REAL ESTATE MARKET REVIEW

2018 SECOND HALF 2

ECONOMIC OUTLOOK OF TURKEY

The FED’s signaling of a break in interest rate hikes at its first meeting of 2019 has led to expectations of an easing in the pressure of capital outflows on developing countries such as Turkey. According to the World Bank Country Economic Outlook Report for Turkey, the country is estimated to have notched up a chain volume index 3.5% growth rate in 2018. The growth rate is forecast to slow to 1.6% in 2019 before rebounding to 3% in 2020. Key Economic Indicators

Real Estate Market / Second Half 2018 | / Second Estate Market Real Turkey 2015 2016 2017 2018 2019 2020 Research & Forecast Report | Colliers International | Colliers Report & Forecast Research GDP (Current US $ ) $ 861 billion $ 863 billion $ 851 billion $ 772* billion $ 747* billion $ 746* billion

GDP per Capita $ 11.014 $ 10.883 $ 10.597 $ 9,488* $ 9,067* $ 8,945* (Current US $)

Growth 6,10% 3,20% 7,40% 3,5%* 1,6%* 3,0%* Inflation 8,80% 8,50% 11,90% 20,30% 19%* 11%* Current Account $ -32,2 $ -33,1 $ -47,4 $ -25,4* $ -21,8* $ -28,8* Deficit (Billion US $) Current Account 3,70% 3,80% 5,60% 3,3%* 2,9%* 3,9%* Defict / GDP USD/ TL (End of 2,92 3,52 3,78 5,3 5,9* 6,0* Year) Unemployement Rate 10,20% 12,00% 9,90% 11,2%* 12,1%* 12,3%*

*Forecasted data as of February 15 2018, no official data announced yet. Source: TUIK, Central Bank, World Bank

The devaluation of the Turkish Lira against the US Dollar is expected to lose pace through 2019 according to Fitch estimates and the Central Bank of Turkey February 2019 survey, with the TL/US$ exchange rate coming in around 5.90 at the end of the year. Having risen to a 15-year peak of 25.2% in October 2018, the rate of inflation entered a downward trend in the following months before closing 2018 at 20.3%. The exchange rate’s negative impact on inflation and interest rates is forecast to continue through 2019. The World Bank’s estimate for average inflation in 2019 stands at the level of 19%. 3

Inflation Rate

25.00% Research & Forecast Report | Colliers International TurkeyReal Estate Market / Second Half 2018 |

20.00%

15.00%

10.00%

5.00%

0.00% 2015 2016 2017 2018 2019* 2020*

Growth Rate 8.00%

6.00%

4.00%

2.00%

0.00% 2015 2016 2017 2018 2019* 2020*

US Dollar/TL (Year End) 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 2015 2016 2017 2018 2019* 2020* 4

ISTANBUL OFFICE MARKET

Current Situation Office regions in are examined on the basis of 8 sub-regions, 4 on the Asian side of the city, 4 on the European side. At the end of 2018, the total area of speculative Class A office stock stood at 2,667,904m². Taking the year as a whole, we see that approximately 100.000m² of fresh leasing transactions took place in 2018. As much as 56% of these transactions were realized in the Kozyatağı/Ataşehir region. This was followed by the CBD with 23% of leasing transactions. Real Estate Market / Second Half 2018 | / Second Estate Market Real Turkey Research & Forecast Report | Colliers International | Colliers Report & Forecast Research

Rents and Vacancy Rates Under the terms of Notification No. 32 relating to the Law for the Protection of the Turkish Currency, most property owners have now begun to declare their list prices in Turkish Lira. The rise in TL office rents seen in 2017 was maintained through to the end of 2018. The average rent for Class A buildings in Istanbul overall came in at 100TL/m²/month in the last quarter of 2018. While rents rose in TL, they fell in USD terms due to the devaluation of the Turkish Lira against the US Dollar. Average TL rents in Class A offices in Istanbul’s office regions rose between 12% and 38% in the final quarter of 2018 when compared to the second quarter of the year. The devaluation of the Turkish Lira against the USD and the growth in inflation were the principal causes for the rise in rents on a TL basis. Average vacancy rates in Class A offices in Istanbul overall fell from the second quarter of the year to come in at 35.9% in Q4 of 2018. The region that saw the steepest fall in vacancy rates was Kozyatağı/Ataşehir while the sharpest increase occurred in the Kavacık region.

Yields While office yields were at the 7% level between 2014 and 2016, they stood at 7.5% at the end of 2017 and 8% at the end of 2018.

Conclusion and Forecasts 559,262m² of leasable office space is set to be added to supply within the next 3 years, 54% in Kozyatağı/ Ataşehir, 29% in the CBD, 15% in Maslak and 2% in the Kağıthane/Cendere regions. We believe that average rents for Class A offices in Istanbul’s office regions will continue to rise in TL terms, and vacancy rates will continue to decline, through to the end of 2019. We also expect the rising trend with respect to Class A office yields to be maintained. 5

ISTANBUL OFFICE MAP Research & Forecast Report | Colliers International TurkeyReal Estate Market / Second Half 2018 |

1 Istanbul West 2 CBD 3 Kağıthane/Cendere 4 Maslak 5 Kavacık 6 Ümraniye 7 Kozyatağı/Ataşehir 8 Istanbul East

Rent Vacancy Rate 6 month 6 month 12 month TL/sqm/ay 12 month % Stock growth outlook change, BPS outlook

Asia 992,827 89 8% 32.42% 284

Europe 1,675,077 107 13% 38.10% 427

Total Istanbul 2,667,904 100 22% 35.99% 374

Source: Colliers International 6

Change of Class A Office Rent and Vacancy Rates in Istanbul

Rent (TL/sqm/month) Vacancy Rate(%) Districts Q2 2018 Q4 2018 Change Q2 2018 Q4 2018 Change 1 Istanbul West 42 57 25% 24%

2 CBD 108 132 34% 28%

3 Kağıthane / Cendere 64 71 71% 67%

4 Maslak 81 103 39% 32%

71 98 4% 17% Real Estate Market / Second Half 2018 | / Second Estate Market Real Turkey 5 Kavacık Research & Forecast Report | Colliers International | Colliers Report & Forecast Research

6 Ümraniye 68 83 25% 28%

7 Kozyatağı / Ataşehir 82 98 53% 36%

8 Istanbul East 66 74 22% 37%

CBD: Levent, Etiler, Esentpe/Gayrettepe, Şişli, Beşiktaş, Taksim Source: Colliers International

Istanbul A Class Office Future Stock by Regions - sqm

350,000 303,009 300,000

250,000

200,000 162,000 150,000

82,800 100,000

50,000 11,453 0 CBD Kozyatağı/Ataşehir Maslak Kağıthane/Cendere

Source: Colliers International 7

İstanbul Class A Office Rents ($/sq m/month)

120 ₺ $30 Research & Forecast Report | Colliers International TurkeyReal Estate Market / Second Half 2018 | $26 $26 $25 $25 $24 $24 100 ₺ $23 100 ₺ $25 $22 $22 $18 80 ₺ $20

84 ₺ 82 ₺ 84 ₺ 82 ₺ 60 ₺ 74 ₺ $15 70 ₺ 69 ₺ 53 ₺ 60 ₺ 40 ₺ $10

20 ₺ $5

0 ₺ $0 Q2 2014 Q4 2014 Q2 2015 Q4 2015 Q2 2016 Q4 2016 Q2 2017 Q4 2017 Q2 2018 Q4 2018

Transaction Rent(TL) Transaction Rent(USD)

Source: Colliers International

Yields

8.5%

8.0% 8.0%

8.0%

7.5% 7.5%

7.5%

7.0% 7.0% 7.0% 7.0% 7.0% 7.0%

7.0%

6.5%

6.0% Q2 2014 Q4 2014 Q2 2015 Q4 2015 Q2 2016 Q4 2016 Q2 2017 Q4 2017 Q2 2018 Q4 2018

Source: Colliers International 8

ISTANBUL INDUSTRIAL MARKET

Industrial Regions Our industrial market research involves detailed analysis of Istanbul and 8 sub-regions in the environs of the city. The regions under examination are Dudullu and Tuzla on the Asian side of the city, Esenyurt-Kıraç and Silivri on the European side. Our market research also includes the industrial zones in Gebze and Dilovası in the province of Kocaeli, as well as Çerkezköy and Çorlu in the province of Tekirdağ. Fifty one percentage of the existing stock in the industrial market in Istanbul and its environs constitutes leasable space. The vacancy rate of the total of 3,905,282 m² existing leasable stock stands at 14%. Real Estate Market / Second Half 2018 | / Second Estate Market Real Turkey Research & Forecast Report | Colliers International | Colliers Report & Forecast Research

Industrial Market (sqm) Owner Occupied Space 3.691.235 Total Leasable Stock 3.905.282 Vacant Space 541.778 Subtotal 7.596.517 Under Construction Projects 529.560 Planned Projects 582.890 Total 8.708.967

(*) The data specifies all industrial stock that is leasable, sellable or usable by the owner. Source: Colliers International

There was a slight decline in vacancy rates in the Dudullu, Esenyurt-Kıraç, Dilovası and Çerkezköy regions compared to the first half of 2018. While vacancy rates remained unchanged in the Silivri andÇorlu regions, there was a small rise in Tuzla and Gebze. The main reason for vacancy rate rises was limited stock depletion in the face of growing supply in these regions due to the coming on stream of new facilities. There was a fall in average rents compared to the previous year in all regions under examination. The main reason for this was the devaluation of the Turkish Lira against the US Dollar coupled with a growth in inflation and interest rates, with the concomitant narrowing of demand created by this state of affairs. We foresee that Turkey’s economic performance and currency rate pressure will continue to impact logistic and industrial facility rents in 2019. We believe that this pressure means that there is a potential for a decline in rents, albeit slight. We also anticipate a continuing rise in demand from e-commerce firms in the market in this period. Logistic and industrial facility yields remain steady at around the 10% level. 9

GREATER ISTANBUL AREA INDUSTRIAL MAP Research & Forecast Report | Colliers International TurkeyReal Estate Market / Second Half 2018 |

Regions: 1 Dudullu 2 Tuzla 3 Silivri 4 Esenyurt 5 Gebze 6 Dilovası 7 Çerkezköy 8 Çorlu Source: Colliers International

Rent (TL/sqm/month) Vacancy Rate(%)

Districts Q2 2018 Q4 2018 Change Q2 2018 Q4 2018 Change

Istanbul Dudullu 28,64 17,47 0,10 0,07 Asia Tuzla 25,90 26,10 0,10 0,23

Istanbul Silivri 14,81 8,90 0,40 0,40 Esenyurt-Kıraç 23,82 17,42 0,08 0,06

Gebze 26,48 22,17 0,09 0,11 Kocaeli Dilovası 14,93 15,87 0,32 0,22

Çerkezköy 15,76 9 , 3 1 0,15 0,12 Tekirdağ Çorlu 11,17 10,58 0,28 0,28

Source: Colliers International 10

Industrial and Logistics Yield

10.5% 10% 10% 10% 10% 10% 10% 10% 10% 10%

10.0% 9.5%

9.5%

9.0%

Real Estate Market / Second Half 2018 | / Second Estate Market Real Turkey 8.5% Research & Forecast Report | Colliers International | Colliers Report & Forecast Research

8.0%

7.5%

7.0% Q2 2014 Q4 2014 Q2 2015 Q4 2015 Q2 2016 Q4 2016 Q2 2017 Q4 2017 Q2 2018 Q4 2018

Source: Colliers International

Prime Industrial and Logistics Headline Rents

$7.50 $7.00 33 ₺ 31.3 TL $7.00

28 ₺ $6.30 $6.30 $6.30 $6.30 $6.50 $6.00 $6.00 $5.75 $5.75 23 ₺ $5.50 $6.00

22.3 TL $5.50 18 ₺ 21.5 TL 19.9 TL 20 .7 TL 20 .8 TL 18.4 TL $5.00 17.1 TL 13 ₺ $4.50 14.4 TL 13.6 TL 8 ₺ $4.00 2014/H1 2014/H2 2015/H1 2015/H2 2016/H1 2016/H2 2017/H1 2017/H2 2018/H1 2018/H2

Prime Rents TL/m²/month Prime Rents $/m²/month

Source: Colliers International 11

ISTANBUL RETAIL MARKET Research & Forecast Report | Colliers International TurkeyReal Estate Market / Second Half 2018 |

Supply As of the end of 2018, the total leasable area of the 415 shopping centers in operation throughout Turkey stood at 12,773,984m2, a 7.7% rise over the figure for the end of 2017. With 80 new shopping centers set to open in 32 provinces by the end of 2021, the total leasable area will reach 14,595,791m2. As of the end of 2018, there are no shopping centers in 16 provinces of Turkey’s 81 provinces. The total leasable shopping center area per 1,000 people for Turkey as a whole reached 156 m² as of the end of 2018. The table on the following page shows the provinces in the top ten ranking in total leasable shopping center area per 1,000 people in Turkey. It is noteworthy that the provinces of Bolu, Edirne, Nevşehir which have populations below 500,000, make the top ten. Geographically located midway between Istanbul and , Bolu maintains the third place ranking it achieved in the previous period with 287m² of leasable area per 1,000 people. Turkey’s third largest province, Izmir, only makes 10th place. Forty nine percent of the total leasable shopping center area in Turkey is in the provinces of Istanbul and Ankara, which house 25% of Turkey’s population. Currently there are 120 shopping centers in operation and 11 shopping centers upcoming in Istanbul.

Demand As of November 2018, number of visitor index of shopping centers did not change compared to the same month of the previous year. The shopping center turnover index for November 2018 rose 22% compared to the same period in the previous year, to 293. Thus, turnover rose in spite of stagnation in visitor index. This is accounted for by the reflection on prices of the same products of rising inflation. 12

RETAIL MAP OF TURKEY Real Estate Market / Second Half 2018 | / Second Estate Market Real Turkey Research & Forecast Report | Colliers International | Colliers Report & Forecast Research

Source: Colliers International

Shopping Center Stock in sq m per 1,000 persons

350 311 294 300 287

250 239 214 200 184 167 166 165 163 156 150

100

50

0

(*) Retail market analysis and data for Turkey as a whole includes shopping centers with at least 25 stores and total leasable area of more than 5,000 m2 Source: Colliers International 13

Retail Yields Research & Forecast Report | Colliers International TurkeyReal Estate Market / Second Half 2018 | 8.4 8.25 8.25 8.2 8 8 7.8 7.5 7.5 7.6

(%) 7.4 7.25 7.25 7.25 7.25 7.25 7.2 7 6.8 6.6 2014/H1 2014/H2 2015/H1 2015/H2 2016/H1 2016/H2 2017/H1 2017/H2 2018/H1 2018/H2

Visitor Index of Shopping Centers

120

110

100

90

80

70

60 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11

2016 2017 2018

350 Turnover Index of Shopping Centers

300

250

200

150 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11

2016 2017 2018

Source: Colliers International 14

ISTANBUL RESIDENTIAL MARKET According to the House Price Index (2010=100) data issued by the Central Bank of Turkey, as of the end of 2018, house prices rose at an annual rate of 10.5% in Turkey as whole, and 6.3% in Istanbul. Inflation reached 20.3% and the Turkish Lira depreciated by 39.1% against the US$ in the same period while the annual deposit account interest rate was 13.1%. The rise in house prices continued to be outpaced by alternative investment instruments and inflation, a trend that started in 2017. The chart on page 16 shows changes in the Consumer Price Index (CPI), the US$/TL exchange rate, weighted average interest rates (up to one year) and Turkish House Price Index (THPI) for Turkey and Istanbul. Real Estate Market / Second Half 2018 | / Second Estate Market Real Turkey Research & Forecast Report | Colliers International | Colliers Report & Forecast Research Having risen 16.2% in 2017 over the previous year’s level, the Construction Costs Index notched up a 32.2% year-on-year increase in 2018. The main reason for this was the hike in raw material prices caused by the devaluation of the Turkish Lira against the US Dollar.

Residential Sales Overall residential sales for Turkey suffered a decline of 2.4% in the first five months of 2018 compared to the same period of 2017. The decline in mortgaged sales was 41.5%. Overall sales in Istanbul in the same period declined by 1.8%; mortgaged sales by 43.4%.

Mortgages Turkey’s total loan volume in 2018 fell by 16% over 2017. A similar downward trend was observed in mortgage volume, which reached a trough in September before rebounding to the USD 35 billion level as of December 2018. This constitutes approximately 8% of the country’s total loan volume. 15

Construction Cost Index

35% 32.2% 200 Research & Forecast Report | Colliers International TurkeyReal Estate Market / Second Half 2018 |

30% 170 25%

18.2% 16.2% 140 20%

15% 110 10.7% 5.9% 10% 5.1% 5.4% 80 5%

77.48 81.65 85.84 95.01 100.60 118.90 138.14 182.57 0% 50 2011 2012 2013 2014 2015 2016 2017 2018*

Source: Central Bank, Turkish Statistics Institute

Turkey İstanbul

Share of Share of Total Mortgaged Total Mortgaged Change Mortgage Change Mortgage Sales Sales Sales Sales Years Sales Sales

2009 555.184 - 22.726 4% 140.573 - 9.423 7%

2010 607.098 9,4% 256.741 41% 153.897 9,5% 76.176 49%

2011 708.275 16,7% 289.275 41% 169.015 9,8% 85.161 50%

2012 701.621 0,9% 270.136 39% 167.110 1,1% 79.626 48%

2013 1.144.989 63,2% 456.224 40% 233.153 39,5% 106.382 46%

2014 1.165.381 1,8% 389.689 33% 225.454 3,3% 87.757 39%

2015 1.289.320 10,6% 434.388 34% 239.767 6,3% 93.564 39%

2016 1.341.453 4,0% 449.508 34% 232.428 3,1% 87.350 38%

2017 1.409.314 5,1% 473.099 34% 238.383 2,6% 87.001 36%

2018 1.375.398 2,4% 276,820 20% 234.055 1,8% 49.206 21%

Source: Turkish Statistics Institute 16 Interest Rates, CPI, US Dollar and HPI Annual Changes

0.45

0.4

0.35

0.3

0.25

0.2

C h ange Rate 0.15 Real Estate Market / Second Half 2018 | / Second Estate Market Real Turkey Research & Forecast Report | Colliers International | Colliers Report & Forecast Research 0.1

0.05

0 2011 2012 2013 2014 2015 2016 2017 2018 -0.05

-0.1 House Price Index (HPI)-Istanbul House Price Index (HPI)-Turkey CPI USD/TL Weighted Average Interest R ates ( up to 1 year)

Source: Colliers International

Outstanding Housing Loans and Rates

60,000 2.50%

55,000 2.00% 50,000

45,000 1.50%

40,000

1.00% 35,000

30,000 0.50% 25,000

20,000 0.00% 17 13 15 16 18 14 17 15 16 18 14 ------Jun Dec Jun Jun Jun Dec Dec Jun Dec Dec Dec

Outstanding Housing Loans(Million USD) Monthly Rates (%)

Source: Colliers International 17 ISTANBUL HOTEL MARKET Research & Forecast Report | Colliers International TurkeyReal Estate Market / Second Half 2018 | Tourist Visitor Numbers 2017 turned out to be a year of recovery for the Turkish sector, a positive trend that has gained momentum through 2018. In 2018, visitor numbers to Istanbul as a whole have enjoyed a rise of 24% compared to the previous year.

Room Rates and Occupancy Rates - Istanbul This higher than expected growth in visitor numbers has also boosted hotel occupancy rates and revenue per available room (RevPAR). Occupancy rates in 5-star, upscale and upper-midscale hotels in Istanbul rose by 13% in the first eleven months of 2018 compared to the same period in 2017, RevPAR increased by 25% on a Euro basis. The rapid movement in exchange rates over the past year has raised revenue per available room (RevPAR) by 76% on a Turkish Lira basis. According to data in STR’s November 2018 Country Performance Report, of all countries, Turkey enjoyed the second highest increase in occupancy rates in the first 11 months of 2018 when compared to the same period of the previous year. Turkey was also in second place in terms of revenue per available room (RevPAR) growth. Looking at the same report’s city-by-city data, Istanbul was the city with the highest year-on-year growth in occupancy rates in the first 11 months of 2018. Istanbul followed Moscow to take second place in terms of revenue per available room (RevPAR) growth. As Colliers International, we take the view that this positive trend in the tourism sector will continue in the short term, with a continued rise in visitor numbers and hotel occupancy rates. We anticipate that average hotel daily rates (ADR) will rise on a Euro basis, but that ongoing Turkish Lira exchange rate devaluation will prevent ADR exceeding the levels it reached in 2012-2013.

Hotel Stock (Istanbul) Official 2018 data shows that total number of licensed rooms by the Ministry of Culture and Tourism is 57,106 rooms in Istanbul. A further 14,365 rooms are expected to be added to this total in the near future. There has been a year-on-year 3% rise in the number of tourism facilities with operational licenses in 2018. 18

Tourist Arrivals to Istanbul

16,000,000

14,000,000

12,000,000

10,000,000 13,433,101 8,000,000 12,414,677 11,842,983 6,000,000 10,840,595 10,474,867 9,203,987 Real Estate Market / Second Half 2018 | / Second Estate Market Real Turkey 9,381,670 Research & Forecast Report | Colliers International | Colliers Report & Forecast Research 4,000,000 8,057,879 7,510,470 7,510,470 6,947,058 6,947,058 2,000,000

0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Istanbul Office of Ministry of Culture and Tourism

Revpar 400

344 TL 350

300 259 TL 240 TL 250 199 TL 200 $172 147 TL 150 $134 $98 $98 $88 100

€ 97 50 € 78 € 59 € 44 € 48 0 2014 2015 2016 2017 2018 (Jan-Nov)

Source: Istanbul Office of Ministry of Culture and Tourism 19 Research & Forecast Report | Colliers International TurkeyReal Estate Market / Second Half 2018 | Average Average Occupancy Revpar Revpar Year Room Rate Room Rate Rate (%) EURO TURKISH LIRA

2014 69,0% 140 97 376 259

2015 64,8% 121 78 371 240

2016 49,6% 89 44 296 147

2017 62,5% 76 48 318 199

2017 (January-November) 63,1% 75 47 310 196

2018 (January-November) 71,5% 83 59 481 344

(*)5-Star Hotels, Upscale & Upper Midscale Hotels in Istanbul. Source: STR Global, www.turob.org.tr

Change from Year to 2018 (January- Date November 2018 vs November) November 2017

Istanbul

Occupancy 71,5% 13,4%

ADR €83 10,3%

Revpar €59 25,0%

Turkey

Occupancy 66,7% 10,2%

ADR €71 6,4%

Revpar €47 17,3%

Source: Istanbul Office of Ministry of Culture and Tourism For more information

Valuation & Advisory Services CONTACT Ahmet Özgür Lara Gezgin +0212 288 62 62 +0212 288 62 62 [email protected] [email protected]

This report gives information based primarily on Colliers International data, which may be helpful in anticipating trends in the property sector. However, no warranty is given as to the accuracy of, and no liability for negligence is accepted in relation to, the forecasts, figures or conclusions contained in this report and they must not be relied on for investment or any other purposes. This report does not constitute and must not be treated as investment or valuation advice or an offer to buy or Büyükdere Cad. 108 sell property. © 2019 Colliers International. Esentepe İstanbul Colliers International is a global leader in commercial real estate services, with more than 15,400 professionals operating out of 400 offices in 68 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of 34394 services to real estate occupiers, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. Colliers International has been recognized and ranked by the International Association of Outsourcing Professionals’ Global Outsourcing 100 for 10 consecutive years, more than any other real estate services firm. Research & Forecasting