Istanbul Office Market General Overview
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4LAST QUARTER ISTANBUL OFFICE MARKET GENERAL OVERVIEW 2014 N 32 www.propin.com.tr PROPIN HAS OPERATED FOR TEN YEARS AS AN EXPERT IN THE OFFICE MARKET THANKS FOR YOUR BELIEF AND SUPPORT OVER TEN YEARS. We continue to do our work diligently We do our work diligently. PROPIN has been providing highly-specialized agency and consulting services with a focus on Turkey’s Office Market to office users, investors, developers and property owners with a comprehensive range of real estate services since 2005. PROPIN’s customers can rely on professional assistance in property scouting, advisory services and property marketing. PROPIN is also preparing the most up-to-date Office Market reports for your investment decisions 04 SUMMARY AND FORECASTS 06 ECONOMIC OVERVIEW 09 VACANCY RATES 12 AVERAGE RENTAL RATES 16 CHANGES IN OFFICE STOCK 18 TAKE-UP This document has been prepared by Propin. All rights reserved. No part of this publication or any of its content may be reproduced, copied, modified and/or adapted for use without the prior written consent of PROPIN. SUMMARY AND FORECASTS Below is the summary of the latest data from the Istanbul Office Market in the fourth quarter of 2014. The general vacancy rate for Class A office buildings in the Central Business District (CBD) dropped to 22.3%. For Class B office buildings, the vacancy rate was around 8.8%. The average rent for Class A office buildings in the Central Business District was US$ 33 /m² /month and for Class B office buildings it was US$ 16.6 /m² /month. The vacancy rate for Class A office buildings in Out of CBD-Europe decreased to 12.7%. The average rent for Class A office buildings was US$ 20.3 /m² /month. The vacancy rate for Class A office buildings in Out of CBD-Asia climbed to 15.2%. The general average rent for Class A office buildings was US$ 22 /m² /month. In the fourth quarter of 2014, the highest prime rent was seen in Levent, with US$ 54 /m² /month. 4 www.propin.com.tr The Istanbul Office Market saw a year of fluctuation in 2014 owing to the effect of the mayoral and Presidential elections. The market was active like the previous year with pre-leases and corporate acquisitions occurring in the first quarter of 2014. Because of the Presidential elections in the third quarter, the market remained static for some time. Several companies put their moving process on hold because of the uncertainties in the market. Despite the two important elections being held during the year, the take-up volume at the end of 2014 had increased by 10% from 2013. Demand for the newly added office areas in the CBD remained intense. The total amount of take-up totaled 196,000 m². It was observed that the transactions occurring in the CBD constituted 53% of the total transaction volume of Istanbul. In the first quarter of 2014, the year saw a quick start in the market because of the rental deals and acquisitions in the office buildings which were in the final stages of their construction. The renting of 60,023m² in Torun Tower in Zincirlikuyu-Esentepe- Gayrettepe by Denizbank was the most remarkable rent transaction of the year. Having searched for an office area for an extended period of time, Turkcell finally found it. This transaction left its mark in the last quarter of 2014. 35,000 m² of office area in RonesansBiz Kucukyali, which is represented by Propin, was the largest office area rented on the Asian side in 2014. During 2014, especially in the CBD, the new generation buildings that went into operation satisfied the long-term demand for large-scale office areas in the market. 45% of the rental deals and acquisitions during the year measured above 10,000 m². This statistic is one of many indicators that proves the existence of demand for large-scale office areas. In the CBD, a notable growth in the stock occurred. The buildings added to the stock in Levent in the first quarter and in Zincirlikuyu-Esentepe-Gayrettepe in the third quarter drove up the vacancy rate. The renting out of new generation buildings, however, became a countervailing factor vis-à-vis the stock growth. As a result, the vacancy rate in the CBD did not see a sharp rise. The vacancy rate in Class A office buildings in Levent dropped in the last quarter of 2014 to reach 9.5%. Especially the rent deals in Levent 199 and River Plaza, which are from the new generation buildings that later went into the stock, played a part in this decrease. The average rent for Class A office buildings in the CBD rose 25% in the previous four years and maintained its upward trend during 2014. With this increase, the average rent rate became US$ 33/m²/month in the fourth quarter. The main reason for the rise in the average rent was that asking prices for the new office areas which were added to the stock in Zincirlikuyu-Esentepe- Gayrettepe became higher than the average of the district. Along with the twelve business districts, the inclusion of the ‘Developing Office Districts’ in the stock pushed the Istanbul Office Market to 3.2 billion m² in 2013. Especially with new office areas appearing in the CBD, the total area of office stock in Istanbul reached this number. We are forecasting that this growth will continue and by the end of 2017, it will rise to 5.7 billion m². We cannot estimate the total of square meters of the new office areas that will be added to the stock by 2018. It is expected, however, that the new office area added to the stock will be 600,000 m² following the entrance of the Istanbul Financial Center (IFC) in West Atasehir to the market in the first quarter of 2018. All rights reserved. 5 ECONOMIC OVERVIEW EXCHANGE RATES [2013 - 2014] 3.5 3 2.5 2 1.5 1 0.5 0 July’14 July’13 May’14 May’13 April’14 April’13 June’14 June’13 March’14 March’13 August’14 August’13 January’14 January’13 October’14 October’13 February’14 February’13 December’14 November’14 December’13 November’13 September’14 September’13 TRY/USD TRY/EUR EUR/USD FIGURE NO.1 SOURCE: THE CENTRAL BANK Although Turkey’s economy concluded the final quarter of 2014 under the positive effect of the decline in oil prices, by November 2014 the INFLATION real sector’s expectations and consumer confidence had reached their lowest points in four years. In the last quarter, the drop in consumer CPI ended up in a more positive position than predicted, with a value of confidence, the Central Bank’s tight monetary policy, and real sector’s 8.17% in December 2014. This was the lowest level of the previous ten lower expectations were points in question. Until the general elections, months. there will be a wait-and-see approach amongst the economic actors. The In December, the monthly-based PPI also decreased. Year-to-year inflation first months of 2015 are expected to not see much activity because of the global economy, domestic politics, and developments in foreign policy. of PPI, with a rate of 6.36%, reached its lowest level of 2014. The economy grew by 3.3% in the first half of 2014 and continued its tempo in the second half of the year with 3% growth. Along with a decline in investments, the inertia of consumption expenditures continued during MONETARY POLICY the second half of the year. It was observed that the growth contribution of net exports decreased. The level of 3% in growth is forecast to go on in the The Monetary Policy Committee increased the policy rate to 10% from first months of 2015. Positive decomposition in the financial markets for 4.5% at an interim meeting on 28 January 2014. While there were no Turkey has not been reflected in growth. changes in the period immediately following this meeting, the Committee decreased the rate by 50 basis points in May. While the process of a policy rate increase at the FED is approaching, the Turkish Lira is under pressure of devaluation. On the other hand, the Turkish Lira faces appreciation pressure because of the positive decomposition The Committee again lowered the rate in June from 9.5% to 8.75% resulting from the decline in the oil prices and the influx of hot money. In (a 75 basis point decrease), and then to 8.25% (a 50 basis point drop) in the short-term, the tendency for the Turkish Lira to appreciate is going to July. There was no further change following the July action. be more dominant. ECONOMIC JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER 2012 2013 INDICATORS ‘14 ‘14 ‘14 ‘14 ‘14 ‘14 ‘14 '14 ‘14 ‘14 ‘14 '14 GDP (%) 2.2 3.6 - - - - - - - - - - - 3.3* GDP (Per Person) 10,459 10,807 - - - - - - - - - - - 10,537* Population 75.6 76.5 - - - - - - - - - - - 77.7 (Million) BIST-100 Index 78,208 67,801 61,858 62,553 69,736 73,872 79,290 78,489 82,157 80,313 74,938 80,580 86,169 85,721 Unemployment 9.2 9.7 10.3 10.2 9.7 9 8.8 9.1 9.8 10.1 10.5 10.4 - - Rate (%) Exchange Rate 1.79 2.13 2.27 2.22 2.16 2.12 2.10 2.13 2.14 2.16 2.28 N/ A 2.21 2.34 (TRY/ USD) Exchange Rate 2.3 2.94 3.08 3.05 2.98 2.03 2.85 2.90 2.86 2.85 2.88 2.77 2.76 2.83 (TRY/ EUR) Policy Rate (%) 5.50 4.50 10.00 10.00 10.00 10.00 9.50 8.75 8.25 8.25 8.25 8.25 8.25 8.25 (One-week Repo Rate) Inflation (%) 6.2 7.4 7.75 7.89 8.39 9.38 9.66 9.16 9.32 9.54 8.86 8.96 9.15 8.17 (End-Year) FDI (Million USD) 12,387 10,200 6.866** - - FDI Increase -21.30 -17.70 -8.91 - - Rate (%) *Expected by Ministry of Economy TABLE NO.1 SOURCE: TSI, Ministry of Economy **Data for between January-October 6 www.propin.com.tr ISTANBUL OFFICE MARKET DESCRIPTIONS Explanation of some of the terms used in the Propin Office Market FOR RENT Atasehır No.2 Overview are as follows BUYUKHANLI Class A Office Buildings: PLAZA These buildings have a modern technical and mechanical infrastructure, • Close to Istanbul Financial Center fire safety, generators, parking areas and professional building [IFC], at the intersection of the E-5 management.