Italian office rental values have been predicted to fall in 2010, as downward pressures due to an increase of supply and lack of demand, will force them to decrease by -10% having fallen -7% since their peak in the second half of 2008, according to Capital Economics.

In Rome, rental values have fallen by -5%, compared to Milan where they have dropped -9%, as Rome has benefited from stable demand from the public sector, where fiscal tightening is low so demand should remain constant. Whilst in Milan an abundance of newly completed property in 2009 has resulted in the increase in vacancy rates as they shot up from 6% to 8.5%, compared to Rome where completions remained low and the vacancy rate only increased by +0.2% to 6.4%.

Fergus Hick, Capital Economics’ property economist, stated: ‘ Rome does not seem to have escaped from an increase in supply altogether. Rather, with completions expected to rise to around 150,000sqm this year and further in 2011, it seems that Rome is merely lagging behind Milan. Although the actual amount of new stock which will be delivered is uncertain, the supply-side of the market looks like a big risk in both cities.’

Capital Economics predicts a growth in gross domestic product (GDP) of +1% in 2010, after a rise of +0.6% in Q3 2009 but a decline of -0.2% in Q4. Italian GDP saw a 6.4% peak-to-trough fall and was one of the largest in the Euro-zone.