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December 2015

Political uncertainty which continued until the recent elections of 1st November affected both the Turkish economy and the investment market throughout 2015. This is according to Avi Alkaş, Country Chairman, JLL Turkey who says that the political situation along with the global economic developments led to a depreciation of the Turkish Lira (TRY) by 18 % against the U.S. Dollar and 7% against the Euro during the first half of 2015.

“The depreciation of the TRY has had a particularly negative impact on occupier rental costs in both the retail and office markets where lease contracts are dominantly denominated in foreign currency. As a consequence, leasing transactions have been proceeding slowly,” Alkaş comments.

On the other hand, interest from international brands to penetrate the Turkish market was still strong while local brands’ growth efforts in foreign markets remained active.

In the office sector, occupier demand has mostly slowed down in 2015 but has shown signs of revival after the election on 1st November. “Most companies have delayed their relocation plans or suspended their expansion plans. Significant office projects under construction will be delivered in 2016 and institutional office occupiers are trying to analyse the changing conditions in the market through the forthcoming supply,” Alkaş explains, adding that the situation was broadly similar in the logistics market.

Sector analysis

In terms of investment activity, the office market has been the most dynamic sector in Istanbul in 2015. Alkaş points out that the majority of transactions involved owner-occupier deals with the major office transaction of the year being the acquisition of Rönesans Tower in Kozyatağı by Allianz for its own usage. “The acquisition of Allianz in Turkey, even for owner-occupier purposes, is a significant positive message to the international scene,” he says.

The organised retail market led the commercial real estate sector in terms of new developments in 2015. According to JLL, the total shopping centre gross leasable area (GLA) in Istanbul reached 3.9 million sqm across 107 centres, marking an increase of circa 200,000 sqm compared to 2014 year-end. The firm expects the prospect for shopping centre development to be strong during the 2015–17 period, with the total stock reaching 5.2 million sqm across 136 centres by the end of 2017.

“On the residential side, the urban regeneration initiative boosted both investment and development activities. The Istanbul Metropolitan Planning Centre’s regeneration plans aim to shift industrial production to the outskirts of the city in order to develop more recreational and residential areas within the city centre, supported by improved public transport,” explains Alkaş.

Urban regeneration is a high-priority matter on the Turkish government’s agenda and aims to replace outdated and unsafe residential stock with earthquake-resistant stock. “Fikirtepe, Ataşehir Barbaros Settlement, Maltepe on the Asian side and Tarlabaşı, Gaziosmanpaşa, Zeytinburnu Sümer, Fener-Balat, Ayazağa on the European side of Istanbul are important regeneration areas with significant projects.”

Gulf interest

Turkey’s residential real estate market is particularly popular among buyers from the GCC, especially since the amendment of the reciprocity law in May 2012. According to TurkStat’s latest publication about house sales numbers to foreigners by nationalities, the Gulf region maintains the leading position accounting for almost half of the total house sales to foreigners year-to-date 2015. “Besides, a large number of investors from the Gulf region conduct partnership negotiations with Turkish construction companies in order to take a share in countrywide urban transformation projects,” Alkaş says. In H1-2015, the Arab Real Estate Investors Commission was founded by the Consumer Law Institute in order to protect Arab real estate investors’ rights in Turkey.

Outlook for 2016

On the political front, Turkey is well equipped to withstand the challenges the coming year will bring, believes Alkaş. “The uncertain period that prevailed between the June 7th election and the November 1st election is now over and Turkey stands with a single party government. The single party government contributed and will contribute to Turkey’s economic success story. The next two years are expected to be challenging for the global economy, especially for emerging markets. The new government will face a totally different economic landscape – including weakened capital inflows to emerging market economies, deterioration of the investment climate and constrained Central Bank policies – thus, the strong one party government has formed a stable ground for Turkey to tackle these challenges,” he says.

 According to JLL, economic imbalances will influence the commercial real estate sector in the coming year. On the positive however, “the total supply of the office, retail and logistics markets will increase thanks to the completion of wide range of pipeline projects, whilst prime rents, which have been stationary in recent times, are expected to remain constant in 2016.” And, on the back of the political stability resulting from November 1st, it is expected that the investment market and occupier demand will be much stronger in 2016.

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