Summary

Turkey is an attractive country because of its transportation facilities, tourism, and entertainment opportunities, along with convention tourism. Istanbul, where Europe and Asia meet, is a primary hub for real estate investments. It is considered as a rising star full of real estate opportunities, and it stands out as a haven for high value-added and profitable real estate. High-interest rates and economic restraints have had an impact on the economy and one of the impacts is a decline in real estate prices.

The office market in Turkey is expected to be positively affected by the demand for investments, in order to draw closer to investors' expectations in the short- to mid-term. Leasing activities are gaining thrust, and tenant-friendly conditions are expected to remain in mid-term. Grade A office supply is expected to increase, with 1.7 million square meters of office supply under construction.

Investment activity in the retail real estate segment is gaining momentum, as there are many distressed assets available in the market. The rental prices are expected to decline, mainly due to continued pressure on landlords in the country. A new online retail platform is entering the market, which will increase online retail sales, while demand for e-commerce will continue to drive the force of retail in the digitalized world. Recent massive growth in online shopping boosted the need for e-commerce warehousing and storage facilities. Under-construction giant projects are also drawing attention toward Istanbul, mainly as a financial center.

In Turkey, almost every city is witnessing the construction of shopping malls, with more than 450 shopping centers operational in Turkey and a total gross leasable area of 13 million square meters.

Key Market Trends

Increase in Supply of Class A Office Stock/Units in the Turkish Commercial Real Estate Market

In Q12019, 151.980 sq. m new office space was introduced in İstanbul and the total office supply increased to 6.33 million sq. m. In 2019, approximately, 503,362 sq. m of new office stock was planned on the Asian and European side of the city. It was expected to be ready in the next two years. Furthermore, it is likely to increase the supply by 60% on the Asian side and 40% on the European side of Istanbul. The majority of supply units are concentrated in Kozyatağı/Ataşehir and CBD districts on the Asian and European sides, respectively.

In the first half of 2019, average Class A rents in the western region of Istanbul did not change in terms of TL, and the regions with the highest increase in the average rental rate were Maslak, with a Rate of 12%. The office rents in terms of Turkish Lira have been increasing. The average rent for Class A buildings in Istanbul was valued at 106TL/m²/month in the first half of 2019. In comparison to the second half of 2018, rents in TL increased by 6% and rents in USD increased by 2%.

Istanbul’s third airport, which is under construction in North of Istanbul’s European side also includes projects, such as hotels, office buildings, and retail areas. The project is expected to increase office investments. It is also expected to drive the growth of the business and retail segments.

Declining Vacancy Rates in Istanbul's Prime Office Real Estate

The average vacancy rate for Class A offices in Istanbul decreased to 33.42% in the first half of 2019, as compared to the second half of 2018. The region that witnessed the steepest fall in vacancy rates was Kozyatağı/Ataşehir, while Istanbul West is the only region where the vacancy remained stable.

The average vacancy rate of Class A offices on the European side in Q3 2018 declined to 40.66% from 40.68 in Q2, 2018. In the same period, the average vacancy rate of offices on the Asian side declined to 30.66% in Q3, 2018, from 32.08% in Q2, 2018.

Competitive Landscape

The commercial real estate market in Turkey is fragmented and has a highly competitive environment, in order to capture limited demand between the property owners. The market has wonderful opportunities for Turkish and foreign real estate developers and investors.

Turkish property developers established their international offices for attracting prospective foreign investors and promoting their projects. Investors from Qatar, Russia, Iran, Saudi Arabia, Turkic Republic, the United Arab Emirates, and Azerbaijan established their keen interest in Turkish projects.

Additional Benefits:

The market estimate (ME) sheet in Excel format
3 months of analyst support

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