Bank Austria Real Estate Country Facts:
Turkey's real estate market – a highflier with potential for correction?
- Despite great interest in the Turkish real estate market, the investment volume in 2010 was well below that of Russia or Poland, at EUR 1.4 billion
- In the retail real estate sector, Turkey is the country with the greatest development potential in Europe
- Prime examples of modern, sustainable and innovative shopping centre concepts are being created in Turkey
- In international comparison, the Istanbul office market has a lot of development potential over the long term
- The housing market is benefiting from a variety of factors including strong population growth
Despite weaknesses such as a high current account deficit (6.6 per cent of GDP in 2010), structural unemployment (11.9 per cent in 2010) and a strong shadow economy, the Turkish economy is back in the fast lane following the massive slump caused by the financial crisis. With real economic growth of 8.9 per cent in 2010, Turkey experienced the strongest economic upswing in Europe, and GDP is expected to grow by nearly 6 per cent in the election year of 2011. This economic momentum combined with the attractive size of the country and high population growth has had a positive impact on the Turkish real estate market. In 2010, roughly EUR 1.4 billion flowed into Turkish commercial real estate, which represents an increase of EUR 900 million in comparison to the crisis year of 2009. However, the investment volume in 2010 was still well below the level of other countries such as Russia (EUR 2.8 billion) and Poland (EUR 2 billion).
Greatest potential in the retail real estate sector
According to Reinhard Madlencnik, the head of Real Estate at Bank Austria, "Within Europe, Turkey is the country with the greatest development potential in the retail real estate sector – despite the strong difference in purchasing power between East and West. The reasons for this are plain to see: Seventy-five per cent of the Turkish population lives in cities with a large population. In addition, the average age is well below 30 years old, the middle class is growing steadily and cities do not have enough modern retail space. These conditions offer immense opportunities." Although the country's shopping centres have grown tremendously in size in recent years, Turkey still has a relatively low saturation level, with around 6.5 million square metres of lettable space. "There are still cities in Turkey with hundreds of thousands of inhabitants and little or no modern shopping spaces," added Alexander Budasch, managing director of Immobilienrating GmbH. "Besides this great potential, Turkey has set new standards in construction and created modern, sustainable and innovative types of shopping centres in recent years." Four of seven shopping centres were newly opened in Istanbul, where the saturation level has now reached 210 square metres of lettable space per 1,000 inhabitants, similar to Ankara, with a good 200 square metres. In comparison, Turkey's average is 75 square metres per 1,000 inhabitants. This genuine shopping centre boom in Istanbul has led to a significant increase in land prices there.
Istanbul's office market – high development potential over the long term
Turkey's development and investment market for office properties is concentrated in Istanbul, where some 80 per cent of the country's total office space is located. "But even in Istanbul, the level of saturation is very low in international comparison, at 2.3 million square metres of office space for a population of 13 to 15 million people. As a result of large-scale projects being completed within a short period of time and limited demand, vacancy rates rose dramatically. This then put a damper on rent levels and activity on the investment market," said Madlencnik in his analysis of the segment's market development in recent years, which has seen its fair share of ups and downs. Due to the low level of activity in the construction of new buildings, however, Istanbul's office market stabilised again following the crisis and vacancy rates fell back down towards the 10-per-cent mark. "If you compare Moscow to Istanbul, you'll notice something quite interesting: Both cities have similar population sizes, but Moscow has four times as much office space as Istanbul, with over 11 million square metres. Nevertheless, rents in Moscow were more than double those in Istanbul, while there is only a minor difference in prime yields between the two cities, at 8 per cent in Istanbul and 9 per cent in Moscow. The question is whether this investor's view of the two markets is a proper reflection of the varying risk," said Madlencnik in summary.
Turkish housing market benefits from strong population growth
As a result of strong population growth and increasing urbanisation, annual housing demand is expected to reach around 300,000 units by 2025. According to estimates by the United Nations, the degree of urbanisation in Turkey will hit around 79 per cent in 2025, putting it at the average for the world's developed countries. In addition, the size of households will shrink. Therefore, the growth of households will be an annual average of 1.6 per cent higher than that of the population, which is forecast to grow at an average of 1.1 per cent each year. According to the Turkish real estate association, more than 20 per cent of existing housing is over 50 years old and in need of refurbishment. "This lends support to the development of the housing market, so developers can basically do no wrong in this environment," said Karla Schestauber, a real estate analyst at Bank Austria, summing up the situation.
Real Estate Country Facts
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