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ISTANBUL ON THE WORLD STAGE

April 2016

A huge infrastructural initiative is tipped to transform the Eurasian city’s status from a regional hub to a global economic powerhouse.

How many cities in the world have access to 22 capitals within a two hour flight and 1.3 billion consumers within four hours flying time? Istanbul, the financial capital of Turkey located at the crossroad of continents, enjoys this unique advantage.

Driving the growth of the Turkish economy with a 33 percent contribution to the national GDP, the city has emerged as a major commercial gateway over the years. A combination of growing consumption, a strong demographic profile and an economy driven by the expansion of financial and business services and the technology sector has triggered the development of Istanbul.

Apart from the commercial core, the unique cultural identity and vibrancy has made Istanbul a sought after destination. “Istanbul real estate market’s past performance of value appreciation still makes it an attractive location to invest even in the middle of all the current geo-political turmoil in the region, especially for investors from Middle Eastern countries who see Turkey as a safe haven to invest their savings,” says Kerim Cin, Managing Partner – Turkey, Colliers International.

Conducive environment

The remarkable performance of the Turkish economy has boosted Istanbul’s position over the last decade. A sound macroeconomic strategy in combination with cautious fiscal policies and major structural reforms has integrated the Turkish economy into the globalised world, while transforming the country into one of the major recipients of FDI in its region.

“Political stability and a strong economy led to an average GDP growth of 5.6 percent in the last decade, growing from USD 305 billion in 2003 to USD 800 billion in 2015. Istanbul is the most populous city in Europe with close to 15 million inhabitants and a major geographical hub in many aspects,” says Togrul Gonden, Managing Partner at Cushman & Wakefield’s Turkey Office, adding that a significant number of international companies have chosen Istanbul as a regional hub reaching out to Europe, Russia, Middle East, North Africa and Central Asia, which has drawn even more business into the city.

Turkey is the largest economy of Central and Eastern Europe (CEE) and the eighth largest economy in Europe. “Turkey’s EU accession process engendered structural reforms, increasing the role of the private sector in the Turkish economy and enhancing the efficiency of the financial sector. As these reforms have strengthened the macroeconomic fundamentals of the country, the real estate sector has benefited from the development as the leading sector of Turkish economy,” says Yavuz Can Parlar, senior analyst, JLL Turkey. In 2014, the real estate sector accounted for a 4.6 percent share of GDP, attracting FDI inflow of USD 4.3 billion.

Foundation for the future

Future clearly in focus, the Turkish government and Istanbul Metropolitan Municipality is transforming Istanbul into a major gateway of finance, tourism and logistics, and a knowledge hub with efficient production and innovation centres. “Two major projects – the Istanbul International Financial Centre, which will provide over 1 million square metre office supply to local and international companies, and the third airport project in northern Istanbul with an integrated satellite city – are being implemented jointly by the central and local governments. Besides, the metro rail network is being expanded to connect every part of the growing city, covering all residential, commercial and retail regions,” says JLL’s Parlar, adding that other key projects like the third Bosphorus Bridge, Northern Marmara Highway, Istanbul-Izmir Highway, another Eurasian tunnel and a new port township will together make the infrastructural backbone of the booming metropolis. “In addition, cruise port projects in several Istanbul locations, supported by urban regeneration schemes, are expected to incorporate various real estate components serving both the mass and the luxury markets,” says JLL’s Parlar.

With increased population and traffic load, the municipality and the state are invested heavily into creating the new infrastructure. “All these projects are a major leap forward for the city and will create new opportunities. The economic growth over the last decade has created a very sizeable middle class in Istanbul which in turn consumed more and lifted their living standards,” says Cushman & Wakefield’s Gonden, adding that the population growth of Istanbul is still significant and the demand for new housing is at a very high level. The mix of demographics, strategic geography, economic growth and political stability have turned Istanbul into the mega city it is today and the new infrastructure will help Istanbul take its place among the leading metropolitan cities of the world.

Positive outlook

While derailing economic factors such as volatile foreign exchange rates and current account deficit, and geo-political threats including the Syrian crisis may potentially impact on Turkish real estate in the short term, the larger story remains intact, experts say. “On the other hand, the sharp fall in oil prices has come as a boon for the energy-deficient Turkish economy. Though these factors do influence the real estate sector, their impact won’t reflect too much harm since [Turkey’s] reforms process and policies are robust,” says JLL’s Parlar.

Despite a weaker currency, there has neither been a downward trend on rent levels nor a drop in consumption. On the residential side, Turkey has witnessed a record year with close to 1.3 million unit sales in 2015, with 240,000 units sold in Istanbul alone. “Close to 23,000 units were sold to foreigners. Sales to foreigners are growing rapidly after the government changed the reciprocity law allowing residents from most countries to purchase real estate in Turkey,” says Cushman & Wakefield’s Gonden.

Experts opine that risk-averse investors should consider central locations in Istanbul that not only provide the best value appreciation, but are also the most resilient in terms of maintaining value during a slowdown. “Areas like Besiktas, Levent, Taksim, Sisli, Beyoglu, Kadıkoy and Bakırkoy are a good bet in Istanbul,” advises Colliers’ Cin.

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