ISTANBUL OFFICE MARKET EXPANDS
As it grows into a regional hub for multinational corporations, Istanbul’s office market expands whilst improvements in public transport define new areas for development and investment.
Over the past eleven months, Turkey’s booming real estate market has experienced a general slowdown, mainly as a result of the anticipation of the elections as well as a more moderate outlook for the country’s economy, impacting on international investor interest.
According to Avi Alkaş, Country Chairman, JLL Turkey, “political uncertainty caused by the presidential election (held on August 10th 2014) and general election (held on June 7th 2015) limited international investor interest over the past 12 months.”
Despite the drop in international investor interest however, “domestic investors had a strong appetite for development and investment.” JLL Turkey identifies the new centres of attraction being defined by the continuing government projects such 3rd Bridge, 3rd Airport, Istanbul Financial Centre as well as the urban regeneration initiative.
In terms of the economy, despite a slowdown in 2014, low oil prices and a consequent reduction in energy costs provide a continued easing in Turkey’s current account deficit which is expected to ease from 5.6% to %5 of GDP from the end of 2014 to the end of 2015, a report from Colliers International states.
According to the Economic Intelligence Unit (EIU) 2015 country report on Turkey, real GDP growth for Turkey is expected to reach 3.5% in 2015 and climb to 4.5% in 2016.
Office market performance
Istanbul is one of the world’s 20 most expensive office markets, with prime rents of USD 45/sqm per month. Political and economic developments over the past six months have however led to some favourable conditions for tenants.
In the first half of 2015, Colliers International observed a slowdown in demand in all commercial sub-segments. Especially in Istanbul’s office market, the softening demand has started to reflect in the rental terms significantly as the market became a “tenant market,” says the Colliers Spring/Summer 2015 Istanbul Office Market report.
“The main reason why the office market is more vulnerable to soft demand, when compared to retail or industrial markets, is that it has a much higher new pipeline supply than the other two sub-segments. Most of the existing developers have lately been more focused in the office development in Istanbul. Therefore we believe that a potential negative economic outlook would create a further negative impact in the office market,” the Colliers report says.
Togrul Gonden, Managing Partner at Cushman & Wakefield Turkey agrees, saying that one of the most significant trends that occurred in the Istanbul real estate market over the past 12 months is that the office market turned into tenant friendly market with significant stock having entered the leasing market in a short period of time. This “created choice and opportunities for tenants” with large scale lease transactions being a sign of this trend, Gonden says.
According to Cushman & Wakefield, Istanbul’s office stock has increased to 4.5 million sqm in 2015 and is expected to further increase to approximately 6 million sqm until the end of 2016.
On the European side, Maslak, Kagithane & Cendere sub-markets have seen a significant increase in supply while the Atasehir sub-market on the Asian side has the highest supply pipeline overall, Cushman & Wakefield says.
According to JLL’s Avi Alkaş, “many national and international companies have prioritised a CBD location in order to attract a qualified workforce and boost their corporate image.” As the result of increasing travel times, JLL notes that workers generally prefer public transport that is unaffected by the traffic density – such as metro instead of shuttles.
“In line with this shift in employee behaviour, companies in search of new office space are tending to prioritise locations in the vicinity of the metro route. In recent years, offices with a gross leasable area (GLA) larger than 1,000 sqm were much preferred by institutional companies. Moreover, it has been noted that the demand towards improved efficiency and high comfort standards is shaping office take-up transactions. Within this scope, it is expected that horizontally designed open-plan offices will continue to be preferred, promoting the efficient use of office space that serves many employees in the same area, compared with vertically designed offices,” Avi Alkaş says.
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