The yield is only one of the components of the real estate investment: capital appreciation must also be considered
To ensure a good rent it is better to focus on areas with high demand for rents (university areas, for example)
For the revaluation it would be desirable to invest in areas where urban improvements are expected
If an investor had 100, 300, and 500,000 euros, where and on which asset class would it be best for him to invest, considering the big four cities of Milan, Rome, Bologna, and Naples?
An answer to this question came from the Tecnocasa study office, which provided a table showing some examples of gross annual returns that can be obtained by investing in different budgets (note that inflation has been subtracted from the gross returns but not taxation).
Buying a property in Milan, Rome, Naples, and Bologna
In Milan, an investment of about 230,000 euros, in the Bovisa area could yield more than 4 percent gross, while if you move to the Fiera-Monterosa area with a more significant investment (about 370,000 euros), you would have a return of about 3 percent. For those who would like to invest less, different opportunities could be had in other cities, such as Naples and Bologna, where an apartment worth about 105-150 thousand euros could offer annual rents of about 7,000 and 12,000 euros, respectively, equal to a return of between 4.5 and 4.9 percent, net of inflation. On the other hand, you need at least 500,000 euros for a three-room apartment in Rome’s XX Settembre area, but the yield drops (3.4 percent)..
The components of a real estate investment: yield and capital appreciation
“Speaking of a real estate investment, yield is only one component,” explains Fabiana Megliola, head of the Tecnocasa group study office, who reminds us that capital revaluation must also be considered. “To secure a good rent, it is better to focus on areas with high rental demand (university areas, for example), while for revaluation, it would be desirable to invest in areas where urban improvements are expected,” says Megliola.
Fabiana Megliola, Tecnocasa
Asset class to focus on in the real estate
Diego Vitello, analyst Gabetti’s research office, is of a similar opinion. “In the cities of Milan, Rome and Bologna, given their high attractiveness in terms of concentration of international companies and university offerings, housing products such as short-term rentals, Prs (Private rental sector, ed.), multi-family, co-living and student housing can generate more opportunities for institutional investors,” says Vitello. “Of interest is also the office, which in Milan in the first six months of 2022 recorded an investment volume of about 1 billion euros. In Naples, however, the most sought-after assets seem to be logistics (automated and the last mile), hospitality (more for international operators), and living (especially Rsa and luxury residential).”
In terms of returns, “for the office asset class, average gross returns in Milan’s central business district area are around 4.25 percent (3.25 percent net), while for Rome’s central business district, the average gross return is 4.75 percent (3.7 percent net). Logistics is around 5 percent in Milan and 4 percent in Rome, while innovative living (in all its facets) records a gross yield range ranging from 3 to 9 percent,” Vitello concludes
Diego Vitello, analyst ufficio studi Gabetti
