Italian office demand focused on prime assets - Savills

Research from Savills indicates that the Italian office market is undergoing significant polarisation.

Marco Montosi

Investor and occupier focus is narrowing intensely on prime assets within the core Central Business Districts (CBDs) of Milan and Rome, causing the performance gap between top-tier and secondary properties to widen considerably.

The Milan office leasing market experienced record-breaking activity in 2025, with transaction volumes surging 26% above the 10-year average. This momentum carried into early 2026, with 86 deals recorded in the first quarter. While demand remains strong, the data shows a shift toward smaller requirements, reflecting a more fragmented tenant base.

This high demand, coupled with a near-zero vacancy rate for Grade A space in prime submarkets like the Historic Centre and Porta Nuova, is driving significant rental growth in central areas. Conversely, vacancy rates continue to rise in peripheral locations. Over the past decade, this trend has resulted in a general increase in rents, greater value disparity between central and non-central areas, and the gradual spread of rental growth to secondary submarkets.

Investment activity in 2025 saw a 16% year-on-year increase in the number of deals, totalling 70 transactions. However, total investment volume fell by 11% year-on-year to €2 bn.

Despite the dip in volume, market fundamentals remain supported by stable prime yields and a limited pipeline of new developments. This environment has reinforced investor preference for high-quality, resilient assets. Prime net office yields have held firm for nine consecutive quarters, currently at 4.25% in Milan and 4.75% in Rome.

Savills also notes a sustained increase in the conversion of obsolete office buildings to alternative uses since 2022, totaling €1.5 bn in volume. The hospitality sector accounts for the majority of these conversions (56%), followed by the living sector (40%). Geographically, Rome leads in office-to-hotel conversions, while Milan dominates in office-to-residential conversions.

Marco Montosi, head of Investment at Savills Italy, said: “The Italian office investment market is undergoing a phase of redefinition: volumes have contracted, but the increasing selectivity of investors and the growing concentration on prime assets in CBDs demonstrate a market evolving with greater awareness. Prime yields remain stable, while the spread with secondary assets continues to widen, signalling a polarisation set to intensify. In this context, the gradual reduction in average deal sizes does not reflect declining interest, but rather a recalibration of allocation strategies towards more selective and resilient opportunities.”

Eros Chiodoni, head of Office Leasing at Savills Italy, added: “The Milan office market stands out for its strength and dynamism: the combination of sustained demand, rising rents, and scarcity of high-quality space in prime areas continues to enhance its attractiveness for occupiers and investors, while the increasing polarisation between central and peripheral areas confirms the strong appeal of established districts, reinforcing Milan’s position among the most competitive office markets in Europe.”