Impact of the Ukraine War on Italian Real Estate

Published on October 3, 2025 and written by Cyril Jarnias

Italian real estate, traditionally a robust and attractive sector for foreign investors, is experiencing unforeseen repercussions from the war in Ukraine. As geopolitical instability disrupts global markets, rising energy prices, combined with growing economic uncertainty, are prompting brokers and investors to reassess their buying and selling strategies. This phenomenon, amplified by migration flows and supply chain adjustments, is transforming the Italian real estate landscape—a sector often considered a safe haven during crises.

Geopolitical Consequences of the Ukrainian Crisis on the Italian Real Estate Market

The Ukrainian crisis has strained relations between Russia and the European Union, triggering an energy rupture, strengthened sanctions, and a realignment of alliances. This has increased macro-financial uncertainty in Europe and weighed on foreign investor confidence, including in Italian real estate. In this context, European financial markets have experienced periods of marked volatility, and capital flows have been reallocated based on countries’ energy and geopolitical exposure—a mechanism that has affected capital costs and real estate investment decisions in Italy.

Main Transmission Channels to Italy

• Energy and Imported Inflation: Reduced Russian supplies have driven up energy prices in Europe, fueling inflation and higher interest rates. This has increased financing costs for real estate operations in Italy and reduced appetite for long-yield assets.
• Sanctions and Financial Fragmentation: European sanctions against Russia and Moscow’s response have reconfigured trade and financial flows, heightening perceived geopolitical risk and the premium demanded by investors in peripheral eurozone markets, including Italy.
• Portfolio Reallocation: Uncertainty has favored shifts toward assets perceived as safe havens or toward European markets considered more energy-resilient. This moderated opportunistic capital inflows into certain Italian segments during the crisis peak, before selective returns to niches like logistics and rental housing.

Financial Market Movements and Interest Rate Dynamics

Successive shocks (invasion, escalating sanctions, energy crisis) have been associated with phases of heightened volatility in European equities and credit spreads, mechanically disadvantaging real estate valuations through increased discount rates.

Geopolitical tensions have accelerated European debates on energy security and defense, prolonging a regime of uncertainty that has delayed some cross-border investment decisions in Italian commercial real estate.

Reorientation of International Investments Due to Sanctions

The closure/constraint of Russian investment channels into the EU and regulatory stigmatization have prompted a reallocation of international capital, with a decline in Russian-origin flows and a relative rise in investors from other regions seeking substitutes in Western Europe.

This reorientation did not automatically boost Italy: investors initially favored markets deemed more liquid and “core” (intra-EU diversification), then selectively repositioned in Italy toward defensive assets (affordable housing, logistics with long leases) as energy visibility improved.

Effects on Confidence and the Italian Real Estate Market

Initial Deterioration of Confidence: Rising financing costs and political uncertainty widened bid-ask spreads, increased required yield premiums, and slowed transactions, especially in non-prime office and secondary retail.

Conditional Stabilization: Advances in European policies (energy security, economic support) allowed a partial normalization of risk perception, with targeted recovery in resilient segments (rental housing, Northern Italy logistics).

Examples and Numerical Illustrations

The EU’s strategic strengthening and gradual decoupling from Russian energy signal a lasting realignment of intra-European flows, factoring a geopolitical risk premium into real estate valuation models.

Bombing episodes and escalations (mobilization, annexations) coincided with market volatility peaks in Europe, increasing yield requirements for illiquid assets like Italian commercial real estate.

Watch Points for Italy

Interest Rate Sensitivity: The Italian market, heavily reliant on bank financing, is more directly affected by monetary tightening induced by post-invasion energy inflation.

Geopolitical Premium: Italy’s proximity to European shocks increases the premium demanded by international investors during escalation phases, weighing on values and transaction volumes during acute uncertainty.

Dimension	Effect of the Ukrainian Crisis	Transmission to Italian Real Estate
Russia-EU Relations	Strengthened sanctions, energy rupture, security realignment	Increased perceived risk, reduced certain flows, higher yield requirements
Financial Markets	Equity/credit volatility, widening spreads during escalation peaks	Higher discount rates, price corrections, deal slowdown
Capital Flows	Exit/freeze of Russian capital, intra-EU reallocation	Initial decline in “opportunistic” buying, selective return to defensive segments
Inflation/Energy	European energy shock, imported inflation	Rising financing costs, pressure on cap rates

The net effect on interest in Italian real estate followed a two-phase trajectory: decreased confidence and activity at the peak of energy shocks and sanctions, then selective recovery in resilient segments as visibility improved.

Impact of Ukrainian Refugees on Housing in Italy

Migration flows from Ukraine to Italy intensified rapidly in spring 2022, with 23,872 arrivals by March 9, 34,851 by March 12, 86,066 by April 7, and 137,385 by June 21—mostly via the Italian-Slovenian border. The demographic profile in Italy is marked by a high proportion of women (about 70% of temporary protection beneficiaries in fall 2022), directing demand toward family housing and accommodations near schools and healthcare services. At the EU level, Italy is part of the extended temporary protection dynamic until March 4, 2026, with over 4.3 million people holding this status by end-February 2025.

• Main regional destinations in Italy were major metropolitan areas and regions with pre-existing Ukrainian communities, with a logistical entry point in the Northeast via the Slovenia–Friuli-Venezia Giulia corridor, then dispersion to Lombardy, Veneto, Emilia-Romagna, Piedmont, and Lazio, where employment and support networks facilitated settlement.
• As flows stabilized at the European level in 2023–2025, new protection decisions reached a monthly low in February 2025, indicating reduced recent additional pressure but a persistent need for long-term housing solutions for 2022–2024 arrivals.

Increased demand strained local housing markets in major cities, with heightened pressure on studio and 2–3 bedroom furnished units, shared housing, and temporary accommodations. This resulted in lower availability in well-connected neighborhoods and rising entry-level rents, especially where rental supply was already tight. This tension aligns with the rapid influx observed in 2022 and the family structure of arrivals. At the European level, the ramp-up of temporary protection extended demand for intermediate housing beyond immediate emergency needs, reinforcing medium-term solution requirements.

• Typical effects observed in comparable host markets under EU temporary protection:
  • Reallocation from temporary/hotel housing to standard leases after a few months;
  • Longer search times, especially for single-parent families;
  • Increased competition in the private rental market for low- and mid-range rents.

Measures Implemented in Italy to Manage the Influx:

• Activation of the temporary protection regime (EU framework) extended until March 4, 2026, granting access to residence, work, education, and certain housing schemes.
• Mobilization of temporary housing and reception places, including using assets confiscated from organized crime converted into accommodations for Ukrainian refugees starting March 2022.
• Strengthened municipal reception and local integration support (guidance, schooling, mediation), aligned with the predominantly female and family profile of arrivals.
• Coordination with prefectures and existing reception systems to expand emergency capacity, then facilitate transitions to more stable rental solutions.

Case Studies and Examples:

• Northeast (Slovenia–Friuli-Venezia Giulia axis) → primary entry point and rapid redistribution to Northern industrial regions (Lombardy, Veneto, Emilia-Romagna), where job availability and community networks facilitated initial housing.
• Major metropolises (Milan, Rome) → increased pressure on furnished units and short/medium-term rentals, requiring expanded use of municipal and nonprofit temporary housing, then integration into the private market via social support.
• Reuse of confiscated assets → creation of scattered reception capacity in several municipalities, offering transitional solutions for families, especially helpful for mothers with children.

Role of Humanitarian Organizations and Private Initiatives:

• Local associations and NGOs provided emergency reception, housing-host matching, rental mediation, and administrative support, leveraging the temporary protection framework to expedite access to school, healthcare, and work.
• Citizen and private initiatives (host housing, donations, mobilization of vacant properties) filled capacity gaps at the 2022 peak, before a gradual shift to more stable solutions.
• Municipality-NGO partnerships to secure social/solidarity leases and create “bridges” from temporary to private rental, targeting vulnerable households (single women with children).

Summary Table—Key Dynamics and Responses

Element	Observed Dynamic	Public/Private Response
Flows and Distribution	Rapid arrivals March–June 2022; entry via Northeast; dispersion to Northern regions and major cities	Guidance/prefectures; interregional distribution; reinforced local capacities
Housing Pressure	Strain on studios/2–3 bedroom furnished units; decreased availability in central neighborhoods; longer search times	Temporary places, rental mediation, bridges to private market
Legal Framework	EU temporary protection extended until 2026	Access to rights, employment, education; reception funding
Reception Capacity	Use of confiscated assets, collective structures, social hospitality	Conversion and management by municipalities/NGOs
Profiles	Majority women; family needs and proximity to services	Child schooling, dedicated services, suitable housing

Recent Period Watch Points:

• Fewer new protection decisions in February 2025 reduce additional pressure, but the stock of beneficiaries maintains sustained demand for affordable, medium-term housing.
• Residential integration policies gain importance: lease security, security deposit assistance, landlord information, and employment support to stabilize housing trajectories.

Limitations and data: Detailed figures by Italian region and precise effects on prices/rents at the municipal level require local statistical sources; arrival magnitudes (2022) and protection framework (2025) are documented at international and European levels.

Evolution of Real Estate Investment in Italy in a Tense Geopolitical Context

Real estate investment in Italy has evolved since the start of the war in Ukraine, with measured price increases, greater internationalization of demand, and more selective investment flows, under the combined effects of inflation, interest rate normalization, and a reinforced perception of real estate as a safe-haven value in Southern Europe.

• Residential prices rose in 2024, driven by new builds (+8.8% yoy) while existing homes advanced more moderately (+2.8%), according to ISTAT, signaling a market buoyed by new construction and sustained demand despite geopolitical uncertainty.
• The share of foreign buyers increased significantly: in five major cities (Rome, Milan, Turin, Cagliari, Florence), the proportion of purchases by international clients rose from 11.3% in H1 2024 to 19.6% in H1 2025—doubling foreign volumes—indicating market internationalization beyond just the luxury segment.
• Compared to Europe, Italy maintains attractive relative price levels: values remain about 4% below 2010, which, coupled with improved financing conditions, supports investor interest seeking value.
• Average mortgage rates retreated from a peak of 4.92% at end-2023 to 3.71% in November 2024, helping revive purchasing power and some investment decisions deferred in 2022–2023.

Key Points on Investment Flows and Demand

• Rising foreign demand in major cities and intermediate markets, motivated by quality of life, urban market depth, and perceived favorable value compared to other European capitals.
• Investors seeking geographic diversification in Southern Europe amid Eastern uncertainty; real estate used as a protective asset against inflation and volatility, a trend observed in Europe since the conflict began.
• Rebalancing toward new residential (better energy efficiency, legal security) and urban centers offering liquidity and rental prospects, while some peripheral segments remain more sensitive to capital costs and renovation expenses.

Price Evolution, Supply, and Construction

• Focus on new segment: faster new-build price growth reflects post-energy and raw material shock construction costs, plus buyer preference for high-performing properties as Italy implements energy efficiency policies.
• Existing homes progress more slowly, suggesting demand trade-offs facing renovation costs and more targeted public incentives than in 2021–2022.
• Supply normalizes but remains constrained in some historic centers; new construction dynamics support absorption without fully closing imbalances in the tightest cities.

Investor Confidence and Buying/Selling Behavior

• Confidence was dented in 2022 by inflation and rising rates but recovered with improved credit conditions in 2024, favoring the return of international buyers and resumed deferred projects.
• Households and investors maintain a preference for tangible assets in uncertain geopolitical contexts; in Europe, the war increased caution but also reinforced real estate’s safe-haven role, supporting markets perceived as stable, including Italy.
• Selling decisions remain opportunistic in areas with the strongest new-build price recovery; in existing homes, sellers adjust expectations based on upgrade costs and transaction timelines.

Italian Public Policies and Apparent Effectiveness

• Lower mortgage rates and favorable tax schemes mentioned for 2024–2025 improved accessibility, stimulating eligible financing demand and non-resident interest, with visible effect on H1 2025 transactions.
• Incentives directed toward energy renovation and new construction supported new-build activity and valuation of efficient properties, while making the market more selective on existing homes.
• Effectiveness appears mixed: clear support for liquidity in bankable and urban segments, but more limited impact in areas with low housing stock renewal or needing costly renovations.

Summary Table of Recent Trends

Indicator	2024–H1 2025	Interpretation
New Build Prices	+8.8% yoy (2024)	Strong demand, construction costs, and incentives support the segment.
Existing Home Prices	+2.8% (2024)	Moderate growth, increased buyer selectivity.
Mortgage Rates	3.71% (Nov. 2024) vs 4.92% (end-2023)	Improved affordability and transaction volumes.
Foreign Buyer Share (5 cities)	11.3% (H1 2024) → 19.6% (H1 2025)	Rapid internationalization, beyond luxury.
Price Level vs 2010	≈ -4%	Italy’s relative attractiveness in the EU.

Expert Testimonials and Analyses

• Residential market analysts emphasize that Italy combines relative affordability and lower financing costs, creating an opportunity window for international investors in 2024–2025.
• Professionals note an extension of foreign demand to intermediate segments in major cities, signaling increased confidence and a use-based logic (living, working) rather than purely speculative.
• Law firms active with foreign buyers confirm Italy’s persistent appeal, driven by comparatively low EU prices and the search for stability in an uncertain geopolitical context.

Conjunctural Impact Lists to Monitor

• Residual inflation and construction costs potentially sustaining the performance gap between new and existing homes.
• Monetary normalization and credit access: volume sensitivity if rates stop declining.
• International flows: maintaining foreign appetite key for urban markets; volatility risks from regional geopolitical tensions.
• Energy efficiency policies: influence on new-build premium and discount for properties needing renovation.

Watch Points for Investors

• Prioritize high-liquidity cities (Milan, Rome, Florence, Turin) where international demand is growing and rental fundamentals are solid.
• Favor new builds or energy-renovated existing homes to reduce capex risk and capture valuation premium.
• Integrate mortgage rate trajectories into acquisition timing; the more favorable access window observed in 2024–2025 supported transactions.
• Monitor effectiveness and direction of public policies (tax incentives, renovation) that modulate solvent demand depth.