4 FOURTH QUARTER 2016 N 40 ISTANBUL OFFICE MARKET GENERAL OVERVIEW www.propin.com.tr 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 05 PROPIN ACTIVITIES 06 SUMMARY AND FORECASTS 10 ECONOMIC OVERVIEW 12 VACANCY RATES 16 RENTAL RATES 22 CHANGES IN OFFICE STOCK 25 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. All rights reserved. 3 Agency Service we provide in lease / purchase processes of corporate real estate users comprises of research, evaluation and reporting phases. In the process of finding convenient real estate, it contains the service steps as determining real estate needs of the company, presenting alternatives as a report, arranging building tours, performing qualitative and financial analyses, conducting negotiations with the landlord and consulting during contract discussions. For further information, please don’t hesitate to contact us. We would be more than happy to help. PROPIN ACTIVITIES Propin was established in 2005 with the awareness that specializing enriches the profession. In 2017, we are taking justified pride and joy in completing our twelfth year. Since the very first day we set up our business, a large number of national and international corporations, all of which have been added to our list of references, have clinched our success. We would like to express our thanks to all our clients who chose and trusted us. As Propin, we’ve taken competing against ourselves as a principle. For the past twelve years, we have acted as an agent in many remarkable relocation projects in the Istanbul Office Market. Propin mediated the sale of Ronesans Tower, in which exclusive landlord representation was carried out by Propin, to Allianz Insurance in 2015. Consisting of 85,000 m2 of indoor space and 43,000 m2 of office area, this became one of the biggest office sales transactions of Istanbul. In 2014, we undertook brokerage duties in the lease agreement signed by Turkcell for 32,000 m2 in office area in RonesansBiz Kucukyali Project, in which we provided exclusive landlord representation. Through the agency of Propin, Bosch leased 16,000 m2 RonesansBiz Kucukyali Project developed with the “Build-to-Suit Model” in 2013. This transaction became a rarely seen pre-lease activity in the Istanbul Office Market. One of the most noticeable transactions of 2012 concerned the purchase of Smart Plaza Block A, marketed by Propin and with approximately 12,000 m2 in office area, by Anadolu Insurance. From the very first day of our business, we have always believed that building long-term relationships and customer loyalty is priceless. The very first real estate deal we as Propin worked for as exclusive landlord representative was that of the Doltas Building, in Istanbul, which we marketed in 2006. Leased in 2006, the building, was vacated when a 10-year contract expired. We started to market the building at the beginning of 2016. The leasing process took approximately three months. At the end of this process, the Doltas Building was leased by Atasun Optik, for whom we provided exclusive user representation. In 2016, Mars Logistics started to receive user representation services from us for their search for a new office. As the result of Propin’s effort, a pre-lease for an area approximately 5,200 m2 in size was executed in Balance Gunesli. This transaction became prominent among the big-scale leasing transactions of 2016 in the Istanbul Office Market. In 2016, we also concluded lease transactions of Lufthansa in Touch in Papirus Plaza and Deutsche Lufthansa AG Turkey in Apa Giz Plaza; both are part of Lufthansa Group Companies, which has worked with us during their search of real estate processes for years. The lease in Palladium Tower, in which Propin performed user representation for the Insurance Association of Turkey, was one of the transactions which delighted us the most. Purchases made by Inci Holding in Businist Office and Inci Aku in Gold Plaza were also among the transactions we mediated. Working within the scope of our landlord representation service, we provided support in the completion of office searches of many users in the RSD Nispetiye Office in Etiler. Transactions by Axpo Group, Open Turkey and Angelini Medicine were among the leases we completed in that building. Our effort did not remain limited within Istanbul in 2016. We have strengthened our database and connections in Ankara, Izmir, Bursa and Adana. Working for Bayer has been a pleasing experience, as we continuously provide service for their searches of district offices Out of Istanbul, as well as having completed the leasing process related to their search for a Bursa District Office. In light of our study about developing markets in “Out of Istanbul”, we prepared feasibility and market research reports about Ankara and Izmir for three different developers pursuant to their needs. We also made sure our clients who have plans to make office investments in Istanbul make the right decisions by providing them with market research and feasibility reports. You may find more information about other transactions we completed in 2016 on the following pages of our report. With a succession of successfully completed transactions, we are continuing our brokerage and consultancy efforts around the transactions which will have a tremendous impact in the Istanbul Office Market. At the time of publishing this report, we were not able to add in this document some of the big-scale relocation projects which have reached the final stage and that we have been working on since their signature processes were delayed to 2017. In the following quarters, we will be happy to share with you the transactions which will restore belief in the dynamism of the Istanbul Office Market. All rights reserved. 5 SUMMARY AND FORECASTS The summary of the latest data from the Istanbul Office Market in the fourth quarter of 2016 can be found below. The vacancy rate for Class A office buildings in the Central Business District (CBD) increased to 25.7%, and to 13.3% for Class B office buildings. The average rent for Class A office buildings in the CBD was $US 27.6 /m2 /month and $US 15.1 /m2 /month for Class B office buildings. For Class A office buildings in Out of CBD-Europe, the vacancy rate was determined to be 24.2% and the average rent $US 17.1 /m2 /month. The vacancy rate for Class A office buildings in Out of CBD-Asia was at a level of 19.7%. The average rent for Class A office buildings was $US 18.5 /m2 /month. As in the previous quarters, Levent, located in the CBD, commanded the top prime rent in the fourth quarter of 2016. The listed prime rent was $US 45 /m2 /month in this district. 6 www.propin.com.tr Istanbul Office Market experienced a dull period in 2016 due to economic and political issues in Turkey. Continuing growth in stock increased the competitiveness in the market. The offers containing advantageous commercial conditions, alongside given rental discounts, caused negotiations to be completed rapidly. The total take-up volume in the Istanbul Office Market was 208,000 m2 in 2016. The decline in total take-up volume, which started in 2005, continued in 2016 as well. The total take-up volume in 2016 decreased 21% from 2015, and dropped drastically by 56% from 2014. In 2016, the total take-up volume was 92,000 m2 in the CBD. 44% of the take-up volume consisted of the completed transactions in the CBD. The total take-up volume in 2016 increased 18% from 2015. In 2016, when completed lease and purchase transactions are taken into the consideration in terms of size, it was observed that even the largest transactions were lower than 15,000 m2. While transactions of office areas ranging in size from 1,001 m2 to 5,000 m2 constituted 50% of the completed transactions throughout the year, 1,000 m2-sized and smaller offices areas made up 25% of the total take-up. It’s been monitored that these lease and purchase transactions carried out by the small and medium sized companies. As of the end of 2016, Class A Office Stock in Istanbul increased to 4.7 Million m2. According to this data, it has been determined that office stock in Istanbul increased 71% in the last quinquennium. When stock data for the last quarter of 2016 is analyzed, it can be seen that the Airport District has the largest stock volume in Istanbul. As new office buildings opened up to operation throughout the year, the Class A office stock in this district increased by 18% and surpassed 650,000 m2. Maslak and Kozyatagi followed the Airport District in terms of the largest office stock as of 2016. As a result of the slowdown in investment decisions, no significant growth in office stock is expected during the post-2018 period. As PROPIN, in the light of up-to-date market data we compiled, we estimate that total office stock in the Istanbul Office Market is going to reach 6.9 Million m2 at the end of 2020.