7 | Retail snapshot – Q4 2022 © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
 High street
Investment volume: €160 m

N° of deals: 4
2 deals in Milan
1 deal in Rome & Bologna

Out of town
Investment volume: €0.6 bn

N° of deals: 15
7 single asset deals
7 deals ≥ €25 m
3 shopping centre deals

2022 Investment volumes

% by type

23%
In town
out-of-town
77%

Prime Yields Q4 2022 and Y-o-Y change in basis points

High street High street Shopping centre Shopping centre Retail

Milan Rome Milan Rome parks

3.70% 3.85% 6.00% 6.00% 6.60%

+10 bps +10 bps +20 bps +20 bps -10 bps
YoY YoY YoY YoY YoY

8 | Retail snapshot – Q4 2022 © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
 Prime Rents - High Street

5,000 €/sqm/pa
4,500
PRIME RENT
4,000 High Street
3,500

3,000
4,000
€/sqm/year
2,500
2014 Q4 2016 Q4 2018 Q4 2020 Q4 2022 Q4

High Street MI High Street RM

Prime Rents - Shopping Centre

960
€/sqm/pa
920

880 PRIME RENT

840 Shopping Centre
800

760
860
720 €/sqm/year
2014 Q4 2016 Q4 2018 Q4 2020 Q4 2022 Q4

Shopping Centre MI Shopping Centre RM

Prime Rents - Retail Park

225
€/sqm€pa
220
215
210 PRIME RENT
205 Retail Park
200
195
190
185
180
210
€/sqm/year
175
2014 Q4 2016 Q4 2018 Q4 2020 Q4 2022 Q4

Retail Park MI Retail Park RM

9 | Retail snapshot – Q4 2022 © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
 Big picture – EMEA leasing trends

Leasing activity across Europe slowed Prime rents mainstream retail locations
during Q4 2022, although various retailers
Paris - Avenue des…
continue to look for high-quality space in
Zurich - Bahnhofstrasse
key retail areas and good quality locations.
London - Oxford Street
Geneva - Rue du Rhone
Prime rents remained stable in most Munich - Kaufingerstraße
European countries, but notable growth in Milan - Corso Vittorio…
rents have been observed in Italy. Berlin - Tauentzienstraße
Rome - Via del Corso

Prime rents are expected to remain stable Frankfurt - Zeil

Hamburg - Spitalerstraße
in most European countries in 2023, albeit
some pockets of growth may appear, 0 10,000 20,000
depending on the affordability of rents.
Solid growth is expected to return in 2024. Prime rents luxury retail locations

London - New Bond Street

Polarisation will continue to play out, with Paris - Avenue Montaigne
greater occupier focus on prime Zurich - Bahnhofstrasse
destinations. Further pockets of rental Milan - Via Montenapoleone
growth in the best, regionally dominant Rome - Via Condotti
retailing destinations are certainly not out of Geneva - Rue du Rhone
the question. Munich - Maximilianstraße
Dusseldorf - Königsallee
Berlin - Kurfürstendamm
Barcelona - Passeig de…

0 10,000 20,000

Top 15 prime high street rents - Q4 2022

% values show quarter on quarter change in local currency

0% 0%
6,000
Prime rent (€/sqm/pa)

5,000 Prime rent (EUR/sqm/p.a.)

0% 3.9%
4,000 5.9% -3.3%
0% 0% 0% 0% 0% 0% 1.0%
3,000 -2.1% 0%

2,000

1,000

Source: JLL Research

10 | Retail snapshot – Q4 2022 © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
 4. Looking ahead
Inflation may reach its peak soon
while economic growth should
soften
• On the macroeconomic front, there are
some early signs that inflation may reach
its peak soon. More recently, energy
prices have fallen, although the
passthrough to core inflation should take
longer. As inflation starts to fall, the
pressure to hike interest rates should
diminish too.
• On the capital markets front, the retail
sector is still recovering from the post
pandemic lows. Rising interest rates and
tighter monetary policy may continue to
temper the investment outlook in 2023,
but pockets of liquidity are likely to
remain. Investors will be focusing on
assets with strong fundamentals and
good defensive qualities.
• On the leasing front, rents are expected
to remain stable in 2023, albeit some
pockets of growth may appear,
especially on prime assets and locations.
11 | Retail snapshot – Q4 2022
Global geopolitical uncertainty may
continue to temper the outlook in H1
• All real estate asset classes have
suffered somewhat in the last
quarter of 2022 and retail is no
exception.
• Global geopolitical uncertainty
may continue to weigh-in on the
outlook, especially in the first half of
2023.
• Pressure on yields may persist as
financing costs continue to be a
drag on investment decisions.
• Rents may still grow in 2023
although the weaker economic
outlook may cast some cloud.
© 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
 Our Three Scenarios for the Italian Retail Market in 2023

ASSUMPTIONS ECONOMIC IMPACT MARKET IMPLICATIONS

• The Russia- • Economic growth • Investments strengthen as

Ukraine war rebounds while investors gain confidence to start
reaches a domestic demand deploying allocated capital.
solution that improves, spilling • Prime yield decompression stops in
ends hostilities. over to the housing
• Energy prices market. the short term and likely to gradually
fall as supply to • Inflation pulls head back to levels just below the
UPSIDE long-term average prime yield until
Case Europe is re- back, central
established. banks limit interest rental growth softens.
• Confidence rate increases. • Rents expected to grow in all
recovers as • Govt bond yields markets and submarkets at a higher
uncertainty decrease as rate.
diminishes. inflation pulls back.

• The Ukraine • Economic growth • Investments will see some further

war rumbles on softens but avoids softening, but pockets of liquidity are
without a deep contraction. likely to remain. Focus on assets
escalation nor Labour market offering strong defensive qualities,
resolution. deteriorates
• Uncertainty slightly. followed by high-quality assets with
remains high • Inflation peaks but asset management potential once
but bounded. then starts to cool inflation shows clear signs of easing.
BASELINE
view • Energy prices down. • Continued polarization in yields
remain elevated • Govt bond yields between prime retail stock with
and government will continue to stay strong fundamentals and assets
supply and high and rise offering strong defensive qualities on
demand policies before falling as the one-hand and weaker retail
remain in place. inflation falls.
assets on the other hand.
• Rents expected to grow despite
softening in economic outlook.
• The Ukraine • Economic growth • Investment volumes remain low as
conflict slides into a the global outlook deteriorates
escalates and recession. dramatically.
drives financial • Inflation shows no • Prime yields to suffer outwards
market volatility. signs of cooling, pressure, especially regarding
• The energy while domestic assets with less resilient KPIs.
crisis demand and labour • Rental growth to face challenges
continues, market conditions due to increased pressure on
DOWNSIDE pushing prices deteriorate.
Case affordability in recession-hot sectors
higher, boosting • Govt bond yields while showing stability or moderate
inflation and set to rise
damaging (especially in the growth in resilient segments.
growth. short term) as Development activity to reduce
• Costly inflation fails to drastically and focusing only on well-
government come down and the anchored selected projects.
intervention is recession bites.
ramped up.

Source: JLL Research

12 | Retail snapshot – Q4 2022 © 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
 Contacts

Jones Lang LaSalle S.p.A.

www.jll.it

Milano Roma
Via Agnello, 8 - 20121 Via Bissolati, 20 - 00187
Phone: +39 02 85 86 86 1 Phone: +39 06 42 00 67 1
Fax: +39 02 85 86 86 20 Fax: +39 06 42 00 67 20

Oriana Bezze Sven Ole Sommer

Head of Retail Capital Markets Head of CM Transactions Rome
oriana.bezze@jll.com ole.sommer@jll.com

Francesca Fantuzzi
Head of Research Italy
francesca.fantuzzi@jll.com

Carlo Cocuzzo Claudia Solarino

Senior Research Analyst Research Consultant
carlo.cocuzzo@jll.com claudia.solarino@jll.com

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