Colliers: Signs of recovery in the Istanbul office market (TR)

Colliers International sees signs of recovery in the office market as we move into the second half of 2010. Due to the nature of Turkey's business environment, the A class office market is concentrated in Istanbul.

Istanbul skyline

Colliers expects to see a significant number of deals in the last half of 2010.

On the back of the recovery from the economic crisis, we are observing an increase in tenant demand.

In the last two years, lease transactions were at a minimum, with only a small number of tenants taking new space, mainly in the business areas of Ümraniye and Levent. In addition to the economic crisis, some of the reasons for the limited number of transactions were the high fit-out and moving costs, shortage of alternatives and long approval procedures. However, despite these challenges, and on the back of recovery, we expect to see a significant number of deals in the last half of 2010.

A number of multinational corporations have reactivated their activities, which were for the most part postponed immediately after the crisis. Mainly corporations engaged in the financial, technology, FMCG and services sectors are active in securing their new contracts. However, the motives behind the current demand are different from what was seen in the market in 2007 and 2008, where occupier interest was directed to more prestigious offices. Now in 2010, tenants are looking for A-class office space in secondary regions like Ümraniye and Kavacýk for budgetary purposes. In this regard, downsizing, optimization of space and consolidation are the main trends in the office market.

Since the beginning of 2010, the office market began to show signs of sustained activity, however tenants are still cautious entering into commitments. The completion of a transaction is more time consuming and involves more procedures than companies expect. The market transformed in the last two to three years from a landlords' market to a tenant's market, with expectations for greater flexibility on commercial terms and more incentives.

In addition to the low demand, there was a shortage of supply enabling rents to remain stable in the period following the global economic crisis. Many pipeline projects were postponed in 2009 in prime office districts such as Levent, Zincirlikuyu and Kozyataðý due to lack of financing. In Turkey, project pre-leasing is not a common practice, unlike most other the countries. Although the economy seems to be recovering in 2010 and the mood of the market is optimistic, a lease contract is still the pre-requisite for assuring funds and credit for investors and developers. Thus office projects will likely be neglected when compared to residential and retail projects, which provide higher short term returns.

For new projects to come online, developers require sustained low interest rates with ease of credit. Also, for developers and investors to feel more confident in the market, more transactions are needed along with decreasing vacancy rates. This would enable the realization of pipeline projects concentrating in the main CBD.

Suburbanization of office market
Much of the tenant demand

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