Mipim 2013 essential turkey by RX REAL ESTATE SHOWS

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ESSENTIAL TURKEY

M a r c h 2 013

CONTENTS

ÂŠ iStockphoto.com / pictafolio

Property hotspots 12 Turkeyâ&#x20AC;&#x2122;s retail and hotel sectors are powering ahead, its ofďŹ ce market is coming up fast and industrial is showing long-term promise

ÂŠ iStockphoto.com / imagedepotpro

ESSENTIAL TURKEY OfďŹ ces 26 Growing demand from investors and corporate end-users has propelled Turkeyâ&#x20AC;&#x2122;s ofďŹ ce market into a period of rapid growth

ÂŠ iStockphoto.com / seroz4

ÂŠ iStockphoto.com / korhan isik

Retail 16 Istanbul is on every international retailerâ&#x20AC;&#x2122;s radar. But the biggest opportunities may well lie beyond the countryâ&#x20AC;&#x2122;s capital

Exports 40 Last year saw Turkish construction companies CARRY OUT INTERNATIONAL PROJECTS WORTH SOME BN

Logistics 30 With growth levels set to top 8% in the next year, Turkey has been pinpointed as an emerging logistics hotspot

ÂŠ iStockphoto.com / Redrockonline Productions

Legal changes 8 A reconstruction boom coupled with the relaxation of property-ownership legislation is about to make Turkey more appealing still

Hotels 34 All the major hotel groups are searching for local partners to target the countryâ&#x20AC;&#x2122;s increasingly afďŹ&#x201A;uent major cities ÂŠ iStockphoto.com / apoicdag photography

Residential 22 The mega-city of Istanbul is setting not only the pace but the standard of Turkeyâ&#x20AC;&#x2122;s modern housing stock ÂŠ iStockphoto.com / burak pekakcan

The big picture 4 Turkeyâ&#x20AC;&#x2122;s optimism and ambition â&#x20AC;&#x201D; not to mention surging economy â&#x20AC;&#x201D; has made it a role model for emerging markets the world over

Development showcase 44 Turkeyâ&#x20AC;&#x2122;s construction boom is leading to a surge in innovation, as competing projects jostle for attention.

ESSENTIAL TURKEY â&#x20AC;&#x201C; March 2013 â&#x20AC;&#x201C; MIPIM News Special Report. Director of Publications Paul Zilk Director of Communications Mike Williams EDITORIAL DEPARTMENT Editor in Chief Graham Parker Technical Editor in Chief Herve Traisnel Deputy Technical Editor in Chief Frederic Beauseigneur Graphic Designer Carole Peres Sub-editors Clive Bull, Joanna Stephens Proof Reader Debbie Lincoln Contributors Chris Bown, Mark Faithfull, Umut Hanioglu, Liza Helps, Steve Killick, Steve McCormack, David Sands Cover picture ÂŠ iStockphoto.com / easy images PRODUCTION DEPARTMENT Publishing Director Martin Screpel Publishing Co-ordinators Nour Ezzedeen, Emilie Lambert, Amrane Lamiri Production Assistant, Cannes OfďŹ ce Eric Laurent Printer Riccobono Imprimeurs, Le Muy (France) Reed MIDEM, a joint stock company (SAS), with a capital of â&#x201A;Ź310.000, 662 003 557 R.C.S. NANTERRE, having ofďŹ ces located at 27-33 Quai Alphonse Le Gallo - 92100 BOULOGNE-BILLANCOURT (FRANCE), VAT number FR91 662 003 557. Contents ÂŠ 2013, Reed MIDEM Market Publications. Publication registered 1st quarter 2013.

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THE BIG PICTURE

Getting better all the time 4

By any measure, Turkey is on the up. Umut Hanioglu reviews a nation whose optimism and ambition â&#x20AC;&#x201D; not to mention surging economy â&#x20AC;&#x201D; has made it a role model for emerging markets the world over

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012 was the year when a poll of global investors by PricewaterhouseCoopers (PwC) and the Urban Land Institute named Istanbul the number-one choice in the ‘current investments’, ‘new investments’ and ‘development’ categories, ahead of Munich, Warsaw, Berlin and Stockholm. At the same time, Washington DC-based Association of Foreign Investors in Real Estate (AFIRE) ranked Turkey third after Brazil and China as the most attractive emerging economy for international investment. With a population of 75 million, of which 60% is under the age of 34, a GDP of $736bn (€560bn) in 2010 and a residential mortgage loan volume of 68bn Turkish liras (€29bn) as of September 2011, Turkey is undoubtedly an up-and-coming economy. The country’s GDP growth in 2012 was 2.6% and its forecast growth for 2013 is 4.3%, according to research by Cushman & Wakeﬁeld. Domestic demand is a major driver of Turkey’s economic growth, with local investment accounting for 70% of total investment in 2012, compared to 34% in 2011. Total investment was €840m in 2012, up from €716m in 2011. The real-estate sector that has attracted the most international capital is retail. Recent major transactions include Blackstone’s purchase of the Redevco portfolio of three shopping centres: Gordion Shopping Center in Ankara (53,000 sq m), Erzurum Shopping Center in Erzurum (33,000 sq m) and Magnesia Shopping Center in Manisa (19,000 sq m). The sale was worth €220m. The Istanbul ofﬁce market witnessed two major transactions in 2012, when Netas (94,000 sq m) and Hurriyet Media Towers (59,000 sq m) were sold for €75m and €99m respectively. Both sellers were corporates looking to free up capital by selling to

THE INFRASTRUCTURE PIPELINE THE TURKISH government has announced that a new city is to be built in a former mines and quarry area near Istanbul. When complete, it will accommodate one million people, and house two universities and a hospital devoted to research. The proposed city will also benefit from the third Bosphorus bridge, as well as a high-speed train and a cruiser port. The 414 km-long North Marmara motorway project will connect the western Marmara province of Tekirdag to the Aegean city of Izmir via the third Bosphorus bridge and another bridge over the Gulf of Izmit. The construction contract has been awarded to the Turkish firm IC Ictas and Italy’s Astaldi. The third Bosphorus bridge — a 1,276 m-long suspension bridge — will be constructed over 36 months at a cost of $4.5bn (€3.42bn). Meanwhile, a new airport is also being planned for Istanbul, to be constructed over 42 months. The tender date is set for May 3, 2013. With a total terminal space of 1,400,000 sq m, the new airport will have an annual capacity of 150 million passengers. The communities adjacent to the new airport’s proposed site are experiencing an upward trend in land prices, rising by as much as 100% in some villages. However, the villagers are waiting for the tender date before they sell their land, which currently qualifies as agricultural land. But most ambitious of all is the plan for the Istanbul Canal, which will connect the Black Sea to the Sea of Marmara to the west of the city. With a price tag of 20 billion Turkish liras, the new waterway will ease the maritime traffic on the Bosphorus. The exact location of the project is as yet undecided.

developers in an area where land is scarce and very expensive. For the ﬁrst time in 10 years, 2012 growth rates for the construction sector were less than the overall growth rate of the Turkish economy. The growth rate for construction was 1.5%, whereas GDP growth was 2.6%.

AFIRE ranks Turkey third after Brazil and China as the most attractive emerging economy for international investment %33%.4)!, 452+%9 s -!2#(

THE BIG PICTURE Istanbul, a growing city in a growing economy

Economic summary 2009

2010

2011

2012

2013

(est.)

(f’cast)

35 30.5

30 25 20

18.5

14.1

13.1

12.0 9.2

8.5

9.8 9.2 9.0

8.9

7.8

7.0

6.7

In terms of domestic residential property sales, the first three months of 2012 saw a decline of 19.16% compared to the last quarter of 2011. However, compared to the same quarter in 2011, sales rose by 5.51%. In the first three months of 2012, 96,092 existing residential properties were sold. Jones Lang LaSalle reported in 2008 that Turkey’s urban dwellers had increased by 10 million in the previous decade. Istanbul alone welcomed two million new inhabitants. Research by Deutsche Bank and Deloitte in 2008 and 2009 respectively revealed that rapid population increase and the need for earthquake-resistant housing had resulted in a period of growth for the building sector, culminating in a construction volume of €24bn in 2007. And Turkish official data by TurkStat and the State Planning Organization suggests that 2.5 million new housing projects — including renewals, conversions and quality new builds — are still required to cater to continued population growth and urbanisation. It is estimated that some 5.5 million additional homes will be needed by 2015. Deutsche Bank research, meanwhile, indicates that 5.3 million new housing units will be needed to have been added to the stock between 2007 and 2017. From 2018 to 2027, 500,000 units a year will be needed. The research also suggests a 30%-plus increase in the population of the provinces of Istanbul, Antalya and Bursa. According to Didem Erendil Tuzer, director of capital markets at Cushman & Wakefield: “Continuous movement towards Istanbul and its peripheries has a direct influence on property-buying decisions and hence property prices.” At the same time, Erendil observes that

4.3

6.5

6.4

4.9

3.8

2.9

8.9

8.6 6.3

3.5

1.0

0.4

0 -2.3

-5

-4.8

-10

-9.9

-15 -20

-19.0

GDP growth

Consumer spending

Industrial production

Investment

Unemployment (%)

Inflation

Source: Oxford Economics/Consensus Economics

the increasing opportunities for real-estate developers are creating new jobs in construction for migrant workers, who in turn are increasing still further the demand for property in Istanbul. However, residual problems such as unemployment, inequality of income, poverty, in-

frastructural issues in some regions, including lack of water, electricity and other public services, legal red tape and potential malfunctions in the cadastral/land-registration systems continue to hamper the growth of the real-estate sector in Turkey.

Age pyramid of population Female

Age

Male

3,164,873

20-24

3,321,715

3,201,514

25-29

3,340,152

3,408,063

30-34

3,520,932

3,029,388

35-39 40-44

3,101,023

45-49 50-54

2,552,141 1,813,583

1,457,663

55-59 60-64

1,073,8121

65-69

951,321

870,624

70-74

725,164

2,652,485 2,484,629 2,090,603 1,838,889

2,741,118 2,126,422 1,346,616

Source: Turkish Interior Ministry, Demographics and Citizenship Ofﬁce

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PROPERTY LEGISLATION

Time to open up Welcome to Turkey, one of the hottest real-estate markets on the planet. And, writes Umut Hanioglu, a reconstruction boom coupled with the relaxation of property-ownership legislation is about to make it more appealing still URKEY’s government plans to attract international capital investment and reduce the current account deﬁcit — running at $39.2bn (€29.8bn) in the ﬁrst nine months of 2012 alone — with the introduction of a set of new measures. Among these is the new law that makes it easier for foreign nationals to buy real estate in Turkey, which came into force in 2012. Gulf nationals, Azerbaijanis, Kazakhs, Iranians and Russians, in particular, are expected to show an interest in the new projects that are springing up across Istanbul and beyond. The minister for environment and urban planning, Erdogan Bayraktar — the former head of TOKI, the government-sponsored socialhousing institution — announced in February that, between 2003 and 2012, 137 million sq

T 8

m of real estate was sold to non-Turkish nationals. The largest tranche was in Yozgat, a small town in the east of the country, at 9.6 million sq m. In all, 153,183 properties were sold to 139,828 purchasers. To the south of the country, where Turks escape in summer — Alanya, Bodrum, Didim and Fethiye — German, British, Irish, Belgian, Danish, Norwegian, Swedish and Dutch nationals are keen to buy. The Germans and Scandinavians tend to focus on Alanya, while the British are drawn to Fethiye and Didim. With the easing of the foreign-ownership law, western European interest is expected to increase. The cap on property acquisitions for foreign nationals, individuals and companies is 60 ha. Husniye Boztunc, assistant general manager

Agaoglu is promoting its Maslak 1453 project in Dubai.

of the bank TSKB, one of the largest corporate valuation companies in Turkey, explains that international investors are more interested in residence-type homes with services, located centrally in Istanbul. In coastal areas, they opt for larger, individual houses. If bought for investment purposes, a larger number of smaller properties are preferred. The relaxation of Turkey’s property legislation has enabled the country’s construction companies to focus their efforts on international markets, launching overseas offices and co-operating with international realestate brokerages. For instance, the major construction company Agaoglu launched a promotional campaign for its Maslak 1453 project in Dubai last year, hoping to attract buyers from the emirate. A bureaucratic hurdle in this respect is the registration of properties sold to foreign nationals, which remains a convoluted process. Another unresolved problem is which countries will qualify for the easing of the property ownership restrictions. A resolution by the Turkish Council of Ministers is expected to clarify the latter. One factor that might dissuade foreign nationals from buying in Turkey for investment purposes is the country’s high taxes, especially those imposed on the sale of real estate. For instance, if an investor makes 8,800 Turkish liras (€3,754) on a sale, no tax is applied. However, if the gains are more than this figure, a tax rate of between 15%-35% is levied. However, if a property is sold after 10 years, it becomes exempt from tax. Zeynep Fetvaci, principal and head of business development and investor relations at the real-estate investment management firm Peakside Capital, who manages the Bosphorus Real Estate Fund I, says investing in Turkey requires extensive local knowledge. “Understanding the idiosyncrasies of the legal system and working with the right local partner can make a big difference to your success,” she adds. “Improved market transparency and efficiency makes it easier to attract international investors.” With Istanbul in a constant state of construction and deconstruction, the building sector remains the engine of growth for the Turkish economy. Added to this, the main thrust of the government’s recently passed reconstruction law is to replace neighbourhoods comprised of low quality, shanty-like

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PROPERTY LEGISLATION “Understanding the idiosyncrasies of the legal system and working with the right local partner can make a big difference to your success”

buildings with modern apartment buildings. The government embarked upon this policy through TOKI when it came to power in 2002, concentrating on social-housing projects for middle and lower-middle income groups. Reconstruction is viewed by the government as a means of development, providing Turkish citizens with a better standard of living. A key aspect of the reconstruction law is that buildings deemed ‘risky’ — those that are not earthquake proof or built to unsafe speciﬁcations, for example — are to be demolished. In practice, this means that a staggering 6.5 million buildings across 33 cities are expected to be pulled down. The risk rating of a building is assessed by companies licensed by the Ministry of Environment and Urban Planning. Risky buildings are to be demolished within 60 days of the ofﬁcial decision. Flat-owners have the right to object to demolition within 15 days of the decision being issued. All objections are examined by geologists, civil engineers, lawyers and ministry experts, with the costs incurred being paid by the property-owner. Tenants in a con-

Zeynep Fetvaci, Peakside Capital

demned building are eligible for the state’s loan-support mechanisms in order to buy their own houses via long-term mortgages at low interest rates. Currently, the reconstruction process is still at the stage of striking deals with propertyand landowners and carrying out feasibility studies. The construction phase is not expected to begin in earnest until late 2013 or 2014. According to ﬁgures released in 2011 by the Ministry of Environment and Urban Planning, there are 18 million buildings in Turkey of which 67% are illegal, 55% are older than 20 years and 45% have completed their economic lifespan. According to GYODER, the Association of Real Estate Investment Companies, of the 3.5 million properties in Istanbul, 50% are illegal and two million must be rebuilt. The reconstruction boom has already started to beneﬁt construction companies, which

are starting to take on extra manpower and formulate new plant building plans for the supply industries, such as cement, glass and plastics. There is broad consensus within the construction community that the reconstruction process will lift the building sector out of its current recession and propel it back into growth during 2013. Nazmi Durbakayim, president of heavyweight construction company Teknik Yapi Holding, thinks that large cities such as Istanbul, Izmir and Ankara will mainly benefit from the reconstruction law. In Istanbul, a boom in construction is predicted in the rundown neighbourhoods, including Fikirtepe, Halic and Balat, as well as the Princes’ Islands and the Bosphorus. Ideally, to build better planned and more efficiently run cities, reconstruction in the mid to long term should not only benefit construction companies and home-owners, but all city dwellers.

10 cities where foreign nationals bought the most real estate by area (sq m) Yozgat:

9,615,443

Konya:

8,306,788

Antalya:

7,399,117

Ankara:

7,068,942

Mugla:

6,806,499

Kırsehir:

5,816,039

Aydın:

4,617,313

Nevsehir:

4,478,220

K.Maras:

4,129,774

Izmir: Minister for environment and urban planning, Erdogan Bayrakter

3,918,768

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

Source: Ministry of Environment and Urban Affairs

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THE HOT SPOTS

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Where it’s happening Turkey’s retail and hotel sectors are powering ahead, its ofﬁce market is coming up fast and industrial is showing long-term promise. No wonder the world’s investors are queuing up, writes David Sands

vestment value of $40bn and a total leasable area of 8.3 million sq m in 310 malls throughout the country,” Belgu says, adding that there are 101 shopping malls in Istanbul and 209 in Anatolia, the westernmost protrusion of Asia. According to Belgu, about 25 shopping centres are slated to open this year, adding 1.1 million sq m of leasable area to the sector. In all, the sector will total 9.4 million sq m and generate a revenue of 60bn Turkish liras (€25bn). Belgu adds: “Today, 53 of the 81 cities in Turkey have shopping centres. We observe that shopping centres, traditionally concentrated in Ankara and Istanbul, are moving eastward. Significant demand has occurred in these regions and the sector is responding with the most appropriate concept and store mixes for each area.” Multi has 10 Turkish shopping centres, one under construction and another five at the planning stage in mid-sized cities across the country. It is also in the process of acquiring two more. Herman Kok, Multi Corporation’s international research director, says: “We don’t necessarily go to Istanbul, Akara and Ismir, but follow the retailers to where there is a good catchment and growing spending power. I have been amazed at how fast shopping-centre development has filtered down to the regional Turkish cities. You can clearly see the speed that developers have become active in second- and third-tier cities of up to 500,000 inhabitants.” Cem Alfar, CEO of retail developer Corio Turkey, is also keen on provincial centres. “Compared to demand, the supply of land in big cities is limited and expensive, and so the attractiveness of an optimum loca-

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Corio Turkey’s Cem Alfar

tion in secondary cities can be higher than a mediocre location in Istanbul,” he says. Meanwhile the, office sector will provide more medium- to long-term opportunities for investors. “There is hardly any high-quality office supply outside Istanbul, apart from Ankara,” Gonden says. “Quality office stock could double over the next three to four years, mainly provided by domestic investors.” But it may not be easy for overseas developers to enter the market, Gonden warns, explaining that there is a strong Turkish construction tradition of cash-rich family businesses that have no need to partner with foreign investors.

T THE interface of the continents of Europe and Asia, Turkey’s strategic location has long been one of its strongest assets. The country’s biggest city, Istanbul, is a four-hour flight from London and a similar distance from Dubai. Air travel in Turkey is growing so fast that a third airport is planned and, when finished in 2016, will be one of the world’s biggest. Turkey’s economy is enjoying stable growth, with a debt-to-GDP ratio of 40%. GDP growth in 2011 was an impressive 8.5%, followed by 3% last year and, according to IMF predictions, 3.5% this year. With a population of 13 million, Istanbul is the dominant city, with 40% of GDP concentrated there. Office demand is also focused on the city, although the capital, Ankara, is also an important business centre. The relative youth of the Turkish population, combined with a burgeoning middle class, has boosted retail demand. Indeed, the retail property sector provides the most opportunities in the short term for investors. Togrul Gonden, Cushman & Wakefield’s (C&W) managing partner for Turkey, says: “Some of Istanbul’s sub-markets are saturated and, over the last three to five years, demand has been moving into the provinces. Some cities are already well on the way to being saturated. But there are many places where there is no modern retail stock at all. Retail provision averages 91 sq m per 1,000 people, while the European average is 250 sq m, so there is a long way to go.” Hulusi Belgu, CEO of retail at Multi Development Turkiye, points out that 21 new shopping centres opened last year. ”The shopping-mall sector in Turkey has an in-

THE HOT SPOTS “I have been amazed at how fast shopping-centre development has ﬁltered down to the regional Turkish cities”

C&W estimates that there is 800,000 sq m of quality office stock a year in the pipeline for 2013 and 2014. This includes the government’s plans for a massive scheme called the Istanbul International Financial Center, which will comprise 560,000 sq m of offices, plus retail, hotels and some residential real estate. “There is plenty of demand for office space,” Gonden adds. “There was a lot of office take-up last year, which will continue in 2013 as more and more international companies start operating out of Turkey.” The hotel sector, meanwhile, is growing massively. Istanbul received around 11 million tourists last year, while the government is planning to cater for 40 million tourists a year. In addition, there is a great deal of hotel-development activity outside Istanbul, in regions such as Urfa, Mardin and Ordu. “The Hilton group is the most active, with 22 hotels across Turkey, plus 11 in the pipeline,” Gonden reports. Other international groups that are already present in Turkey, or coming, include Mandarin, Raffles, Jumeira, Shangri-La and Le Meridien.

Herman Kok, Multi Corporation

Corio’s Tarsu shopping centre in Tarsus

Industrial development — Turkey’s least evolved real-estate sector — is focused around the Sea of Marmara, including Istanbul, Corlu, Koauli, Bursa and Ismir. “The industrial

ISTANBUL INTERNATIONAL FINANCIAL CENTER THE MAIN objective of the Istanbul Financial Center is to transform the city into a regional and, ultimately, global ﬁnance hub. It will be located within the district boundaries of Atasehir and Umraniye on the Asian side of Istanbul. Plans for the 3.2 million sq m development have been prepared by the Ministry of Environment and Urban Planning. The Banking Regulation and Supervision Agency (BRSA), Central Bank, Capital Market Board (CMB), Ziraat Bank, VakifBank, Halkbank and other private institutions are also expected to participate. A metro line between Goztepe and Umraniye will be built to the ﬁnance centre, which will also be connected to Marmaray and the major metro lines.

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segment is very driven by owner-occupiers,” Gonden says. “So there is hardly any speculative development and it therefore provides limited scope for foreign investment. Land prices are very high and rents are quite low compared with other European countries.” However, the sector has deﬁnite potential as retailers and e-tailers start to need larger distribution spaces in a market where there is little modern product.

RETAIL

ÂŠ iStockphoto.com / seroz4

Onward, upward, outward %33%.4)!, 452+%9 s -!2#(

The mega-city of Istanbul is on every international retailer’s radar. But the biggest development opportunities may well lie beyond the country’s big cities, Mark Faithfull reports

Istanbul – Istiklal street

STANBUL, with its rapidly modernising infrastructure and ambitious Istanbul International Financial Center scheme, has been the focus of much retail interest in recent years. Yet beyond Istanbul, a staggering 55 out of Turkey’s 81 provinces lack any modern retail provision and, while not every area could sustain a mall, many could. Turkey has risen to be the eighth largest shopping-centre market in Europe. Today, it has 6.6 million sq m of GLA, up from a ranking of 17th and 0.33 million sq m 15 years ago. In per capita terms, however, Turkey ranks just 29th out of the 33 markets with 91 sq m per 1,000 inhabitants, versus the EU-27 average of 250 sq m. Even expanding at the average development rate of the past ﬁve years, it would take Turkey nearly 15 years to catch up with this average rate. Turkey’s economic growth has slowed and its GDP dipped markedly last year after surging 8.5% in 2011. However, GDP growth still registered a 3.2% uptick in 2012 and the Turkish government has predicted a 4% rise this year, down from an initial 5% forecast. Turkey enjoyed the dubious advantage of its own banking crisis almost a decade ago and, ironically, that has stood the country in good stead in the current global downturn. The potential remains for an additional 11.7 million sq m to be added over a 15-year period, even at the lower pace of expansion since the global downturn, according to Togrul Gonden, Cushman & Wakeﬁeld’s managing partner for Turkey. He believes that, although retail development has been focused on Istanbul, Ankara and Izmir over the last decade, the opportunities now lie in the regions. “The demoOzge Aklar graphics in Turkey remain very strong compared

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with the rest of Europe and, despite the bias towards Istanbul, which has 60% of the retail in Turkey, it represents only 40% of the country’s GDP. So there is scope for further growth outside Istanbul,” Gonden says. “Shopping centres in Istanbul are able to operate at occupancy ratios of at least 70%-75%, otherwise the lessees earn the right to terminate the contracts. Most of the malls operating well in Istanbul have an occupancy ratio of at least 90%-95%,” says TSKB Real Estate manager Ozge Aklar. However, she notes that, going forward, the priority areas for shopping-centre investment will be the Mediterranean and the Central Anatolia regions. The trick for investors and retailers will be to choose the right schemes — lack of city planning remains an issue — and the right scale for each province. In a market where domestic demand is a major driver of economic growth, there is a strong local investment and development community. Local investment accounted for approximately 70% of total real-estate investment in 2012, compared with 34% in 2011. Total investment in 2012 was €840m, up from €716m in 2011. The most signiﬁcant transaction of 2012 was Blackstone’s acquisition of Redevco’s entire Turkish portfolio: three shopping centres — Gordion Shopping Center in Ankara (53,000 sq m), Erzurum Shopping Center in Erzurum (33,000 sq m) and Magnesia Shopping Center in Manisa (19,000 sq m) — for €220m. Notable previous investment activity in regional retail had not been seen since 2006-2007. Anthony Labadie, managing director of CBRE Turkey, adds: “Turkey’s position as a strategically important country that provides a link between Eu-

RETAIL “There is scope for further growth outside Istanbul”

rope, the Middle East and Asia has been enhanced by its recent strong economic performance, stability and demographic trends. The real-estate market’s performance has been particularly robust.” There are currently 249 centres in operation across Turkey totalling 6.7 million sq m of GLA, of which 139 were built in the last ﬁve years. In an indication of its dominance, Istanbul hosts 104 shopping centres, accounting for 65% of all shopping-centre space. Consumer demand has been the prime driver behind the strong growth in the retail sector — and the size of the prize continues to increase. Deloitte Turkey Corporate Finance forecasts that retail sales of €232bn in 2011 will rise to €323bn in 2015. The re-

Togrul Gonden

port predicts that the Turkish retail sector will reach €240bn in 2012 and also forecasts 10% growth per annum until 2016.

On the supply side, approximately 1.1 million sq m of retail space is in the pipeline for 2013, comprising around 30 shoppingECE’s Marmara Park opened in 2012

Multi Development’s Forum Gaziantep

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Tesco’s Kipa format now has 500 Turkish stores

RETAIL “Turkey’s position as a strategically important country has been enhanced by its strong economic performance” centre projects spread across 15 cities. In addition to the three major cities of Istanbul, Izmir and Ankara, the current investment trend highlights the emergence of other Anatolian cities as viable development destinations. Major projects currently in the pipeline include: Zorlu Center, Platform Merter and Uniqu in Istanbul, Edirne Shopping Centre in Edirne, Prime Mall in Gaziantep and Rosarium in Isparta. Among those most active, Multi Development has started Forum Gaziantep — its 11th project in Turkey — and ﬁve more Forum shopping centres across the country. Opening in September 2013, Forum Gaziantep, located at the junction of the

Anthony Labadie

ancient city centre and the modern residential areas, is 60% leased. Multi will be investing close to €700m in Forum Gaziantep and Forum Adana, Forum Diyarbakır and Forum Canakkale, which are starting construction this year. Forum Corum and Forum Elazıg are currently in development. The total investment value will be €4.2bn, including the 10 currently active and six new projects. Hans van Veggel, founder and chairman of Multi Corporation, says: “On top of the 10 successful Forums today, we will in the next three years have created and be running 16. This is testimony to our conﬁdence in the Turkish market and Turkish people’s appetite

for quality retail and lifestyle experiences.” Germany’s ECE is also active in Turkey. Marmara Park in Istanbul, which opened in October, became the 11th Turkish centre under ECE management. With 250 stores, restaurants, cafes and a cinema on four ﬂoors, Marmara Park has a GLA of 100,000 sq m. It is a joint venture between ECE and Deutsche Bank-owned DWS. The ﬁnancing bank was the Turkish Finansbank.

Retail performance across three main markets Prime rents ($/sq m/y)

Growth annual (%)

Growth over ﬁve years (%) CAGR

Prime yields (%)

2011 (%)

Ten year high/low (%)

Istanbul

1,993

6.8

10.2

7.25

14.5/7.25

Izmir

746

17.1

3.2

10.25

10.5

14.5/10.25

Ankara

819

5.9

3.7

10.2

10.25

15.5/10.2

Retail density

Major retail projects outside Istanbul

sq m

350

GLA per 1,000 capita, Turkey

2009

Shopping centre

City

GLA (sq m)

Expected opening

Erasta Antalya

Antalaya

37,000

2013

Forum Gaziantep

Gaziantep

44,500

2013

Kozzy Maras

Kahramanmaras

51,000

2013

Kozzy Samsun

Samsun

63,000

2013

Kozzy Urfa

Sanlıurfa

45,600

2013

MarkAntalya

Antalya

50,000

2013

Next Level

Ankara

42,500

2013

Palladium Antakya

Hatay

40,000

2013

Taurus Ankara

Ankara

50,000

2013

Bornova Cadde

Izmir

50,000

2015

2013

308

300 264

250 210

207

200

181

141

150

142 141

134

145

140 129

119 90

100 65

İstanbul

Ankara

Karabük

Bolu

Trabzon

Bursa

Denizli

Turkey

Source: Jones Lang LaSalle

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Source: Jones Lang LaSalle

RESIDENTIAL

Homes, sweet homes

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In Turkey, the future happens first in Istanbul. This is particularly true in the residential market, Steve Killick discovers, where Istanbul is setting not only the pace but the standard of Turkey’s modern housing stock OMPARED to its ailing neighbours to the West, Turkey has much to be pleased about. High levels of activity in the retail sector and a burgeoning distribution network have helped develop a genuinely international profile for the country. Investors are attracted not least because Turkish per capita spending is set to increase by nearly 50% in the next three years. Changes in the property law have also helped considerably. Before the new legislation was passed last year, only investors from countries where Turkish nationals were allowed to buy property could spend their money in Turkey, which precluded all but those from the UK, Germany and the Netherlands. But no longer. “Istanbul is becoming a second London for the Arab world,” says Erdinc Varlibas, chief executive of developer Varyap, whose company is undertaking a €768m mixed-use development in the Atasehir district of Istanbul, which overlooks the Bosphorus on the Asian side of the city. Just as in London, the Arabs are looking for the most exclusive and stylish places to live and Varyap’s stunning Uphill Court development is setting new standards in technology, design and luxury. The focus of the scheme is two giant towers of 31 floors each, connected by a skyway. The overall project consists of 20 highrise buildings comprising 1,742 apartments. “Istanbul is very much the focus of activity,” says Ahmet Ozgur, project manager at Colliers in Istanbul. “Even though Ankara is the capital of Turkey, over three quarters of the new residential activity is taking place in Istanbul. As far as the Turkish people, especially the younger ones, are concerned, it’s the place to be.” Research by Colliers reveals that the Istanbul market is currently seeing a much higher quality of new housing projects — a hike in standards that is being matched by an increase in prices. “For high income groups, the only place to be are in the city-centre districts,” Ozgur adds.

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This new affluence is what attracted US real-estate developer Donald Trump to develop his company’s first residential and office project in Europe. The $400m Trump Towers, comprising two 150-metre skyscrapers in the Mecidiyekoy district, opened last April, delivering 204 luxury apartments as well as a mixed retail and office scheme. Within days, over 75% of the apartments had sold at prices ranging from €461,000 to €4.6m. Suites range in size from 85 sq m to 680 sq m. Significantly, Trump teamed up for the project with billionaire Turkish businessman Aydin Dogan and Trump is said to be planning further projects in the city with the media tycoon within two years. “This is the best way for international investors to go about things in Turkey,” Ozgur says. “Find a sound Turkish partner who knows the ins and outs of the property market and the numerous regulations that need to be followed. A great many of really big projects are being done this way.” One scheme that is certain to add to Turkey’s appeal is the the vast new financial district in what is currently just scrubland on the Sea of Marmara in the Atasehir district of Istanbul. This will become the Istanbul International Financial Center (IFC) and it will be bigger than the financial districts of London, New York and Dubai. The Turkish government has announced that it will move the financial institutions currently based in Ankara into the new $2.6bn district, which will employ some 30,000 people upon completion. And if Turkey’s prime minister, Recep Tayyip Erdogan, can get what even he describes as his “crazy and magnificent plan” to work, there will be even more people flocking into the city. Erdogan also wants to build a canal linking the Sea of Marmara with the Black Sea that will make Suez and the Panama canals look mundane in comparison. The canal will be 48 km long and will split Istanbul in two, easing the present congestion on the Bosphorus caused by the heavy tanker traffic moving to and from Bulgaria, Romania, Georgia, Ukraine and southern Russia. “Bosphorus traffic will be reduced to zero,” Erdogan says. “Water sports will take place on the Bosphorus.” With this kind of inward investment, it is no wonder that PricewaterhouseCoopers has declared Istanbul one of the three new European hotspots for property investors and developers. Istanbul is now the clear market leader, ahead of Munich and Warsaw.

RESIDENTIAL “Istanbul is becoming a second London for the Arab world”

Trump Towers Istanbul has 204 luxury apartments

Erdinc Varlibas, Varyap

What Istanbul can offer that its traditional rivals Spain, Italy and Portugal cannot is freedom from the euro and a growing middle-income population. Over 40% of the city’s current 14 million or so residents are under 35, which has stoked the demand for housing to 250,000 units a year. To meet this demand, remodelled residential zones are now springing up around the city’s old quarter. Research by DTZ looked at the increase in house prices in Turkey overall and, based on data released in May 2012, revealed a growth of 11.4% with Istanbul leading the way with 13.1% and Izmir second with 12.1%. Dilek Pekdemir, research associate at DTZ in Istanbul, says: “A key factor in the residential market is the interest rates. We expect average monthly interest rate to be stable in the medium term. Factor in falling inﬂation and a cashdominated economy and it’s easy to see why the housing market is performing so strongly.” Pekdemir’s research also shows a fall in average household size and a decline in population growth. This decline has led to a new generation of small, boutique-style apartments available in popular districts, such as Levent and Akatiar where €238,000 will get you a stylish two-bed apartment. Meanwhile, younger, less afﬂuent home-hunters are targeting the buy-to-let projects that are springing up on the outskirts of the city. The next step for Turkey must be accession to the EU. If what is going on in Istanbul is any indication, there may not be that much longer to wait.

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the driving force of

rising turkey The Turkish economy is developing, growing and on the rise. A driving force behind this growth is the housing industry. Providing employment in 150 professions, housing developers serve as the locomotive for growth in more than 30 industries. In 2011, Konutder, the Residential Developers and Investors Association, joined forces to serve construction, iron and steel, furniture, household appliances and cement industries. Approximately 30 thousand individuals are directly or indirectly employed and a total of 200 thousand housing units, worth US$ 3 billion, have been constructed. Konutder members continue to build Turkey’s ideal cities featuring modern, comfortable homes with high investment values.

17 CORPORATE AND 47 INDIVIDUAL MEMBERS ACCOUNT FOR 30% OF THE TURKISH HOUSING INDUSTRY, 200 THOUSAND HOUSING UNITS, US$ 3 BILLION IN TOTAL SALES, EMPLOYMENT OPPORTUNITIES FOR 30 THOUSAND INDIVIDUALS.

Address: Ömer Avni Mah. İnebolu Sok. Dünya Han, No: 15/3, Setüstü, Kabataş, Beyoğlu, Istanbul Phone: +90 (212) 245 0566 pbx Fax: +90 (212) 245 0564 www.konutder.org.tr

OFFICE TRENDS

Watch this space

Growing demand from investors and corporate end-users has propelled Turkey’s ofﬁce market into a period of growth that, observers predict, will change it dramatically in the decade ahead. Steve McCormack reports

URKEY is the second most populated country in Europe and would be the EU’s sixth largest economy. It has weathered the worst of the global economic downturn, with GDP growth predicted at 3.5% for 2013, up from 3% last year. Couple this with a strategic location, political stability and a young, educated workforce and Turkey stands apart from the low-growth eurozone economies. The outlook for the commercial real-estate market across Turkey also remains positive. With improving access for investors, strong domestic demand and well capitalised banks with limited exposure to toxic assets, Turkey compares well with the EMEA’s other emerging markets. Its office market attracts both domestic and international corporate occupiers, and is now receiving increasing interest from international institutional and private investors. Prime assets have gained 40% over five years, making Turkey the leader in capital growth across the emerging Europe region. Istanbul has the most developed office market in the country. With a population expected to reach 15 million by 2015 and a strategic position straddling Europe and Asia, it is also developing as a regional operational hub for multinational companies servicing the MENA and CIS regions. The city was ranked number one for new investments and developments in Europe for the second consecutive year by PwC and the Urban Land Institute in the 2012 Emerging Trends In Real Estate Europe report. This view was reinforced at the end of the year when rating agency Fitch raised Turkey to ‘investment grade’. “When discussing the office market in Turkey, we are really talking about Istanbul,” says partner and head of office and industrial at Cushman & Wakefield’s Istanbul office, Tugra Gonden. “While there is significant stock in Ankara and Izmir, these are a fraction of the size of Istanbul with no ‘office markets’ as such.” Grade-A office stock in Istanbul is currently around 3 million sq m. Ankara is estimated at 400,500 sq m, while Izmir will have 170,000 sq m by the end of 2013. The largest concentration of quality office space is in Istanbul’s CBD — on the European side — which accounts for about 40% of the stock. The remainder is spread in pockets across the city. The view is that, while Levent and the wider European CBD will remain a focus of activity, cheaper and more

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OFFICE TRENDS

available sites on the European periphery and the Asian side of the city, plus a strong pipeline of quality schemes, will dilute its dominance with the creation of new office sub-markets. Huge investment in infrastructure, including plans for a new bridge across the Bosphorus, a new airport and expanded metro, rail and road networks, can only make these new office sub-markets more attractive. For example, the €1.99bn Istanbul International Financial Centre is a government-sponsored project being built in the Atasehir district on the Asian side. If plans are realised, it will provide 723,000 sq m of office, retail, residential, hotel, conference and other community facilities. Occupier demand remains strong and broad-based. A proportion stems from renewals, but there is also some movement from international companies, some new to the country. “We are seeing a very healthy market that strengthens year on year, with good take-up activity particularly from international companies, many of whom are moving from older stock into newer developments as they become available,” says managing director of CBRE Turkey, Anthony Labadie. Last year saw transaction volumes double over 2011 to over 240,000 sq m. With limited speculative new development taking place, particularly in the European CBD area, prime rents are under renewed upward pressure. According to the latest figures from Jones Lang LaSalle, across Istanbul the vacancy rate for grade-A offices increased slightly in 2012 to 9.4%, with CBD vacancies increasing from 4% to 4.5%. C&W’s Global Office Forecast 2013/14 finds that a lack of quality space, prohibitive costs and dearth of development sites, plus increasing demand from international occupiers, has led to CBD rents reaching €33.8/sq m/month. Well-connected, newly emerging sub-markets are also seeing rents strengthen, albeit from a low base. At the same time, prime yields have eroded to 7.5%, which is almost as low as the pre-crisis figures. Rental levels are substantially lower in Ankara and Izmir but they, too, have seen positive growth over the year. Prime office rents are €13/sq m/month in Izmir and €17.6/ sq m/month in Ankara; yields are 9.75% and 9.6% respectively. One consequence of the shortage of gradeA office stock in Istanbul is an increasing early interest in commercial developments. For

Istanbul ofﬁce development pipeline to 2015 (000 sq m) Asia

Europe CBD

Europe – Non CBD

405

“The market will be a very different place 10 years from now” Tugra Gonden, Cushman & Wakeﬁeld

486 500

Source: Jones Lang LaSalle

Istanbul ofﬁce stock (000 sq m) Asia

Europe CBD

Europe – Non CBD

1,188

848 1,089

Source: Jones Lang LaSalle %33%.4)!, 452+%9 s -!2#(

example, Colliers International Turkey reports interest in the Torun Tower — a 66,000 sq m A+ office project in the popular Esentepe area — well ahead of its 2014 completion. “In Turkey, companies generally do not rent offices before their completion,” says managing partner at Colliers Turkey, Kerim Cin. Observers predict that a healthy pipeline of grade-A office stock will go some way to redress the current shortage. According to DTZ, 430,000 sq m of grade-A office space is under construction, with 800,000 sq m currently in planning. Unlike the retail market, office development activity remains dominated by Turkish providers. Fragmented ownership and lack of transparency remain barriers. Some institutional investors are seeking opportunities, but low yields and the lack of investmentgrade stock is still the main impediment to higher levels of activity. CBRE’s Labadie predicts that the evolution away from the traditional multi-ownership, floor-by-floor property model will lead to a better ‘fit’ with global corporate culture. “I know clients who have to deal with two or three owners on 1,000 sq m of office space, which makes effective management difficult,” he says. “We are now seeing the introduction of single ownership and effective management on new stock, which is encouraging good take up and demand.” C&W’s Gonden agrees: “The market will be a very different place 10 years from now, with a lot more choice and variety for occupiers and fewer legal issues to overcome. The presence of international developers will lead to a more professional, thoughtthrough approach to commercial office space, with better quality stock built to more stringent safety and seismic standards.”

One investment rises above the rest…

At the heart of a global city, Nurol Tower is an exceptionally attractive investment opportunity in Istanbul’s Central Business District. Walking distance to the city’s new main courthouse, one of the largest in Europe, and Florence Nightingale Hospital, an internationally recognized private hospital, Nurol Tower is an A Class Home-Ofﬁce project targeted directly at an afﬂuent audience of Lawyers and Doctors. Investors have the opportunity to buy into a project that offers a select professional audience ease-of-access, close to major highways, the metro and public transportation and the 1st Bosphorus Bridge, as well as the convenience of a fully-serviced building providing business and meeting facilities, shopping, dining and more with a total of 243 units ranging from 73 m2 to 193 m2.

Backed by Nurol REIT’s track-record of delivering quality projects that meet real buyer needs, Nurol Tower is a uniquely positioned opportunity in the center of a global city…

LOGISTICS

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Turkey supplies the answer With growth levels set to top 8% in the next year and forecast to be worth €92.2bn by 2015, it’s small wonder that Turkey has been pinpointed as an emerging logistics hotspot. Liza Helps reports URKEY’s emergence as a major logistics hub should come as no surprise, given its location at the gateway between Asia and Europe. Added to that, the country has unrivalled economic growth — 8.9% in 2010, compared to just 2% for European Union members — as well as political stability. “That,” says Avi Alkas, country chairman of Jones Lang LaSalle Turkey, “along with significant investment in infrastructure, means the market also holds exceptional potential to morph into an international logistics gateway hub.” Alkas adds that the Turkish government has embarked on an aggressive investment programme to expand the country’s express train and motorway networks and to improve connections between its major cities. “For example, the North Marmara motorway project will connect Adapazari to Tekirdag via Istanbul, also involving the construction of the third bridge in Istanbul,” he says. “The Marmaray project is also a hugely significant transportation infrastructure project that will actually connect the European rail networks to the Middle Eastern and Asian rail networks.” Kerim Cin, managing partner of Colliers Turkey, points out that, in addition to rapid economic growth, Turkey’s logistics sector is also benefiting from the “sophistication brought in by multinational logistics providers and the greater realisation by manufac-

turers and retailers of the benefits of outsourcing logistics activities”. But despite its significant retail market and trade volumes, the Turkish logistics market is currently underdeveloped. Tugra Gonden, partner and head of office and industrial at Cushman & Wakefield Turkey, says: “There is a lack of high-quality logistic and manufacturing schemes, with the majority of the current built stock falling far short of international standards, which is impacting on take-up levels.” According to research by IGD (Istanbul Gayrimenkul Degerleme), there is 8 million sq m of space throughout Turkey and, of that, only 2 million sq m is considered anywhere near to international grade-A standard. Murat Ergin, managing director of Kuzeybati, the Turkish alliance of BNP Paribas Real Estate, says: “The existing warehouse stock is mainly small, old and has low heights to eaves. There is limited new and modern warehouse stock. According to the latest research, Turkey has only around 40 sq m of warehouse space for every 1,000 inhabitants.” To put this into perspective, real-estate experts in Moscow are concerned that there is only 400 sq m of grade-A space per 1,000 inhabitants, compared to 1,200 sq m per 1,000 for Prague and 1,500 sq m per 1,000 in Warsaw. Gonden adds: “There is very limited speculative development taking place and any

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quality schemes that do break ground will see leases signed before completion due to the lack of suitable supply. This is particularly so for any well-placed schemes that are linked to current or indeed planned infrastructure projects, such as the third Bosphorus bridge. While construction is increasing, the majority of it is undertaken by domestic developers, who typically prefer to hold the real estate rather than sell it on.” As a result, land prices are high and this is holding back international developers, which are unable to turn a proﬁt on schemes as rents are still quite low, especially in locations outside Istanbul. Gonden says that land prices in logistics hot spots can reach €230-€307 per sq m to buy, but that rent levels are only €5.91 per sq m. “Istanbul is in a league of its own and land prices are prohibitively high for new developments,” says Anthony Labadie, managing director of CBRE Turkey. “And with a population of around 13.5 million and 250,000 new people arriving in Istanbul each year, the competition for land for other purposes, such as residential, is extremely ﬁerce.” Like the development market, Alexandra Tornow, head of EMEA logistics and industrial research at Jones Lang LaSalle, notes that the investment market is mainly dominated by owner-occupiers and local investors. “The main activity in the market involves development projects based on a partnership

LOGISTICS Transportation of freight according to transportation type 2010

2011

Source

Highways

190 365 000 000

203 072 000 000 tonne kilometer tuik

Railroads

11 462 000 000

11 677 000 000 tonne kilometer tuik

Maritime Lines 6 787 000 000

8 617 000 000 tonne mile

tuik International transports are not included.

Airlines

2 249 474 tonne

Sivil Havacılık Genel Müdürlügü

2 021 076

between the developer and the landowner,” she adds. “Due to high land prices, which makes logistics investments quite unfeasible, this method appears to be the only way in practice for new development.”

At present, according to IGD, 60% of the stock in Turkey is in Tekirdag — the European side of Istanbul — and Gebze, on the Asian side. However, as Istanbul decentralises and expands beyond its existing boundaries, much of the traditional industrial land is being re-zoned to residential use, especially on the European side. This is paving the way for Tuzla and Gebze to be the prime industrial zones of the Marmara region on the Asian side. That is not to say that there are not opportunities for development. “There are some large logistics developments in the pipeline in Turkey,” Kuzeybati’s Ergin says. “Istanbul, Kocaeli, Ankara, Mersin, Izmir, Samsun and Eskisehir are the emerging cities. The government gives support to the development of logistics parks in these cities. In the last four years, lease transactions of 800,000 sq m have been observed in Istanbul and Kocaeli.” Ergin adds that the largest logistic park in Turkey is currently Logipark, occupied by Sanoﬁ Aventis, Otto Group, Bayer, Sandoz, Abbott, Gefco and Valeo. Logipark, which is located in Istanbul’s emerging distribution district of Tuzla-Orhanli, has a GLA of 130,000 sq m. But it is not just the traditional industrial

The 130,000 sq m Logipark

heartland where demand is centring, according to Jones Lang LaSalle’s Tornow: “There is a lot of potential for port-centric development. Strong growth in container trafﬁc in the main seaports around Istanbul — Ambarli, Mersin, Izmir and Haydarpasa — is another driver for the Turkish logistics market. In 2010, together they recorded a total container throughput of 4.5 million TEU — similar to Bremerhaven and Valencia, respectively ranked fourth and ﬁfth in Europe.

“Turkey has only around 40 sq m of warehouse space for every 1,000 inhabitants” %33%.4)!, 452+%9 s -!2#(

Driven by growth in throughput in the two main ports, Ambarli and Mersin, these were among the fastest growing European container ports in 2010.” Indeed, research from Colliers reveals that more than two thirds of Europe’s external trade by value already passes through Turkey’s ports. And this ﬁgure is likely to grow, as trade and container shipping growth is forecast to outstrip overall economic growth for the foreseeable future.

Murat Ergin, Cushman & Wakeﬁeld Turkey

Room for more

All the major hotel groups want a slice of Turkey, with the big brands searching for local partners to target the country’s increasingly afﬂuent major cities. Chris Bown reports

URKEY’s fast-developing economy has made it a high priority for international hotel groups looking to expand their portfolios. While the scale and international proﬁle of Istanbul presents numerous opportunities, the challenge in the regions is ﬁnding markets that have a demand for year-round hotel space, at room rates that make development feasible. “It’s a very exciting market,” says Rob-

ert Shepherd, chief development ofﬁcer, Europe, of InterContinental Hotels (IHG). “What we like about Turkey is the investment in infrastructure.” IHG already has 12 hotels, including InterContinental, Crowne Plaza, Holiday Inn and Holiday Inn Express, in Istanbul alone. “We have focused on establishing our presence in the major cities to begin with,” Shepherd continues, adding that Turkey’s substantial

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size means it is necessary to be selective. “We think Istanbul will retain its dominance in the medium term.” Thanks to its location straddling East and West, Istanbul is an increasingly popular venue for international conventions and events — a fact that has not been lost on the international operators. “It’s a great location for European conferences,” says Shepherd. Figures from TRI Hospitality Consulting reveal that Istanbul hotels enjoyed a strong first half of 2012, with profits up 14.3% in June 2012, and occupancy across the year steady at 70%. The Istanbul market currently has around 36,400 rooms, with this total expected to swell to 44,900 by the end of 2014, according to research by Jones Lang LaSalle. This accounts for 10% of total demand in the country, at around five million room nights a year.

HOTELS

HOTELS Le Meridien Istanbul

“Istanbul is a thriving city with good rates and occupancy,” says Christoph Harle, CEO, Continental Europe, of JLL’s Hotels & Hospitality Group. He sees further potential in the country, but warns that Turkey has enjoyed spectacular economic growth in the past, which quickly subsided. “But the expectations are good,” Harle adds, while stressing that local knowledge is vital for development success. “It’s an environment where international developers could struggle unless they have local connections.” Outside Istanbul, several major Turkish cities are also attracting international interest. Scandinavian group Rezidor has already opened Radisson Blu-branded hotels in Ankara and Cesme, and its pipeline includes Izmir and Bursa. Late 2011 saw the company open a Radisson Blu in Mersin, where it converted an existing hotel. Rezidor president and CEO, Kurt Ritter, said at the time: “Turkey is an important growth market for us. The country has a strong economy and ambitious development plans. We look forward to further strengthening our portfolio in this emerging region.” In December 2012, Rezidor announced a Radisson Blu for Kayseri — another of Tur-

key’s top 10 cities with a population of one million-plus. Local development partner Doruk will deliver a 20-storey hotel with 240 rooms in early 2014. Hotel group Wyndham recently launched its TRYP brand into Turkey, opening a 108room hotel in Istanbul. The TRYP adds to Wyndham’s growing portfolio in the country, which currently extends to 12 Ramada hotels and the Wyndham Istanbul Kalamis Marina, which launched in late 2012. A second Wyndham-branded hotel, the 306room Wyndham Istanbul Petek, will open this summer. The 10-ﬂoor hotel, located in the central Taksim district, is owned and operated by Tunc Otelcilik Limited Sirketi, which also operates the recently opened 102-room Ramada Hotel and Suites Istanbul Atakoy. “With its rapidly growing tourism industry, Turkey is full of opportunity for hotel development,” says Rui Barros, Wyndham Hotel Group’s senior vice-president and managing director, EMEA. Hilton is making perhaps the strongest play into the Turkish market. January 2013 saw it sign agreements for an additional seven Garden Inn-branded hotels across the country. The company already has ﬁve Garden

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Inns in Istanbul, Kutahya, Konya, Mardin and Sanliurfa, with a further ﬁve in development. Patrick Fitzgibbon, senior vice-president of development, Europe & Africa, for Hilton Worldwide, says: “We begin 2013 in our strongest ever position in Turkey, following a year that has seen our growth momentum continue to gather pace and our pipeline expand to over 4,000 rooms. Added to the 5,500-plus rooms we have operating, we are fast approaching the signiﬁcant milestone of 10,000 rooms operating or being developed under a Hilton brand in Turkey.” He adds that, in 2011, the country accounted for 5% of all Hilton’s global room openings. Away from Istanbul, the market is dominated by tourist hotels, many of them on the coast and catering for a highly seasonal, price-driven package market. The Antalya region on the Mediterranean dominates this sector. “Around 75% of room nights are in the resort locations,” InterContinental Hotels’ Shepherd says. This is not a market international brands are overly keen to enter. They dislike highly seasonal business and, as online travel agent On The Beach found recently, Europe’s Mediterranean hotel operators are cutting room rates

HOTELS savagely to encourage tourists to return. Luxury brands are finding a keen market in Turkey, too. Research by Colliers shows major brands typically seek a local investment partner to deliver a first hotel in Istanbul. “Luxury hotel brands prefer Istanbul for their city hotel projects, and Bodrum for resort properties,” says Kerim Cin, managing partner of Colliers Turkey. Among those already open in Istanbul is Marriott, which chose the city as the first European destination for its Edition boutique brand, developed with Ian Schrager. The 79-room conversion opened in 2011. Last year saw Le Meridien open a 259-room hotel in Istanbul, while Hong Kong-based

Shangri-La launched a 200-room hotel converted from an old tobacco warehouse. Singaporean brand Rafﬂes is also present with a 180-room new-build hotel, in partnership with developer Zorlu Holding. Others have been active in the Bodrum area. In 2011, Indian group Aman Resorts opened its 36-room Amanruya hotel in Golkoy. This year will see the opening of the ﬁrst of Rezidor’s Missoni brand properties in Turkey. The resort property outside Antalya will have 110 rooms, a golf course and wellness suite. And next year will see Four Seasons deliver a far larger project — a hotel with 175 rooms and 150 linked residences in Bodrum.

“What we like about Turkey is the investment in infrastructure. It’s a very exciting market” Robert Shepherd, InterContinental Hotels

Top Hotel Openings 2012 270 rooms Martı Istanbul

259 rooms Le Meridien Istanbul Etiler

231 rooms DoubleTree by Hilton Avcılar

212 rooms Renaissance Istanbul Bosphorus

210 rooms Wyndham Istanbul Kalamıs Marina

Hilton Garden Inn Istanbul Golden Horn Turkey

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195 rooms Radisson Blu Istanbul Asia 116 rooms Rixos Pera Istanbul

92 rooms Ramada Istanbul Asia

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CRITICAL THINKING AT THE CRITICAL TIME™ FTI Consulting is the ofﬁcial communications partner to MIPIM

EXPORT

Brains for rent

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Last year saw Turkish construction companies carry out 433 international projects, worth some €20bn. Steve McCormack looks at Turkey’s growing reputation as the go-to exporter of expertise

URKEY has a reputation as a successful exporter, particularly in sectors such as motor vehicles, textiles, and iron and steel. However, the country also has the second largest construction and contracting sector in Europe and successfully exports its broad expertise to an impressive number of markets. Construction has played a crucial role in Turkey’s economic development and today accounts for well over 6% of the country’s GDP, employing some 1.8 million people in contracting and consulting companies. According to figures from the Turkish Contractors’ Association, by 2012 Turkish firms had undertaken almost 6,700 projects in 96 countries, with a total value of some €176bn. The annual volume of business undertaken abroad increased from €1.8bn in 2002 to €19.2bn in 2007. However, in subsequent years, reflecting the effects of the global crisis, volumes have reduced. No less than 33 Turkish contracting companies rank among The World’s Top 225 International Contractors, named last year by international industry magazine ENR (Engineering News-Record), placing Turkey second in the world after China. The list includes Turkish companies Tefken, Polimeks, Ronesans, Gama, Enka and Antyapi. According to Mustafa Bilek, Turkish founder of Russian construction firm Mebe Construction, there are good reasons for the global competitiveness of these contractors. “Turkey has produced a generation of young, gifted and well-educated engineers,” he says, noting that Turkish entrepreneurs are very skilled at anticipating future trends

%33%.4)!, 452+%9 s -!2#(

in addition to their core civil engineering and business skills. Bilek, who has over 35 years of industry experience in Turkey and Russia, founded Mebe in 1995. “We built this company in order to benefit from the gap in the construction sector,” he says. “Because the growth of the economy is so fast in Russia, in order to succeed in this environment, there is a need to grow and become scalable. Turkish firms can easily adapt to all kinds of circumstances resulting from political and economic change.” Mebe’s development division was launched in 2010 and its first commercial office building in Moscow — the service-oriented Mebe One Khimki Plaza — will complete in February 2014. Turkey’s strength in the field is not only due to its location at the crossroads of Europe, Asia and Africa. Its contractors also have a reputation for cost-effective service to international standards, high client satisfaction, credibility in partnerships and a calculated, risk-based approach to business. They offer extensive know-how and experience gained through working abroad for nearly four decades on a wide variety of engineering projects and in all forms of business environments. Turkish contractors are also active in construction industry investments, ranging from the manufacture of construction materials to infrastructure, housing, industrial plant and tourism projects. The origins of this success can be traced back to large-scale domestic infrastructure programmes between 1985 and 2000, when local Turkish contracting firms worked with international partners and gained significant experience in the fields of project management, contract management and production. Faced with reduced business opportunities at home and recognising the attractiveness of business prospects abroad, Turkish contractors began expanding their areas of influence, starting first with markets in the Middle East and North Africa, exploiting the benefits of shared cultural values. “The state was the major investor at the time and, with so many major projects completed or shelved, we had to build upon our domestic experience and look abroad,” says Osman Birgili, senior vice-president of Tekfen Construction. “It is hard to believe our

EXPORT “Turkey has produced a generation of young, gifted and well-educated engineers” export growth ﬁgures in these early days, but they reﬂected the demand for competitive contractors.” Tekfen, which is active in 10 countries on three continents, boasted a turnover of €1bn in 2012. With 80% of its business outside its home market, the group has successfully completed €7.6bn worth of projects abroad. It is currently working on a major highway project in Qatar that will be worth €1.15bn to the company by completion in 2014/15.

Mustafa Bilek, Mebe Construction

Turkish international contracting services 96 countries 6,700 projects $230 Billion

Total Project Value (Billion USD)

25.0

CIS

Africa

Asia

Middle East

Europe

America

24.3 22.6

22.6

20.6

19,17%

18.5

6,77%

17.6

3,16%

0,46%

15 27,6%

Towards the end of the Eighties, political changes provided further opportunities for Turkish firms to target the Russian Federation, the Commonwealth of Independent States (CIS) and Eastern Europe, as well as to build upon existing relationships with their neighbours in Central Asia. Traditionally the three leading markets for Turkish contractors have been the Russian Federation, Turkmenistan and Libya. Changing circumstances have seen the Russian and Libyan shares decrease in recent years. Indeed, the negative effects of the Arab Spring have seen the Libyan market, in particular, severely affected. On the other hand, in the aftermath of the interventions in the region, Iraq has become one of the most important markets for Turkish contractors. As a result, during the first 10 months of 2012, market leader Turkmenistan accounted for 21.9% of business, followed by Iraq (11.6%), Iran (11.1%), Saudi Arabia (10.5%), Ethiopia (9.7%), UAE (7.3%) and the Russian Federation (6.2%). The inclusion of Ethiopia in this list highlights the importance of Sub-Saharan Africa as a region for potential future growth. Market, product and business diversification have continued unabated, while several Turkish companies have specialised in projects such as international airports, infrastructure, industrial plants and commercial centres. Turkish contractors are today facing fierce competition from both emerging local

11.3

11.2

43,18% 4.2

5 2.4

2002 *10 months

2003

2004

2005

2006

2007

2008 2009

2010

2011

2012*

Source: Turkish Contractors Association

“The future looks very bright” Osman Birgili, Tekfen Construction

construction companies as well as Korean, Chinese and Russian ﬁrms. “We have had to evolve to keep pace with the changing environment,” Birgili says, pointing out that Turkish companies now sell themselves on the quality of their output, exceptional track record, and health, safety and environmental credentials, as well as ﬁnancial competitiveness. “We are currently able to provide a full EPC [engineering, procurement and construction] service to all our civil-engineering

%33%.4)!, 452+%9 s -!2#(

projects. It is our goal to extend this so we can provide full turnkey solutions to clients across all our markets including, for example, pipeline projects.” As well as Sub-Saharan Africa, Birgili sees great potential for growth in South East Asia and cites the recent fabrication of offshore platforms for use in Brazil. “We have excellent communications with Brazil, which might lead us towards the South American market as well,” he adds. “The future looks very bright.”

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