While market watchers are now looking back at 2003 as something of a non-starter for Turkey's real estate and construction sectors, there are now signs that 2004 could yield some more positive developments. With prices stabilising, the forecast now is for a steady increase in the months ahead, with several areas likely to see more significant growth.
Central to the Turkish property market is Istanbul, Europe's biggest city, which saw a rash of commercial property development in the 1990s and early 2000s. Skyscraper office blocks shot up all over the Central Business District (CBD) in Maslak and Levent, as speculators sought to capitalise on low land prices and an expected boom in occupancy rates.
Yet, with the February 2001 financial crisis, this failed to materialise. Since then, office space has been plentiful, but largely empty. Rentals plummeted by as much as 30% between 2000 and 2003, according to a recent report by Istanbul real estate brokers Kuzeybati. Class A office rental space in the CBD showed vacancy rates of 22.27% in March 2004, their lowest level in two years.
Things haven't been much better in other sectors either. In industrial real estate, rates had fallen by as much as 40% between 2000 and 2002. However, with the economy recovering overall, there are now signs that this is changing. Firms that shelved plans after the 2001 crisis are now becoming confident enough again to start expanding - and prices in industrial parks, such as those at Gebze on the city's Asian side, have been stabilising and in recent months even creeping up.
In residential property, the market remains generally oversupplied. At the high end, an excessive building trend for suburban or out of town gated communities has left the city with around 100 of these communities, largely consisting of condos and family houses in the $400-2500 per sq metre range. Resale values have fallen by an average 30% since 2000 in consequence.
There have been exceptions to this trend, however, with residential properties in the old city centre - around Beyoglu and Taksim - reporting a significant appreciation in value. These are mainly historic, older buildings, which often require 30-100% of the purchasing price in renovation costs, representing a more long-term investment for buyers.
Meanwhile, retail remains the most thriving sector, although peak rents have now stabilised at around $1,200 per sq metre and average rents are around $540 per sq metre for shopping centres. Five more of these opened in the city between the start of 2003 and the end of the first quarter of 2004, bringing the city's total up to 27. Ten more remain under construction, forecasting a glut of retail space in the not-too-distant future and a fall in prices. Major new retail spaces are nonetheless planned, with a particularly giant complex, including many major international supermarket chains such as Tesco, along the Marmara shore near Bakirkoy.
Yet, older parts of town, such as Nisantasi and the newer, high-end shopping area of Bagdat Street, have maintained popularity, with some expansion in Nisantasi and Tesvikiye as an entertainment centre. Kuzaybati predicts that key money is expected to return to these districts towards the end of this year.
However, which such a general glut, real estate investment is likely to produce few short-term gains. Yet, on the other hand, as far as the foreign investor is concerned, things have never been easier for intervention in the Turkish market.
Last December saw the government pass the final piece of the legislative jigsaw necessary to open up the sector to major foreign investment. Laws are now in place authorising foreign companies to buy property in Turkey. A list of countries whose citizens may buy land has also been expanded, though still leaves off - ironically - most Muslim countries. However, with the removal of objections to corporate purchases, it may be that this discrimination may be got round via real estate investment vehicles established in other, on-list, countries.
The hope is too that the new laws will attract not only more foreign direct investment in the real estate market, but will also attract indirect investment. Real estate investment vehicles can now be established in Turkey to manage and invest foreign funds.
So, despite the lows, many in the market are now hopeful that the next few years will see the stability of the current period turn to more rewarding growth. Much depends on December, and the decision to be taken then by the EU on whether or not to give Turkey a date to start accession negotiations. If such a date is given, this is likely to have a dramatic effect on risk assessments in the Turkish market - similar effects were witnessed in Eastern and South-eastern Europe once those countries had begun accession negotiations. Yet even if there is a negative outcome in December, many investors seem ready to calculate that whatever the political decision, the economic one has already largely been made: Turkey's real estate market is open for business.