Thinking big: Large projects are on the horizon, but consumer confidence has yet to show significant improvement

The construction sector is riding high on the strength of major infrastructure projects, particularly in road and bridge development, and an ongoing urban regeneration plan that will see one-third of the country’s houses torn down and rebuilt.

Although the market is still susceptible to a temporary slowdown in light of the recent global economic crisis, which moderated growth for 2012, long-term trends favour strong and steady growth.

And while the nation’s economic heart, Istanbul, is home to the biggest projects and the lion’s share of housing, there are numerous opportunities in the secondary cities, particularly in housing and retail construction. The sector’s prospects for the next decade – while not exactly a “can’t miss” proposition – rest on a solid foundation of a healthy economy and an ambitious government.

By The Numbers

Despite rosy forecasts for the construction sector’s long-term health, the industry was negatively affected by the dramatic slowdown of the Turkish economy in 2012 and by the cash-hoarding trend in the global investment community. Indeed, the sector’s performance has closely tracked the growth of the overall economy for the past decade, amplifying its peaks and troughs by putting up very strong numbers during good years and shrinking during bad years.

The sector shrank by 16.1% in real terms during the nadir of the crisis in 2009, even as the overall economy contracted by 4.8%. Following this, in the years 2010 and 2011, construction was a major force in leading the recovery – growing by 18.3% and 11.5%, respectively in comparison to the still-impressive GDP growth rates of 9.2% and 8.8%.

The year 2012 told the same story. The Turkish economy, weighed down by weakening market conditions and a more cautious central bank, slowed to a modest 2.2% growth rate while the construction industry also suffered, dropping to 0.4% on the year. Construction contributed TL61.8bn (€29.5bn) to GDP, thereby accounting for 4.3% of the economy, a ratio that has held steady at between 4% and 5% for the past half-decade.

The outlook for 2013 depends in large part, therefore, on the prediction for overall economic growth. Both the Turkish government and the IMF forecast a moderate pickup, with the minister of finance, Mehmet Şimşek, and the governor of the central bank, Erdem Başc›, estimating at least 4% growth for the year, while the IMF’s October “2012 World Economic Outlook” predicted a 3.5% expansion. If historical growth patterns are used as a guide, one could reasonably expect construction to outpace or at least match the economy’s recovery.


Indeed, the real estate sector body GYODER predicted 4-5% growth for 2012. If the predicted recovery is observed, it will be driven by the private sector, which has accounted for the bulk of growth over the past 15 years.

Private expenditures grew from TL4.5bn (€1.94bn) in 2000 to TL7.8bn (€3.37bn) in 2012 in 1998 prices, while public spending rose from TL2.6bn (€1.12bn) to TL3.5bn (€1.51bn) over the same time span. This reflects a number of trends, including the continued outsourcing of government-driven infrastructure projects via public-private partnerships (PPPs).

Mixed Opinions

Large-scale projects have been one of the most significant reasons behind higher hopes in the sector of late. The Turkish Statistical Institute (TurkStat) issued data in February 2013 that showed that the confidence index for the domestic construction sector had risen 4.9 points on the previous month to reach 85.5 points.

And while this still fell below the established barrier of 100 points, above which denotes a positive sentiment, the upturn that began in January and continued in February was significant because it came following eight months of decline.

Some analysts have attributed this reversal to the increase in orders as well as expectations of higher employment. However, the results were not positive all around. In February consumer confidence remained flat at 76.7 points, showing only a marginal improvement from the previous month. Even less optimistically, the sub-index on the probability of building or buying a house over the next 12-month period fell marginally in February 2013, showing less faith in the market on behalf of consumers.


Indeed, large projects, particularly in the areas of transportation and infrastructure, have been the major focuses of much of the construction sector’s attention for the past several years. Estimates of the size of the government’s infrastructure shopping list have varied between huge and massive. Unicredit estimated in 2012 that the country would need $120bn-140bn in transport spending by 2020, while the minister of transport, Binali Yıldırım, told a group of financiers at a conference in London that the total bill, including energy projects, would come to $250bn over the next ten years.

The largest single project firmly on the agenda is a recently added item: a massive third airport in Istanbul estimated to cost as much as $10bn (see Transport & Logistics chapter).

According to Yıldırım, the project will eventually include six runways and be capable of handling 150m passengers a year, which would make it the world’s largest. The tender, however, calls for the airport to be built over four stages under a 25-year lease. The first of these stages, with a capacity of 90m passengers, is set to open in 2017.

A bevy of major Turkish and international consortia – including Limak, Alarko, IC Holding, Sabancı, Varyap, TAV, Doğus and Germany’s Fraport – are expected to be in the running for the tender, which had been scheduled for May 3, 2013.

However, Turkey’s uneven history with major infrastructure PPPs, combined with the size of the project and the speed of the planning process, has many analysts doubtful about the tender’s chance of success. With less than three months between the announcement and the tender, it is thought by some that international firms in particular may discount heavily due to potential risks in the contract by inflating their bids or simply deciding not to participate.

Projects Ahead

Turkey has been no stranger to tender delays or cancellations. One of its most anticipated projects in recent years has been a third bridge over the Bosphorus Strait in Istanbul, along with a number of highways known as the North Marmara Highway System, which is finally due to start construction in May 2013.

It has been determined that the construction will be handled by a consortium of Italian giant Astaldi and IC İçtaş, which won the tender in May 2012 and secured financing worth $2.4bn in March 2013 from a group of seven Turkish banks. The total project costs are yet to be determined, but construction on the first section of the project, which includes the bridge and its most essential connecting roads, will be roughly TL4.5bn (€1.94bn).

Although the remaining roadblocks appear to have been cleared, the tender had a rocky history. It was first scheduled for mid-2011, and later pushed back to January at the request of the specific interested parties. A total of 18 companies obtained tender documents for the rescheduled bid, but none submitted offers in January 2013, citing reasons such as the size of the tender (estimated at $6bn), uncertain traffic projections and incomplete environmental impact studies, among other issues.

To ameliorate concerns, the tender that was finally successful had to strip out quite a number of the associated highways, which were deemed to be less profitable and also had to provide traffic guarantees that would compensate the bidders if the bridge failed to draw sufficient drivers.


The obstacles that the third bridge tender came up against were not unique to that project; contractors and financiers with experience in transport, health care, and energy PPPs or privatisation deals all reported headaches caused by overeager politicians, stodgy bureaucracies and outdated regulations. The delay of the Izmit Bridge could be said to be one symptom of this challenge, as was the state Privatisation High Council’s decision to cancel the sale of the two current Bosphorus bridges, as well as the Istanbul-Ankara motorway, which was spurred by Prime Minister Recep Tayyip Erdoğan’s assessment of the privatisation deal as “treason”.

Projects Galore

Meanwhile, a number of major projects are going forward as planned, including the Marmaray, a subway under the Bosphorus which, after suffering years of delay due to archaeological discoveries on the construction site, is scheduled to finally open in October 2013.

The very long-term project, which was first studied in 1985, spurred a loan agreement with Japan in 1999, but construction did not begin until 2004. The Marmaray is being managed by a consortium of Japan’s Taisei and local contractors Nurol and Gama. The Marmaray is attracting attention as the prestige project among a host of smaller upgrades to Istanbul’s transport system, which include a parallel Eurasia tunnel for car traffic. This $1.1bn tunnel project is under the control of a joint venture of two Turkish companies, Yapı Merkezi and SKEC, and Samwhan and Hanshin, two Korean companies.

Moving Underground

In addition, a number of lines are being added to Istanbul’s relatively limited subway system. The M4 from Kadıköy to Kartal on the Asian side opened in 2012, while work is under way on the M5 Üsküdar-Çekmeköy on the Asian side, the European-side Şişhane-Yenikapı M2 Extension and the M1B Otogar-Kirazlı line. A number of projects are in various planning stages, such as a new M6 Mahmutbey-Kabataş line, extensions of the M2 and M3 to Bahçeşehir, which would house an interchange, and a rail connection to the secondary airport, Sabiha Gökçen.

Finally, the central district of Taksim is being pedestrianised, with car traffic sent through underground tunnels, in an eight-month-long project that will cost at least TL50m (€21.59m) – small change compared to the massive works going on elsewhere, but a striking indicator of the magnitude of Turkey’s construction endeavours. In total, according to the Istanbul Metropolitan Municipality’s integrated master plan, projects currently being planned or under construction will cost $26.4bn.

An Added Drive

The above projects are being completed on their own merits but the Turkish government is also using them to show its commitment to improving transport in Istanbul, which is bidding once again for the 2020 Summer Olympic Games.

Most analysts around the world have the city neck-and-neck with Tokyo, and a win in September 2013 could both raise the city’s profile as an investment destination and spark some profitable construction works for the private sector. According to Istanbul’s bid book – submitted in January 2013 – the bid would be supported by $19.2bn in capital expenses and public services through 2020, including $5.28bn in the construction of purpose-built stadiums and venues for the Olympic Games.


Outside of Istanbul, meanwhile, there are a handful of major infrastructure works that are ongoing or soon to commence. There are 24 build-operate-transfer (BOT) highway projects on the way, according to the general directorate of highways, with more than 5000 km in length that is up for grabs. This includes the Gebze-Orhangazi-Izmir highway project, featuring a 1550-metre bridge over Izmit Bay. A BOT deal, the Gebze-Orhangazi-Izmir project was awarded in 2010 to a partnership between Astaldi and five Turkish construction companies.

In March 2013 the consortium managed to snag financing for the first phase of the $6.5bn project, which will cover the first 53 km of highway along with the bridge. The total value of the pipeline, which additionally will include a 1276-km cross-country highway and a 359-km highway between Tekirdağ and Çanakkale with a bridge over the Dardanelles, is estimated at $46bn through 2023.

And while it appears unlikely that every one of these projects will move forward on their scheduled timelines, the sheer ambition of Turkey’s construction plans has encouraged many of those who are involved in the private sector.

Working On The Railroad

The state’s major investments in high-speed rail (HSR) have continued, with work on the Istanbul-Ankara HSR line nearing completion. Unlike the highway projects farmed out to private bidders, the state is responsible for HSR construction and has worked with two Chinese state-linked firms, along with the Turkish firms Cengiz and IC İçtaş, to build and finance the railroad’s sections located in Istanbul. Recent projects have included high-speed lines from Ankara to Sivas, Bursa and Izmir, in addition to rail connections to two of Turkey’s neighbours, Georgia and Syria.

Meanwhile, Turkey and China have been jointly mulling a massive $35bn project that would eventually connect the city of Edirne in the west to the eastern city of Kars. This project has been dubbed the new “Silk Road” by the two nations.

According to the minister of transportation, Binali Yıldırım, total investments in rail will reach TL45bn (€19.43bn) by the country’s 100th anniversary in 2023, by which time Yıldırım promised that 10,000 km of rail will have been built.

Bringing In Power

Turkey’s capital projects in the energy sector are less numerous, but just as ambitious in scale. Russian state nuclear firm Rosatom is building the country’s first nuclear power plant in the southern province of Mersin, while bidding was set to close in April 2013 for the country’s second plant near the Black Sea. Each will cost around $20bn and will be ready between 2020 and 2023.

Turkey has experienced less progress, however, with its controversial Ilisu Dam project. The impoundment of the Tigris River in South-eastern Anatolia will flood the historical site of Hasankeyf but Ankara has proceeded with construction despite public protest and the recent cancellation of financing from several European export credit agencies.

Last but not least, the audacious Canal Istanbul – what Erdoğan himself called a “crazy project”– is slowly transforming from a rumour and a hypothetical to an actual possibility. The 45-km canal would turn western Istanbul into its own island, diverting oil tankers away from the Bosphorus, where they clog traffic and pose environmental risks.

The plan was mooted in 2011 and inspired a mix of interest and scepticism from experts and the public alike, who questioned its environmental impact, the possibility of real estate speculation by insiders and even its legality, given that the Bosphorus is governed by international treaty.

In January 2013, however, the subject returned to the forefront when Erdoğan announced the tender for geological and engineering works on the canal, and promised that the construction tender would take place within two years. The prime minister has promised that the canal, which has been estimated to cost over $20bn, will be completed by 2023.

Most industry figures who spoke with OBG termed the canal an exercise in legacy-building rather than an investment in a profitable enterprise, and predicted that the government would have to fund the project itself or provide very solid traffic guarantees to attract the private sector.

Building Out & Up

The large volume of work that has been available in the past several years and is expected to be on offer for the next decade represents a change for the construction industry, which saw companies abandoning the sluggish domestic market in search of lucrative contracts overseas.

This began in the 1970s with Libya and various Gulf states, and then spread to Russia and the post-Soviet Turkic world in the 1990s and 2000s. In 2012 Turkish contractors were working on 441 projects worth $26bn internationally, and Turkmenistan, Iraq and Russia represented nearly 50% of this total, according to data from the Turkish Contractors Association. Roads and bridges represent 16% of the work done abroad by Turkish firms, followed by housing, airports and tourism facilities.

All this success has driven 33 Turkish companies into the “Top 225 International Contractors” list published by the Engineering News-Record (ENR), second in total only to China.

However, there are signs that the “easy money” available in Turkey’s near abroad is keeping firms from investing in value-added engineering, design and project management skills.

The turnover of even the largest Turkish firms is still quite small; the 33 companies in ENR’s list accounted for 15% of the total, but were responsible for just 3.5% of total project value. This is partly due to the types of projects that Turkish firms specialised in: low-value-added housing and road projects without complex engineering or design requirements. According to some in the industry, the Turkish state’s approach to infrastructure projects for a long time was partly to blame: the government did much of the engineering and design work itself, which left little for private companies to build on, and when it did outsource the design work it was quite price-sensitive. In the past decade and upcoming years, however, as the focus turns to large projects awarded via engineering, procurement and construction (EPC) and BOT contracts, Turkish firms have been unable to compete with European and Asian majors.

As long as the overseas market continues to provide a steady supply of work, companies may be more than content to delay the transition to higher-value construction. However, relatively high labour costs could very well force their hand.

“Turkey’s construction companies operating abroad are gradually evolving from conventional, low capital-intensity projects to more value-added work,” said Atila Kemal Oğuz, the general manager at Tepe İnşaat. “We can’t compete on labour costs with South Asian workers in the Gulf, for example, and so firms will need to acquire more expertise in engineering and design.”

Boost From Sales

The year ahead also shows promise from ever-increasing sales in construction equipment. In 2012 sales of heavy equipment rose by 13%. This may seem small after the figures that were posted in 2009 and 2010, when sales grew by 100% and 40%, respectively.

However, overall, the trend still points to the growing focus on infrastructure development and public works projects. This added demand is also expected to result in growth in crude steel output.

In early February 2013 the secretary general of the Turkish Iron and Steel Producers’ Association, Veysel Yayan, forecast that crude steel output would rise from 35.9m tonnes in 2012 to 38m tonnes in 2013 when he spoke to Bloomberg.

With expectations of a busy year ahead, it should come as no surprise that representatives of construction firms from the UK, Germany and Spain have all met with the Turkish Housing Development Authority to discuss potential joint developments.


While short-term fortunes in the construction sector are closely tied to the ups and downs of the economy, the government is trying to promote a long-term approach, pointing to 2023 as the anticipated date of realisation for many of its ambitious projects. By that date, according to its claims, Turkey will boast 10,000 km of HSR, an extensive metro system in both Istanbul and Ankara, a third airport and bridge in Istanbul, two working nuclear plants, thousands of km of new highways, and as many as 7m rebuilt, earthquake-safe new homes.

While the government has not always managed to deliver all of its promises on time, investment from the private sector in a number of key projects demonstrates that the larger picture could offer significant profits. The coming challenge will be to align public and private incentives and ensure that haphazard planning does not derail a promising decade.

You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Turkey 2013

Construction & Real Estate chapter from The Report: Turkey 2013

Cover of The Report: Turkey 2013

The Report

This article is from the Construction & Real Estate chapter of The Report: Turkey 2013. Explore other chapters from this report.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart