Isn't Italy in general facing massive demographic decline? Is this all that unique to Venice?
Venice was it's own Republic until 1798, when it fell to Napoleon.
In general, Italy is seen as in pretty bad shape inside the EU (“PIGS”). While it’s economy’s size is still nothing to sneeze at, people going for the weather and the sea who have no specific cultural allegiance will choose Spain as a safer bet.
From the outside, the political scene has pretty much ruined Italy’s image as a serious business country, when you have Germany, the Netherlands, Sweden, to some degree France as comparison points, all in the EU so you can also relatively easily move to.
Italy is really not that bad in absolute, for crying out loud it's the 9th GDP in the world. It all comes down to looking at specific aspects and comparing to its neighbors.