Italy’s hospitality real estate amid planning risk and fragmented governance

Written by Helen Richards

Key Takeaways:

• Italy's powerful tourism sector and vast inventory of outdated properties present immense investment potential, but it is stifled by planning risk and fragmented governance.
• Luxury hospitality assets are driving value and attracting capital, while other crucial sectors such as Build-to-Rent (BTR) remain largely unviable due to regulatory hurdles.
• Overcoming structural barriers requires a shift towards long-term vision and unified national regulation to provide the speed and certainty international investors demand.

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Italy’s real estate market is locked in a paradox. While the EUR 235 billion tourism sector is booming and international capital is eager to invest, deep-seated structural issues prevent urban regeneration from gaining traction.

Discussions among industry leaders at GRI Institute’s Urban Regeneration & Beds in Italy roundtable, co-hosted by Gianni & Origoni, expose a country wrestling with planning risk, fragmented governance, and a glaring capital-product mismatch.

The key challenge isn't a lack of money, but the absence of a streamlined regulatory path and local expertise needed to transform Italy's vast supply of outdated and disused properties.

The Hospitality Boom

Tourism in Italy is a powerhouse. As the second-largest sector of the Italian economy after services, it contributes 13.9% of the Italian GDP. Despite this, the market is described as significantly under-penetrated by international brands. Only 30% of Italian hotels are branded, compared with 75% in the US, 65% in the UK, and over 50% in continental Europe, highlighting a massive potential for brand-led growth and investment.

The COVID-19 pandemic served as a pivotal moment, making the country aware of the sector's importance. The current boom, however, is polarised. The "Big Four" - Rome, Milan, Florence, and Venice - attract 75% of all international tourists, creating a high-risk of overtourism in the historic centres of Florence and Venice. This has driven a disproportionate focus on the luxury segment, pulling the entire market upward.
 

A Market of Dualities

There are several critical dualities in the Italian real estate market:

Overtourism vs. Opportunity

While there is a narrative of overtourism, the wider consensus is that the issue lies in the concentration of visitors in a few areas. The market is actively broadening, with Tier 2 and Tier 3 destinations such as Matera and Lake Como seeing increased international attention. Matera has evolved from an "affittacamere" (guest house) city to a five-star destination without even a railway station.

Outdated Product vs. Luxury Investment

A significant portion of Italy's hotel stock are one- or two-star facilities, often dating back to the 1970s or 1980s, which lack investment and modern services. This presents a "desert" of under-managed and under-capitalised assets.

Conversely, high-value deals like the sale of the Six Senses for EUR 2.6 million per room demonstrate the immense returns available for well-executed conversions and redevelopments.

The “Mancanza” (Lack) of Local Operators

A recurring theme is the absence of large, consolidated Italian luxury hotel chains, with the market dominated by small, fragmented family ownership. This lack of scale makes it difficult for institutional investors to operate and for the country to effectively compete.

Barriers to Regeneration

The key structural barrier to broader urban regeneration and hospitality development is identified as the "rischio urbanistico" (planning risk). The system is defined by a deep-seated conflict between national and local legislation, with legal frameworks differing drastically across regions - even for basic concepts like hotel licensing. This inconsistency creates a fragmented and unpredictable environment for investors.

Furthermore, long, unpredictable timelines and a lack of a clear, continuous urban planning vision from local governments deter capital. The concept of an apolitical "Urban Planner" with a long-term vision is seen as a necessary tool to provide continuity.

Public administrations are reported to be failing to seize opportunities for public benefit, such as turning down private offers to fully redevelop public squares in Milan and Rome at zero cost to the city.

This, in turn, impacts on tourism through the lack of adequate infrastructure in certain cities. Matera's railway issue, for example, limits tourism's reach outside the main centres, also seen in the vast difference in air travel between Germany and Spain’s Balearic Islands, versus Germany and the Italian island of Sicily, where the infrastructure to support tourism is substantially less.

Residential and New Asset Classes

While the focus remains on hospitality, other asset classes are struggling with viability. Despite high investor appeal, BTR projects are largely unviable; struggling with costs, low yields, and a regulatory framework that penalises institutional ownership while giving small-scale owners more favourable tax treatment. 

Although the numbers don’t work for mass-market BTR, they can for high-end or specialist products such as luxury co-living or student accommodation. These hybrid sectors are emerging as a bridge between residential and hospitality, however they face significant local-level issues, such as mandates to build expensive underground parking, which can dramatically inflate development costs and threaten business plans.

A Call for Vision and Collaboration

Overcoming these challenges requires a shift from the current fragmented, reactive approach to a strategic, collaborative one. The establishment of entities like the Fondazione Roma Rinascimento Urbano, a non-profit think-tank aiming to bridge the gap between public and private sectors in Rome, is viewed as a positive step towards a unified, long-term vision for the capital.

Ultimately, Italy is not suffering from a lack of capital or opportunity, but from a persistent inability to execute projects with the speed, scale, and certainty that international investors demand.
 

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Thank you to our co-host Gianni & Origoni, as well Alessandro Natoli (Prelios Group), Anna Milella (LIFE), Domenico Tulli (Gianni & Origoni), Claudia Soravia (Yard Reaas), Davide Albertini Petroni (Assoimmobiliare), Gianfranco Toscano (Gianni & Origoni), Gianluca Lucignano (Fondazione Roma REgeneration), Massimiliano Macaione (Gianni & Origoni), Mirko Tironi (Lumi Asset Management), and Paolo Rela (FREO Group Holding) for their valuable contributions to the discussion at Urban Regeneration & Beds in Italy.