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MIPIM, Cannes

Istanbul the Mega-City: A Future Global Player in Real Estate

Jones Lang LaSalle Issues Istanbul Real Estate Overview Report


Istanbul sits alongside London, Moscow and Paris as one of Europe’s four mega-cities and offers long term opportunities across all real estate sectors, according to Jones Lang LaSalle’s new Istanbul Real Estate Overview report.  The report sets out to assess the real estate market characteristics, conditions and prospects across each of Istanbul’s major real estate sectors: retail, offices, logistics, residential and hospitality.

Avi Alkas, Chairman of Jones Lang LaSalle Turkey, commented: “Istanbul’s size, scale and location will put it in a strong position to achieve World City status over the long term, supported by a robust and responsive real estate infrastructure that meets the requirements of a dynamic 21st century city. As with virtually every major economy around the globe, the current economic downturn is having an impact on the city’s real estate dynamics. Nonetheless, economic fundamentals and the city’s position in its market evolution point to the real estate market returning to a strong growth trajectory as global business conditions improve.” 

RETAIL: Istanbul Offers Attractive Opportunities in the Medium Term

According to the report Istanbul’s retail market, the largest in the CEE region after Moscow, is still untapped compared to its regional peers. In the medium term, with its demographic profile and expanding middle class, it offers great opportunities for investors. Jones Lang LaSalle expects consumer demand to pick up in the second half of 2009, returning to its long run growth trend by 2010. Shopping centres with the appropriate tenant mix and active management will be the best positioned to deliver significant business opportunities.

The Istanbul shopping centre market has shown rapid development in the last five years with the shopping centre stock (GLA) rising from 555,000 sq m in 2003 to 1.8 million sq m by the end of 2008. By the end of 2009, total GLA is expected to increase to 3.1 million sq m.
Total investment volume decreased to €35 million in 2008 from €940 million in 2007; this large difference is accounted for by several very large transactions in 2007. The market is expected to revive in the second half of 2009 and become a major focus for investment by offering high quality product in a dynamic growing market. 

OFFICE: Investor and Occupier Demand Expected to be Strong

The Istanbul office market, which accounts for 80% of the country’s total office stock, is the third largest office market in the CEE region after Moscow and Warsaw. However, in terms of Grade A office supply, Istanbul is still a developing market with only 2.1 million sq m of space.
Occupier demand has been strong since 2005 mostly driven by foreign companies targeting the CBD, which has pushed vacancy rates close to zero for the past two years. However, the lack of a significant development pipeline for Grade A supply has forced some occupiers to consider alternative office locations, such as Ümraniye and Kavacık on the Asian side of Istanbul and Güneşli İkitelli on the European side of the city. In 2009 rent levels and vacancy rates in the core CBD are expected to be stable. In the medium term, as both investor and occupier demand is expected to increase strongly.
 
Alan Robertson, Managing Director of Jones Lang LaSalle Turkey, said: “Istanbul is becoming the preferred location for the regional hub of many multinationals covering the Middle East and North Africa. However, the office market continues to suffer from an undersupply of Grade A stock. This, combined with demand from occupiers seeking to relocate to better quality accommodation, has resulted in the market remaining reasonably active, despite the general economic problems. I believe there are good opportunities in the Istanbul office market this year, both for developers and investors.”

LOGISTICS: Istanbul, the Largest Logistics Market

Istanbul, together with its hinterland (including İzmit and Tekirdağ), is Turkey’s largest logistics market. Demand for modern warehousing facilities is strong due to the retail sector boom. Rising demand has translated into increased land prices and quality stock rents. Smaller plots located closer to the city centre are priced at up to € 450 per sq m. Rents for quality warehouses in prime logistics locations range from €5 - 6.5 per sq m/month depending on location, infrastructure and project specification.

The Asian side of the city, which hosts almost half of the logistics space in Istanbul, has emerged as a prime logistics market. Investors such as EMG, Goodman and Logiturc have been continuing to invest in the Turkish logistics market recognizing the city’s long term potential as a major logistics hub due to its strategic position, large population and strong retail market.

RESIDENTIAL: Residential Demand Above Supply

The residential market in Istanbul has undergone rapid development over the last five years, and market drivers remain strong, creating further room for continued growth. The city offers huge potential with the need to replace the existing earthquake-vulnerable stock, the expanding middle class and their strong investment intentions, as well as ongoing migration. The global economic slowdown may result in a slowdown of some luxury residential projects in the coming years, but demand from the middle classes is expected to remain strong. With growing purchasing power and the future availability of mortgage funding market potential will be enhanced as need for mid-range residential projects is expected to increase over the medium-term.

HOTELS: Hotel Market Continues to Offer Significant Opportunities

Despite rapid development over the last few years, the hotel market continues to present significant opportunities, both in terms of unexploited locations and specific market segments.  The report states that the increasing number of prestigious events in Istanbul, such as the 2009 UEFA Cup Final, the World Water Summit, the IMF World Bank Summit and the 2010 World Basketball Championships, will positively impact visitor numbers. Moreover, İstanbul has been designated as the European Capital of Culture 2010, which is expected to boost tourism potential of the city both in the short and medium term.