Italy’s Property Market Set to Outperform Europe in 2026 as Confidence Rebounds Despite Supply Pressures

BY EMMANUEL OGBONNA

Italy’s property market is poised to outperform many of its European peers in 2026, buoyed by renewed investor confidence driven by political stability and clearer regulatory oversight following a high-profile building permits scandal in Milan. Analysts say the outlook remains positive even as concerns grow over limited new housing supply that could restrain growth in the medium term.

According to forecasts by property research group Scenari Immobiliari, transactions in Italy’s real estate market are expected to rise by 8.4% this year, reaching a total value of 175.8 billion euros. Residential property is projected to account for more than 80% of that activity, underlining the sector’s central role in the market’s expansion.

The projected growth would put Italy ahead of several major European markets. Spain’s property sector is expected to grow by about 7%, while the United Kingdom is forecast to expand by 6.6%. Germany and France are predicted to trail further behind, with growth rates of 4.1% and 3.2% respectively, highlighting Italy’s increasingly competitive position within Europe’s real estate landscape.

The improved outlook comes despite lingering fallout from the Milan building permits scandal, which emerged in 2024 and centered on the alleged fast-tracking of approvals for high-rise developments. The controversy initially rattled the industry, sparking fears that foreign investors would pull capital out of Italy’s largest real estate market. Judicial proceedings linked to the scandal led to the freezing of more than 100 building projects across Milan, creating uncertainty and delaying billions of euros in potential investment.

Scenari Immobiliari previously warned that prolonged gridlock could cost Milan as much as 38 billion euros over a decade, factoring in both direct losses in real estate investment and broader knock-on effects on the local economy. However, those worst-case scenarios have so far failed to materialize.

A prolonged period of political stability under Prime Minister Giorgia Meloni, who has been in office for three years, has helped reassure investors. In 2025, real estate transactions across Italy rose by nearly 7%, making it Europe’s second most dynamic property market after Spain.

Industry executives say that while the Milan investigations prompted caution, they ultimately led to more rigorous standards rather than an investor exodus. Davide Dalmiglio, managing director and chief executive of the Italian arm of British real estate services firm Savills, said the feared capital flight never occurred. Instead, the investigations placed investors on heightened alert, ushering in a level of pre-acquisition scrutiny and due diligence he described as unprecedented in his 25 years in the industry.

Manfredi Catella, chief executive of property developer Coima, argued that the judicial process, though disruptive, ultimately brought clarity. By enforcing stricter—if more costly—rules, the courts reduced uncertainty over how building regulations are interpreted, which he said had been the market’s primary concern.

Catella himself became the subject of a second wave of investigations that expanded to include allegations of corruption involving municipal officials, architects and developers. He has denied any wrongdoing, noting that two courts, including Italy’s Supreme Court, rejected requests last summer to place him under house arrest. Catella said foreign investors in Coima viewed those rulings as a vindication of his position.

International investors continue to point to strong underlying indicators supporting Italy’s appeal. Beatrice Guedji, head of research and innovation at Swiss Life Asset Managers France, which oversees significant real estate investments in Italy, described the Milan scandal as a short-term issue.

She said the broader themes driving investment decisions were the government’s political momentum and Italy’s growth prospects. Swiss Life Asset Managers France increased its allocation to Italy by 15% in 2025, with total property investments since 2018 expected to reach around 500 million euros by early 2026.

Guedji also highlighted what she called “good key metrics” signaling reduced country risk. These include a narrower gap between Italian and German benchmark bond yields, improved outlooks from credit rating agencies, and strong performance by the Milan stock exchange relative to many European counterparts. Italy, and Milan in particular, has also drawn wealthy foreign residents in recent years, aided by a flat-tax regime aimed at high-net-worth individuals.

Economic growth remains modest, but major events are providing a temporary lift. The Winter Olympics, co-hosted by Milan in February 2026, are injecting fresh spending into the economy. The Bank of Italy expects national output to grow by 0.7% in 2026, following an estimated expansion of 0.5% this year.

The Olympic boost to the property market, however, is expected to be short-lived. Some analysts note that short-term investors may already be preparing to exit, particularly in hospitality and short-stay segments, after positioning themselves to benefit from the Games. Long-term investors, by contrast, remain focused on fundamentals rather than event-driven gains.

At the same time, the aftershocks of the Milan scandal continue to be felt. Several investigations into alleged building violations have reached trial, while others are still in early stages. More than 4,100 families are waiting to move into apartments in projects that remain frozen, despite having already paid for their homes.

Looking ahead, supply constraints pose a growing challenge. Scenari Immobiliari forecasts that investment in Italy’s real estate sector will rise to 12 billion euros in 2026 from 11.5 billion the previous year, but warns that limited new construction could cap future growth.

In 2025, residential transactions increased by 7%, yet newly built homes accounted for just 10% of total sales, well below the historical average of around 15%. Mid-sized residential developments, typically buildings of 20 to 30 units that help replenish housing stock, have increasingly stalled amid more complex negotiations with public authorities.

“The market is healthy and expanding,” said Francesca Zirnstein, general director of Scenari Immobiliari. “But urban regeneration has slowed due to ongoing investigations, which means fewer new developments are likely to come to market in the coming years.”

As Italy heads toward 2026, analysts say the balance between renewed confidence and structural supply limits will shape whether the property market can sustain its momentum and solidify its position as one of Europe’s standout performers.