Real Estate Market

tUrKeY Colliers international | tUrKeY CoMMerCial real estate MarKet seConD HalF | 2009 Real Estate Market MarKet reVieW | seConD HalF | 2009 economy overview As of the beginning of the year, almost all parts of the world economy, including Turkey, have fallen into recession. Extensive fiscal and monetary policies, implemented all over the world but particularly in major economies like the USA, China and Japan, have stopped the free fall of economies and increased the hopes of recovery in the second half of the year and 2010. The message of major central banks is that the historically low levels of interest rates will continue for an extended period of time. In addition, the governments have given clear messages that the size of the fiscal stimulus packages will be increased if necessary. Not surprisingly, that has led the world financial markets to price with a positive outlook, at least in the short term, causing significant gains in the stock exchange and bond markets since March 2009. The positive outlook seems to be valid for the Turkish economy as well. As has been discussed so far, there are signs of recovery in the economy. Interest rates have substantially decreased. Recently, the mortgage rates of some Turkish banks have been reduced below one percent. If the consumer and business confidence keeps rising in the coming months, it is likely that we will see more recovery in economic activity, particularly in the construction sector. The crucial question seems to be whether the confidence will keep rising or not. The answer depends on both external and domestic factors. The external factor is whether the world economy will continue its recovery after the disappearance of massive fiscal and monetary policies in the medium term. If not, the world economy will again move towards recession. This could be the biggest risk for the world. If the world economy continues to grow even at modest rates, this will be good news for all economies. The answer to that question will be at the top of the agenda of the world in 2009. On the other hand, the important domestic factor leading to confidence in the Turkish economy will be whether the government is going to announce a reliable medium-term fiscal program. This is necessary to lower the budget deficits to reasonable lev- els during the post-crisis period. If such a program is accompanied by an IMF stand-by agreement providing financial support to any likely balance of payments problems, confidence in the Turkish economy is likely to become more sustainable. investment Market Throughout the first half of 2009, the real estate market in Turkey has been trying to follow the global trend of stabilizing prices and slightly increasing demand in the driving sectors, such as residential. The stagnant investment market, which was everyone’s nightmare during the second half of 2008 and throughout most of what we have seen of 2009, is beginning to show signs of increasing activity, which is more apparent in the number of registered residential sale transactions this summer. The aggressively decreasing interest rates are fuelling the real estate market in two main areas: home sales and individual or corporate investors who are aiming more for fixed income real estate investments rather than financial market instruments. At Colliers, we have seen clear evidence of the positive effects of dropping rates in the increased number of offers we have been receiving for the portfolios which we represent for sale. Although there is still somewhat of a gap in price expectations between sellers and buyers, the age of non-offers for a listed property looks like it has finished for the Turkish property market. Even though the active interest to buy real estate is limited to lot sizes of less than 10-20 million USD (or Euros), mostly by equity buyers due to the continuing unavailability of corporate financing for large acquisitions and developments, we believe that financial annUal CPi inFlation (%) 80 70 60 50 40 30 20 10 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Target 68.5 29.7 18.4 9.4 7.7 9.7 8.4 10.1 7.5 Source: TurkStat www.colliersturkey.com Colliers international | tUrKeY  tUrKeY CoMMerCial real estate MarKet seConD HalF | 2009 institutions may again become brave enough to lend to large portfolio acquisitions with guaranteed income after the year’s end. Uncertainty over the economy’s future caused decreasing demand in all sectors of real estate, and the ones with serious oversupply suffered the most. The retail sector was the one which saw prices immediately dropping - up to 50% in rent - caused mainly by the oversupply of shopping centers in large cities and the weakening of demand in secondary cities. The responsive nature of the retail market, i.e. tenants demanding rent reductions as soon as sales drop, caused the rents to drop effectively in almost all operating malls as well as in asking rents in projects under development. The recovery of prices will depend on rising consumer spending as the economy recovers as well as the adjustment of stock volumes (hopefully downwards) in the number of new projects to come online, which will create competition for retailers regardless of their success. The prices may recover much faster than expected if a sensible stock is realized by eliminating unnecessary pipeline projects and those with incompetent developers. The office market, which exists mainly in large cities only, suffered limited price drops due to an undersupply of A grade offices. The average drop of 20-25% in rents in Istanbul for prime offices was limited to asking rents in some areas only, as transactions halted for a period of 9 months due to uncertainty. Due to the longer lag effect of office demand in adapting to new conditions, we expect the recovery, and the stabilization of prices, to be slower. The residential market got hit mainly by the unavailability of borrowing and the hesitation of investors in tying up equity in real estate in an environment of uncertainty. Another factor which contributed to an average of 20-30% price drops in homes was the imbalance of buyer/users to buyer/investors. Although the annual demand is said to be more than half a million new homes in Turkey, we see more people buying residential for investment purposes rather than actually for their own use, especially in big cities. This creates residential demand that is very sensitive to what happens in the financial markets (including political developments). In addition, it creates pressure on the rental prices of units in large residential projects, purchased mainly by people who are trying to rent them out to create return on their investment. We expect home prices to stabilize and begin recovery when investor confidence returns and the expectation of a further decrease in prices is over. The latter may come sooner. 2 Colliers international | Istanbul Office Market During the first half of 2009, 144,700 sqm of A class office space was added to the A class office supply in Istanbul’s different office districts, which brought the total stock to over 1,654,000 sqm. Most of the supply in the pipeline for the next 2-3 years is located within the Şişli, Levent, Kozyatağı and Ümraniye districts. Considering the current conditions, we estimate that the total office stock added to the supply in Istanbul for the second half of 2009 will be approximately 100,000 sqm. Moreover, we are sure that as far as the office supply is concerned, the districts mentioned above will continue to strengthen their position as the most popular business districts in Istanbul. During the examined period, only 3 districts in Istanbul’s office market noted a positive absorption. Those districts are Ümraniye on the Asian side, and the Şişli and the Airport districts on the European side of Istanbul. All of the office districts in Istanbul noted a marked increase in overall vacancy rates in A class office buildings throughout the first half of 2009. The biggest change occurred in Kozyatağı and Ümraniye; nevertheless, it should be stressed that for Ümraniye it is only a temporary change due to the increase of stock brought on by new completions, which should be absorbed by the market in the upcoming months. The general vacancy rate in the Istanbul A class office market rose from 4.87% at the end of 2008 to 11.85% at the end of the first quarter 2009, and in the second quarter noted a further increase to 14.05%. By the end of 2009 or in the beginning of 2010, the market characteristics will change as the overall vacancy rate in the Istanbul office market will exceed 15%, bringing on conditions where tenants will have a greater influence on terms and conditions. After reaching the peak of approximately $30 per sqm per month in Q4 2008, the average asking rents for A class offices in Istanbul fell by 9.44% to $25.7 in Q1 2009, before attaining a small recovery in the end of H1 2009, rising by 5.58% to around $27. When we compare the regional average asking rents for A class offices with the 2008year-end figures, only three districts remained relatively stable as far as average asking rents are concerned, and all of them are located on the European side of Istanbul. Those are the Airport, Taksim and Şişli districts. We expect a further decrease in asking rents in the near future as well as a further decrease in effective rents resulting from the increasing popularity of incentives that landlords are offering in an effort to attract good quality tenants. istanBUl oFFiCe sUB-MarKets EUROPE Airport Bayrampaşa Maslak Etiler Levent Şişli - Kağıthane Taksim - Haliç Beşiktaş Gayrettepe ASIA Kozyatağı Ümraniye Altunizade Kavacık Kartal - Pendik OTHER Central business districts Business axes Main communication arteries Source: Colliers International Turkey tUrKeY tUrKeY CoMMerCial real estate MarKet seConD HalF | 2009 istanBUl oFFiCe MarKet H 2009 VaCanCY trenDs europe a Class asia a Class europe B Class asia B Class Source: Colliers International Turkey istanBUl oFFiCe MarKet H 2009 asKinG rent trenDs Technology Parks are the perfect habitat for businesses and institutions of the global knowledge economy. Creating new knowledge that will lead to new inventions and attracting businessmen’s attention and attaining their support in order to add economical value to these discoveries stimulates more interest. This rational work chain can be established naturally and conveniently in organized technoparks. A technology park brings together the government, the academic community, the business and financial sector in a well planned development which integrates commercial buildings, with research facilities, residences, recreational areas and a hotel and conference center. The technopark concept has arrived relatively late in Turkey. The “Law of the Technology Development Regions No 4691”, dated 2001, made it possible to run projects with the support of the government, aimed at creating new Technologies within a public research institution or on a university campus. Following the subject law, the ITU (Istanbul), YTU (Istanbul), IU (Istanbul), TUBITAK-MAM (Kocaeli), KU (Kocaeli) and GOSB (Istanbul) Technoparks have been put into service in the borders of the Istanbul and Kocaeli Provinces. Including the Istanbul University Technopark, which is in the planning stage, the total approved reserved area for the technoparks is 1,570,000 m² of land and the total approved planned closed area is 190,600 m². Today, there are 34 technoparks registered by the Ministry of Industry and 20 of them are operating. The current closed area is 64,260 m² out of this planned stock and the vacancy rate is 0 for the existing technoparks today. Monthly average rental rate of technoparks are between $10/m²/month and $17/m²/month. The collaboration between universities and the industry through technoparks is of vital importance to Turkey in increasing its R&D potential and its ability to generate new technology and hence in increasing its competitive advantage in the international arena. Therefore, we expect that the number of technoparks will continue to escalate in the coming years. a Class WareHoUse FaCilities in tHe istanBUl & GeBZe area Current stock (m²) Completions in 2009 total stock average rent rates (UsD/m²/month) 2,067,768 72,72 2,440,40 5 9 Source: Colliers International Turkey Prime yields (%) europe a Class asia a Class europe B Class asia B Class Source: Colliers International Turkey Eighty percent of these industrial areas consist of aged buildings, which are unattractive for multinational firms. Therefore, many firms choose to build their own custom-made warehouses. The aged buildings that cannot fulfill the customers’ requirements remain idle and create an excess supply of the existing warehouse stock. There is a dearth of quality warehouses in Istanbul, and as a result, foreign companies in particular prefer to work with logistics firms in order to answer their storage and transportation demands. The current economic crisis affects the main drivers behind the logistics markets, that of foreign trade, household consumption and industrial output. The vacancy rates for A Class logistics warehouses are 20% on the Asian side and 10% on the European side. Most of the new warehouses are built in the Gebze, Tuzla-Şekerpınar area on the Asian side and the Esenyurt, Beylikdüzü-Kıraç area on the European side. It is expected that a total of 370,000 m² will be added to the stock by the end of 2009. We foresee that the warehouse rents will increase in the foreseeable future, particularly as the market is severely undersupplied. In addition, new areas will become hubs for the logistics industries as firms search for available land alternatives with good access for purpose built warehouses. technopark Concept A Technology Park is a space, physical or cybernetic, managed by a specialized professional team that provides value-added services, whose main aim is to increase the competitiveness of its region or territory of influence by stimulating a culture of quality and innovation among its associated businesses and knowledge-based institutions, organizing the transfer of knowledge and technology from its sources to companies and to the market place, and by actively fostering the creation of new and sustainable innovation-based companies through incubation and spin-off processes. To enable these goals to be met, a Technology Park stimulates and manages the flow of knowledge and technology amongst universities, R&D institutions, companies and markets. Technology parks promote the economic development and competitiveness of regions and cities by (IASP, 2002): • Creating new business opportunities and adding value to mature companies, • Fostering entrepreneurship and incubating new innovative companies, • Generating knowledge-based jobs, • Building attractive spaces for the emerging knowledge workers, • Enhancing the synergy between universities and companies. istanbul industrial Market A general analysis of Istanbul and its surroundings indicates that the most preferred areas for industrial buildings are Hadımköy, Beylikdüzü, Güneşli, Yenibosna, Ikitelli, Ayazağa and Kemerburgaz on the European side and Dudullu, Ümraniye, Samandıra, Kartal, Pendik, Kurtköy, Tuzla and Gebze on the Asian side. istanbul retail Market - outlet Centers The outlet concept dates back a century, beginning in the late 1800’s. Originating in Reading, Pennsylvania, outlet centers began as employee stores where manufacturers would sell flawed or overstocked merchandise to their own workers at deep discounts. Generally these stores were located within the factories where the goods were actually produced. In 1936, the first outlet stores which were not located adjacent to the factory Colliers international | tUrKeY  tUrKeY CoMMerCial real estate MarKet seConD HalF | 2009 istanBUl oUtlet Centers shopping Center olivium outlet Center istanbul outlet Park Kale outlet Center armoni Park asya Park espri outlet Center Deposite optimum outlet Center Pendik Park outlet Center airport outlet Center Via/port 22 Power outlet location Zeytinburnu Beylikdüzü Güngören sefaköy Ümraniye esenler ikitelli Kozyatağı Pendik Yenibosna Pendik Bağcılar opening Year 2000 2006 2007 2007 2007 2008 2008 2008 2008 2008 2008 2009 Closed area (m2) 72,000 56,000 79,000 7,000 ,000 4,000 70,000 7,500 0,000 70,000 n/a 20,000 leasable area (m2) 4,000 9,000 27,000 2,000 8,850 0,000 60,000 46,000 8,000 2,000 70,000 70,000 Economic slowdown and decreasing turnover figures turned the developer’s attention to the outlet concept. Source: Colliers International Turkey were opened. In 1970, Vanity Fair opened VF Factory Outlet, the first multi-store outlet center in Pennsylvania. Others followed and the outlet business began its rise with manufacturers clustering together in a strip-shopping center format. The first enclosed outlet center opened in 1980 and was located remotely in order to avoid competition with established retail outlets. During the 1980’s and 1990’s, the number of outlets increased enormously. Some of the reasons for this growth were the increased awareness and desirability of designer labels by the general population; an increased importance placed on quality and value; and the appreciation of outlet stores as an alternative by the manufacturers themselves. Furthermore, beginning in the 1980’s, more and more in-season merchandise was featured in the outlet stores, changing the outlet store image. Today, as defined by Value Retail News, a publication of the International Council of Shopping Centers (ICSC), an outlet center is a shopping center where at least 50 percent of its tenants are “manufacturer’s outlets.” In other words, the tenants in outlets typically are the manufacturers themselves, rather than retailers selling their own brands or those of manufacturers at reduced prices. The goods are not damaged seconds, but usually quality merchandise in styles or colors that did not sell out at their primary retail locations or the goods are manufactured specifically for outlet sale. Following the opening of Olivium Outlet Center in 2000, many outlet centers have opened in Istanbul in recent years. The table above shows the outlet centers in Istanbul. Olivium Outlet Center, the first outlet center of Istanbul, was established in 2000 on an area of 28,900 m². The center has a gross leasable area of 34,000 m² and a parking area with a 1,000-car capacity. Olivium includes 105 outlet shops with international and national brands, 6 movie theaters and several food courts. Via/Port Outlet Pendik is situated on the TEM Highway in Pendik at short distance from Sabiha Gökçen Airport. The completion date of the shopping center is August 2008. The total closed area is 84,000 m² with 66,000 m² of GLA. The total parking capacity is 2,500 cars with free parking. The center has 156 units. There are 5 anchor tenants: Kipa (12,161 m²), Beymen (2,036 m²), Electro World (3,649 m²), Retry (1,683 m²) and LC Waikiki (1,375 m²). Optimum Outlet Center in Kozyatağı was developed by Rönesans Shopping Center Investment Group and opened its doors in the 4th quarter of 2008. The total closed area of the shopping 4 Colliers international | tUrKeY tUrKeY CoMMerCial real estate MarKet seConD HalF | 2009 center is 138,000 m² (including underground car park area) with a gross leasable area of 46,000 m². There are 154 retail units in the shopping center. The center provides a closed car parking area with a capacity of 1,600 cars. The three anchor tenants in the center are: Migros, Koçtaş and Media Markt. Optimum has high visibility with easy access via E5 Highway and TEM Highway. 212 Power Outlet in Bağcılar was developed by Edip Real Estate and opened its doors in the 3rd quarter of 2009. The total closed area of the shopping center is 230,000 m² (including underground car park area) with a gross leasable area of 70,000 m². There are 173 retail units in the shopping center. The three anchor tenants in the center are: CarrefourSA, Media Markt and Praktiker. Approximately 40% of the shopping centers which opened in 2008 had the “outlet center” concept. Economic slowdown and decreasing turnover figures turned the developer’s attention to the outlet concept. There are vast amount of outlet centers with similar brands and shop mixes; however, the amount of outlet products in these stores amount to less than 25-30% of the total. We believe that the majority of them will serve their immediate vicinity and will not attract many shoppers from large catchment areas, as Olivium did in the past. arrivals in Istanbul in 2008 and 2009. It should be noted that there was a slight decrease in international tourist arrivals in Istanbul in the first three months of 2009 compared to the first three months of the previous year. tHe ranGe oF WalK-in PriCes anD CorPorate rates in istanBUl type of room single Double Walk-in Prices* $260 - $20 $270 - $40 Corporate rates* $0 - $50 $40 - $200 (*) Rates exclude VAT Business District Hotels in istanbul As of the beginning of 1990’s the business districts of Istanbul began to move away from the city’s old commercial centers such as Taksim and Kadıköy, and as a result, newer districts such as tHe notaBle BUsiness DistriCt Hotels in istanBUl Business Hotel Hotel Dedeman Marriott asia Mövenpick Hotel sheraton Maslak the Plaza Hotel the Point Hotel location Gayrettepe Kozyatağı 4th levent Maslak Balmumcu Gayrettepe no of rooms 5 no of Meeting rooms 4  28 249 05 25 94 9 8 2 n/a Source: Colliers International Turkey istanbul Hotel Market According to the information received from the Ministry of Tourism, the number of foreign tourist arrivals in Istanbul decreased by 18,089 in the period of January-June 2009 compared to the same period of the previous year. The table below compares the monthly international tourist Levent and Maslak have become Istanbul’s new business centers with high-rise buildings housing the headquarters of domestic and international companies. Newly developed business district hotels have the advantages of being close to the headquarters of many corporations, and strong access to the main highways and both bridges to the Asian side of Istanbul, in addition to good access to and from main road arteries. However, these hotels are located at a distance from Conference Valley, which is situated in the Harbiye district close to the touristic areas and urban centers, which means that visitors who need to use the convention center must deal with significant traffic problems. Moreover, these areas virtually shut down outside of normal working hours and hotel visitors are left with few options for dining and entertainment in the near vicinity. international toUrist arriVals in istanBUl MontHs January February tUrKeY 2008 782,786 869,482 ,05,297 ,647,90 2,748,564 2009 75,87 898,927 ,207,729 ,750,28 2,78,788 2008 istanBUl 2009 9,897 408,08 485,607 62,209 700,2 698,648 CHanGe (%) -4.84% -5.54% -.76% 8.48% .25% 4.46% residential Market The first half of 2009 witnessed the lowest levels of demand for both residential units and commercial properties. Whereas local investors generally pursued a “wait-and-see” policy, most of the foreign investors and hedge funds decided to suspend their investments in the Turkish market. Moreover, many developers have delayed their ongoing projects until 2010 or later. When analyzing the total number of housing loans given in Turkey, it becomes clear that the demand for housing loans reduced by 30% in the first half of 2009 in comparison with the previous year. However, the same graph also demonstrates 57,20 42,09 550,50 582,779 69,454 668,849 March april May June total ,282,654 ,264,567 Source: Ministry of Tourism Colliers international | tUrKeY 5 tUrKeY CoMMerCial real estate MarKet seConD HalF | 2009 294 oFFiCes in 6 CoUntries on 6 Continents that a slight increase has occurred starting from the second quarter of 2009. It can be said that this small rise in demand is driven by the fact that banks have reduced monthly housing loan interest rates (designated in TL) from the levels of 1.49% - 1.59% to the levels of 1.25% - 1.30% per month thanks to the drop in the Central Bank’s interest rates. Since early August, some banks have lowered their housing loan interest rates to below 1%, and Fortisbank has recently announced that it will offer housing loans with monthly interest rates of 0.59% (designated in TL). However, we are of the opinion that housing loans with such low interest rates will not lead to a significant increase in demand for housing, since they only have a maturity of 1 to 2 years. Only when the terms of such loans are extended to 5 years or above, can the strength of the housing demand as well as the effect of the financial crisis on the real estate sector be truly observed. As can be seen from the graph below, no significant increase in housing demand is observed despite the decrease of housing loan interest rates to levels around 1.30%. HoUsinG loan rates anD GroWtH On the other hand, suggestions indicating that the worst part of the crisis has passed in the USA are more widely accepted. Still, it is almost a common view that a real recovery will occur starting in the second half of 2010. In the Istanbul residential market, demand for residential projects developed in city centers is strong despite the crisis conditions. For example, we believe that residences being developed around Bomonti will attract high demand thanks to new connection roads and tunnels. We also hold the opinion that demand for such areas as Riva, Sarıyer and Bahçeşehir will increase due to the third bridge that is planned to be built across the Bosphorus. However, due to excess supply already available in Bahçeşehir, the prices will not rise as much as in other districts.  americas 94 United states 22 Canada 7 latin america 97 eMea 64 Asia Pacific $48. billion in annual transaction volume 2,749 Professionals ContaCt Details Colliers international tUrKeY Kerim Cin Managing Partner kerim.cin@colliersturkey.com Elif Ocak Project Manager, advisory Dept. elif.ocak@colliersturkey.com 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 1.08 1.90 1.80 1.70 1.60 1.50 1.40 1.20 1.57 1.40 1.54 1.29 1.54 1.44 1.69 1.86 2.0 1.8 1.52 1.51 1.41 1.31 1.29 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Eliza Bingül Marketing & Pr Manager eliza.bingul@colliersturkey.com Büyükdere Cad. no: 08 Enka Binası, Kat 6 494 esentepe, istanbul tel: 0090-22-2886262 Fax: 0090-22-470794 this report and other research materials may be found on our website at www.colliersturkey.com. this is a research document of Colliers international – turkey. Questions related to information herein should be directed to the advisory Department at 0090-22-2886262. information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers international turkey is an independently owned and operated business and a member firm of Colliers international Property Consultants, an affiliation of independent companies with over 290 offices throughout more than 60 countries worldwide. Growth (%) Loan Rates (%) Source: The Ministry of Teasury of Turkey & selected banks’ average interest rates Many people have predicted that in the last quarter of 2009, a crisis in the business world will occur, particularly in Turkey. However, it has become clear that those people, arguing that strict adjustments will follow a rapid rise in stock prices in the Istanbul Stock Exchange, have been mistaken for the time being. The shares of real estate companies listed on the Istanbul Stock Exchange have actually increased by over 300% since March. The stagnancy and downward trend experienced in Ataşehir, Kozyatağı and Maltepe on the Asian side that started with the emergence of financial crisis can be expected to slowly begin displaying an upward trend. www.colliersturkey.com 6 Colliers international | tUrKeY