Market
The Italian economy was rapidly confronted with the consequences of the credit crunch and the cooling international economy in 2008. Failure to make structural changes in the labour market and other areas did nothing to help Italy’s competitiveness. The economy entered a technical recession in the second quarter of the year, and the average growth for the year as a whole was also negative, at - 0.6% (2007: +1.5%). The shrinking of the economy was driven by declining consumer spending, falling imports and exports and lower investment. Public spending was the only area which increased compared with 2007. After rallying briefly following the election of the Berlusconi government, consumer confidence plummeted again, initially in the wake of the high oil prices and high inflation, but from the final quarter driven by the intensification of the credit crisis and the knowledge that the country was in recession. Even though inflation fell again sharply in the last quarter, it still averaged 3.5% for the year as a whole, higher than in 2007 (2.0%) and slightly above the Euro area average of 3.3%. The unemployment rate rose to 6.7% (2007: 6.1%). Falling consumer confidence and the reduced availability of consumer credit (which was also more expensive) depressed consumer spending by 0.4% (2007: +1.5%).
The downturn in consumer spending was also evident from retail sales, which slid by 2.1% over the year as a whole (2007: +1.1%). The economic trend pushed down sales in the non-food sector faster than in the food sector. Once again, it were small retailers who were hardest hit by falling sales, with the downturn more limited for major retailers. This is connected with the ongoing modernisation of the retail structure, with a shift away from small family businesses and the growing importance of international chains. This is also apparent from the fact that sales in large and medium-sized shopping centres are still growing.
The relatively positive trend in retail spending in shopping centres translates into healthy demand for retail space in dominant malls set in good locations. This means that rents at these locations are stable or rising slightly. This trend can be attributed to the modernisation within the retail sector referred to above. The deterioration in the economic climate means that the differences between A locations and secondary locations will become increasingly apparent, in terms of both tenant demand and rental growth. In Italy, the available square metres of retail space in shopping centres is below the European average, though there are wide differences between north and south. There is a large pipeline of development projects, with a substantial proportion of the activities planned for the southern provinces, mainly traditional projects dominated by a hypermarket. A number of projects are expected to be deferred as finance has become more expensive and more difficult to obtain.
Source: Annual Report 2008, Chapter Review of operations, page 87 (PDF, 2,1 MB)
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