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REPORT 2Q-2024 - Economic and RE data

General Overview

Accustomed to the chaos of recent years, the second quarter of the year passed without too many jolts, except for those related to the political world, such as the results of the European elections and the prospect of the upcoming American elections in November.

On the one hand, the possibility of political instability following the European elections in France generated some fears and caused the markets to fluctuate for a few days; on the other hand, the first debate between the two candidates for the U.S. presidency may have highlighted the inadequacy of both contenders, mainly showing the weakness of the Democratic candidate.

Geopolitical tensions show no signs of abating, neither on the Israeli-Palestinian front nor the Russian-Ukrainian front.


Some Numbers

The inflation curve maintains a certain balance around the values desired by central banks and, more generally, economies. In Italy, the provisional data as of June 30 shows a monthly increase of 0.1%, leading the year-on-year trend to a contained 0.8% (constant throughout the quarter). In the Euro area, the curve settled on an annual increase of 2.5%, close to the ECB's target of 2%. This trend prompted the EBC to apply a 25 bps cut to the cost of money, a first, albeit timid, signal of a return to the desired economic stability. In the United States, although slightly decreasing, inflation remains around 3%, which has proved to be a difficult threshold to lower. Financial and employment data have shown to be stronger than expected.

For this reason, the exuberance shown by the President of the FED at the end of the year regarding the multiple rate cuts planned for 2024 has not yet materialized. The North American economy has remained stuck with a cost of money of 5.5% (in the Euro area, it is at 4.25% after the June cut). In the United Kingdom, the inflation alarm is more under control; the year-on-year increase for June stood at 2%, bringing the average for 2024 to 2.8%. However, even the Bank of England has decided not to loosen the purse strings.

Economies are growing at different rates. Official data for the first quarter in Italy shows an annual trend increase of 0.7%, while the provisional data for June indicates a 0.1% growth from the previous month. The forecast for the year-end predicts a GDP growth of 0.9%. Industrial production continues the slowdown that has been ongoing since the beginning of 2024. For the Euro area, growth appears to be more moderate, significantly hindered by the German economy, which, after closing 2023 in recession, showed a slight change of trend in the first quarter of the new year and, at least according to the International Monetary Fund, shows growth prospects around 1% for the current year.


The Real Estate Market

According to the latest data provided by the Agenzia delle Entrate, the contraction in the number of residential transactions that began several quarters ago continues in the Italian real estate market. For analytical purposes, the comparison between consecutive quarters (in this case between 1Q-2024 and 4Q-2023) is of little relevance, considering that the last quarter of the year has often been the most exuberant. The analysis between the same periods of different years assumes an utterly different importance.

As the tables show, the decline in residential sales recorded for the entire Peninsula in the first quarter of 2024 is accentuated when the field of analysis is narrowed to Lombardy and, even more so, to the metropolitan area of Milan.

The number of residential sales in Italy stopped at 154,770 units, representing the worst data since post-Covid (2021). This decrease of -7.2% compared to the first quarter of 2023 could be caused by the general uncertainty toward the economic contingency and, more importantly, by the high cost of financing. Confirming this is that during this period, there was a further decline in sales with a mortgage.

The situation is very different for commercial properties (offices, banks, shops, shopping centers, hotels, and industrial properties).

According to Agenzia delle Entrate data, in 1Q-2024, the most commercial property sales were registered compared to the other first quarters of the post-COVID period; extending the analysis back to 2011, the first quarter of 2024 is the best first quarter for at least the last 14 years.

As with residential sales, there was a noticeable slowdown between 2022 and 2023, especially in Lombardy and the Milan area, due to the increase in interest rates, as noted in the report for that period. From 2024, investors, or in any case, buyers of commercial properties, seem to have digested even the high rates, looking with confidence at the announced cuts in the cost of money.

Analyzing the different types of properties between 1Q-2024 and 1Q-2023, it emerges that sales of A/10 category properties (offices) increased by 11%, those of shops (C1) by 6.2%, and those of productive and industrial properties by 15.7%.

The numbers would encourage optimism; however, operators must remain vigilant.

As for the number of building permits, examining the first quarters of the year, there is a slight increase for residential buildings, more marked for non-residential ones.



Data Sources: Agenzia delle Entrate, ISTAT, and tradingeconomics.com

Data Processing: Darian RE



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