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23.08.2007

Turkish real estate market: just as attractive as South Eastern Europe, but twice as big

The Turkish real estate market is at least as attractive for commercial real estate investors and developers as the growth region South Eastern Europe. But because of the size of the country between Europe and Asia, it offers real estate professionals twice the potential for promising investments and construction projects. This was the conclusion of a new analysis of the Turkish real estate market that is being presented today by Bank Austria Creditanstalt (BA-CA) as part of its Real Estate Country Facts series. Reinhard Madlencnik, director of the real estate division at BA-CA: "We already know the very attractive yields that the Turkish real estate market offers from Romania and Bulgaria. But while these countries have 30 million inhabitants, 70 million people call Turkey home. This makes Turkey a growth market with twice the growth potential."

Magnet for foreign capital
Turkey has been successfully recovering from the worst economic crisis in its history for the last six years. Strong exports and brisk domestic investment activity have pushed GDP growth to an average of 7.2 per cent per year from 2002 to 2006. And the Turkish economy even put on a convincing show throughout the political tensions surrounding the parliamentary elections in the first half of 2007. GDP growth came in at 6.8 per cent in the first quarter, even better than the optimistic expectations. Karla Schestauber, real estate market analyst at BA-CA: "The ability of the Turkish market to draw foreign investment is noteworthy. And the volume of foreign capital that the real estate market has attracted is especially impressive." A total of EUR 25 billion in foreign direct investment (FDI) flowed into the country from 2004 to 2006, with a record level of EUR 16 billion coming in in 2006 alone. Of this, EUR 2.4 billion were invested in the real estate market.

Risk: insufficient transparency on the market
Growth, earnings prospects and risks all go hand in hand. At least the political risk in the country has diminished for now after the market welcomed the results of the parliamentary elections on 22 July. The winning AKP party is considered to be pro-business. But a real estate market transparency rating completed by Jones Lang LaSalle for Turkey found that the market is still not very transparent in spite of slight improvements between 2004 and 2006. Turkey is ranked number 47 in a list of countries around the world, which puts it in the same league as countries like Romania and Indonesia. Especially bureaucratic hurdles are high. Madlencnik: "A local partner should be found for real estate activities in any case."

Thriving office market
Istanbul has the largest office market in Turkey by far. Strong demand, especially from financial services providers that are profiting from the high level of direct investment, has been invigorating Istanbul's office market. Roughly 80 per cent of the existing office space is in the European side and 20 per cent in the Asian side of the city. A- and B-class space totalled roughly 1.85 million aggregate square metres in the city at the end of 2006, or a meagre 0.21 square metres per inhabitant. Moscow already has 0.63, and mature office markets like Vienna, London and Paris have values of about 6.5. Madlencnik: "Space is still growing rather slowly, 200,000 square metres are currently under construction. But prestigious towers should bring more development momentum." Top rents for A+ quality space in Istanbul are on the rise, and there is especially upside potential for rents at prime locations – in excess of USD 25 per square metre. Yields ranged between 7.5 and 8 per cent at the end of 2006, and are therefore very attractive in international comparison. The yields on the logistics market are slightly better at between 8 and 10 per cent. 

Shopping centres – competitive pressure increasing rapidly in Istanbul
With a per capita GDP of EUR 4,365, the income level in Turkey is between that of Romania and Bulgaria. The rapid rate of population growth and the relatively young demographic – over half of the 72 million people in the country are under the age of 25 – make the market especially attractive for shopping centres. The shopping behaviour of urban consumers has also changed dramatically. Hypermarkets and shopping malls with a high entertainment factor are very popular. Most international retailers prefer an indirect market entry, for example under joint ventures with local partners, to better overcome the extensive red tape. Even Carrefour and Metro, which originally opted for direct market entry, have each since entered into a joint venture or alliance with a Turkish partner.

Istanbul with its approximately 13 million inhabitants and above-average purchasing power is seeing a veritable shopping centre boom: There are currently 44 shopping centres in the city with a floor space of over 1.1 million square metres, which is about half of the total space available in all of Turkey. And more than 30 further shopping centres are under construction. Madlencnik: "The investors apparently think that 75 shopping centres are not enough – even more are in planning. The available floor space will nearly double by 2008. This will increase the competitive pressure considerably."

Shopping centres – potential in the district cities
The sale of the Cehavir shopping centre in Istanbul to a British fund whose primary shareholder is the nation of Kuwait was finalised at the beginning of 2007. With its enormous floor space of roughly 100,000 square metres and a price of around USD 750 million, Cehavir was a key deal. But the yield was less than 7 per cent even at that price. Small and medium sized towns offer developers more potential for retail space. Schestauber: "The current wave of investment in Turkey is focusing on district cities with above-average purchasing power."

BA-CA has not yet concluded any financing agreements on the Turkish real estate market, but has a number of deals in the pipeline. As part of UniCredit Group, BA-CA is represented in Turkey by Yapi Kredi, the fourth-largest bank in the country. It has over 13.5 million customers and operates a network of 650 branches. 


Enquiries: Bank Austria Creditanstalt Press Office Austria
Christian Kontny, Tel. +43 (0)5 05 05 ext. 52483;
E-mail: christian.kontny@ba-ca.com