Market Trends of Trukey Commercial Construction Industry
Office Space Demand Fuelling the Market Growth
The commercial real estate market in Turkey has become an attractive option for investors due to the growing demand for offices since the pandemic's impact has reduced. While the existing Grade-A office supply in Istanbul remained stable at 5.8 million sq m GLA as of 2022 mid-year, there is approximately 1.5 million sq m office supply under construction and it is expected that the total Grade-A office supply will outpace 7.3 million sq m GLA by the end of 2023. Approximately 90% of the future supply consists of the Istanbul International Financial Centre project located in Ataşehir, which is expected to be completed by the end of 2022. Demand for office space remains strong, with the vacancy in the CBD continuing its downward trend for the fourth consecutive quarter. The vacancy rate decreased from 18% at 2021 year-end to 16.1% in 2022 mid-year. As occupier demand for quality space remains healthy, availability in premium office buildings continued to be limited in H1 2022.
A total of 37,781 sq m office take-up was realized in H1 2022. While take-up volume was 32% down in terms of size, the total number of new leasing transactions was 9% higher than the same period of the previous year. Levent in the CBD, and Kozyatagi, Libadiye and Ataşehir on the Asian side have become prominent in leasing activities. While prime office rent remained stable at 25 USD per sq m compared to both yoy and qoq, it increased sharply by 89.2% yoy to TRY 350 (USD 18.65) per month as of 2022 mid-year, as a result of a concentration of activity in the most central locations and the upward trend in inflation. In the third quarter of the year, the general supply in the Istanbul office market remained at 6,46 million sq. m. While total leasing transactions in the third quarter of the year were recorded as 106,118 sq. m. Thus, the total leasing transactions in the three quarter of the year reached 350,582 sq. m. This is a two-fold increase compared to the same period of the previous year. This growing demand for office space is fuelling the market growth.
Growing Retail Sector to Support the Market Development
The existing shopping center supply reached the level of 14 million sq m in 448 centers in Turkey as of 2022 mid-year. Shopping center openings, which accelerated in H2 2021, maintained their momentum. With approximately 120,000 sq m leasable area, a total of five shopping center projects entered the retail market during H1 2022. Currently, approximately 882,000 sq m GLA in 29 centers is under construction, adding up to 14.8 million sq m supply by the end of 2024. Istanbul hosts the majority of the supply with a share of 37%, followed by Ankara and Izmir with shares of 12% and 6% respectively. In the first half of 2022, shopping center footfall improved in comparison to 2021, though levels are still down compared to 2019. However, despite lower footfall, the turnover performance of shopping centers fully recovered to pre-pandemic levels. In April and May, in particular, the monthly turnover of many shopping centers surpassed 2019 levels of bairam and holiday shopping.
As of mid-year 2022, EUR-based shopping center rent remained stable at EUR 70 per sq m/month (USD 75.62 per sq m/month). However, TRY-based prime rent was recorded at TRY 1,050 (USD 55.95) per sq m/month, with a rise of 5% qoq and 50% yoy respectively. In the third quarter of 2022, the increase in demand in the retail market draws attention. Another reason for the increasing demand is that the number of foreign visitors after the pandemic almost caught up with the pre-pandemic period. Although increasing costs due to inflation and fluctuating exchange rates continued to affect the sector, significant occupancy rates were observed both in shopping malls and on main streets. There is an increase in rents in both USD and TL terms with this increase in demand in the retail market and limited supply. In the third quarter of 2022, it was observed that investors continued their growth strategies despite the difficulties in finding empty stores. Thus, the growing retail sector in Turkey will support the market development.
