Turkey: Retail rules in real estate

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The minarets of Istanbul’s Hagia Sofia, an iconic part of the city’s skyline, will soon be joined by a tower to become one of the tallest buildings in Europe. The Scottish-designed tower, part of “Metropol Istanbul”, will be located in the new financial district in Ataşehir, which is now beginning to take shape.

Edinburgh-based RMJM is the architect of this new 300-metre-tall, 500,000-sq-metre, $800m development, which will consist of three towers with offices, apartments, a hotel and retail outlets. Planning approval for the massive project was granted in early January 2012 in a sign of the emerging importance of the Turkish real estate market to European and global investors.

Construction is set to start on the towers and buildings of the new Istanbul financial district redevelopment, the design of which will be reminiscent of the traditional Ottoman architecture seen in the Grand Bazaar and Topkapı Palace. The government’s desire to see the area become a regional financial centre to rival London and Dubai, however, is thoroughly modern.

Regulators and state banks, such as the Capital Markets Board, the Banking Regulation & Supervision Agency, VakıfBank and Halkbank, will all be moving to the new site. In addition to the commercial space, new residences will also be created, with a mosque, fire department, police station and schools in the pipeline. The masterplan calls for 560,000 sq metres of office space and 70,000 sq metres set aside for new hotels. A community of about 30,000 will live and work in the regenerated district.

Exactly how the entire scheme will be financed is still to be revealed, but such grand projects have already caught the eye of real estate investment trusts (REITS) and firms across Europe.

In a recent report issued in January by global accountancy firm PricewaterhouseCoopers and the Urban Land Institute, Istanbul was ranked first for the second year in a row as a market for new investments and for development compared to Berlin, Warsaw, Munich and Stockholm.

Indeed, Turkey as a real estate market holds long-term appeal to property developers and REITS, many of who who were interviewed for the report, titled “Emerging Trends in Real Estate 2012”.

Retail investment has become one of the most attractive areas of the overall Turkish real estate market. Consumer spending rose by 15% in Istanbul’s main shopping areas and 10% across the country in the third quarter of 2011, according to the report. Decisions by major companies such as Nike and Zara to expand their operations in Turkey’s major cities have made the country one of the best markets for acquisitions.

According to the report, rental market prices for offices, retail, residential and industrial rents are expected to remain stable, while rental yields are likely to decrease from their current high. Rental yields for offices stand at around 7.75%, at about 8% for retail and at 10% for industrial parks.

But despite all the euphoria, the survey of property professionals also points out that although the Turkish real estate market has promising long-term prospects, 2012 is still expected to be a safe year, and capital for investments is not set to start flooding into the city immediately.

Such sentiments among international property managers and investors have bolstered Turkish confidence in their real estate market. In October, the Association of Real Estate Investment Companies (GYODER) issued its own set of data for the local market for the first and second quarters of 2011 showing that foreign direct investment in the sector for the first half of the year reached $292m and was focused on investments in warehouses, offices and malls.

Not only are opportunities to acquire retail properties exciting investors, Istanbul’s housing deficit is also attracting developers. Around 250,000 new homes are needed every year up to 2015 to meet demand, according to GYODER. Rising land prices and limited availability of land within the city centre means developers are increasingly looking at the suburbs to develop western-style housing schemes to attract an affluent middle class.

With a growing middle class seeking out new brands and outlets, the retail sector should continue to offer some of the best prospects for foreign investors in terms of acquisitions. Population growth in the major cities, ongoing demand for new housing, as well as redevelopments such as the new Istanbul Financial Centre, mean that the Turkish real estate market will continue to attract admiring glances from international investors over the long term.

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