İstanbul Office Market General Overview

2012 QUARTER 2

İstanbul Office Market General Overview Dear Clients and Friends, In this report, we have analyzed the status of the Istanbul Office Market in The Second Quarter of 2012 covering April, May, June 2012. We would like to thank you for your feedback and recognition of our previous reports. We hope that the data in our report would be beneficial for you… The Propin Team

SUMMARY AND FORECASTS

The Second Quarter of 2012 has been quite active for İstanbul Office Market. Especially firms, requiring an area of 5.000 m² and above, have grown in number. The first reason of dynamism can be described as the firms that require bigger office areas due to merger and acquisition and the second reason is the request of gathering variable departments located in different places together as one in the same building. In addition to these two reasons firms, that are willing to preserve their buildings against earthquakes through newly built substructure, are also observed to be interested in inhabited buildings with green certification. Numeral data of 2012‟s Second Quarter Period in office market can be summarized below;

 When İstanbul Office Market’s general vacancy rates are analyzed, it can be considered as a significant fact that though current stocks have increased due to inventory receipt in the market for the last third quarters, vacancy rates of class A office buildings in CBD was around 11,1%.  When general average rent rates of İstanbul Office Market is analyzed, it is seen that, in CBD – Out of Europe, it has decreased to the lowest level seen in the last year where in CBD – Out of Asia, rent average has been stabi- lized.  The general vacancy rate in CBD (Central Business District); has been observed at the level of 11,1% for class A buildings and 6,4% for class B buildings.  The average rent rates of office buildings in CBD was around 30 US$ /m² /month for class A buildings and 14,3 US$ /m² /month for class B buildings. Law amendment concerning sales of real estate to the foreigners has generated demand for investors with foreign capital to purchase currently rented commercial properties. It is seen that due to the landlords‟ demand of sales prices, which re- turn off between 16 and 18 years, a large number of transactions were unable to be completed. Most of the large scale projects located near main access roads, though these projects happen to be located away from the center, include the office functions. In addition to this, all office projects that are to take place in market between years 2013 – 2015 and located in CBD and around, have A and A+ specifications. When aforementioned case is analyzed through supply demand equilibrium, it is seen that supply level is higher than demand level. Due to this reason, we recom- mend the investors and developers to also develop new office buildings with low initial investment cost, low-key and office buildings that favor tenants with functional and low rental budget. In the contrary case, we believe that due to the excres- cence of class A projects, both parties may be confronted with possible difficulties in rental processes. We stated in our prior report that office areas of 1.4 million m², which are expected to be included in İstanbul office stock by the end of 2014, will create a serious competition particularly in CBD. In addition to that, we also believe that these new projects, equipped with high qualities, will engage in a competition not only with the other new projects but also with the old office buildings. As a result based on this competitive environment, we believe that listed rental prices for old buildings will decrease notably within a three years duration. www.propin.com.tr 2 İSTANBUL CENTRAL BUSINESS DISTRICT & TERMS

In analyzing office districts using international standards, a TERMS key categorization is between “Central Business District” and Explanations of some of the terms used in the Propin Istanbul “Out of Central Business District”. The Central Business Dis- Office Market Overview are as follows. trict (CBD) incorporates those areas characterized by rela- Class A Buildings: Buildings that have modern technical and tively the strongest demand for office space and where most mechanical infrastructure and management, fire safety, gen- professional office buildings are located. erators, parking areas and professional building management. There are twelve main districts in Istanbul where office build- They have the best location and the highest rental value in the city‟s office market. ings are located. Istanbul‟s CBD starts at Barbaros Boulevard, continues Class B Buildings: Buildings that have average technical through Büyükdere Avenue and finishes at the Maslak district. and mechanical infrastructure and management. This in- This axis, which is defines the boundaries of the city‟s CBD, cludes some Class A buildings that have become outdated and others that were built using obsolete technology. includes the Levent, Etiler, Maslak, Zincirlikuyu-Esentepe- Gayrettepe and Beşiktaş-Balmumcu districts. Vacancy Rate: This is the ratio between total vacant areas and total office areas. Office districts located outside of these areas are defined as Out of Central Business District (Out of CBD). Due to Istan- Average Rent Rate: This is the weighted average price of the bul‟s geographical structure, Out of CBD is divided into two vacant areas. The weighted coefficient of rental prices are areas: the European and the Asian sides. calculated in line with the total office areas and vacancy rates, using asking prices. Out of CBD-Europe includes the Taksim-Nişantaşı, Şişli-Fulya -Otim and Airport districts. Asking Price: This is the rental price quoted on the leasing area and can change according to specific agreements. Out of CBD-Asia includes the Kozyatağı, Altunizade, Kavacık and Ümraniye districts. Closing Price: This is the final price that is decided after agreements between landlord and tenant.

www.propin.com.tr 3 VACANCY RATES IN ISTANBUL OFFICE MARKET

GENERAL VACANCY RATES 2012 The Second Quarter

50% Rental Office Floors / MECIDIYEKOY 1 40% 30% 25,6 15,4 20% 11,1 6,4 7,7 9,2 10% 0% CBD Out of CBD - Out of CBD - Asia Europe Figure 1 | Source:Propin Class A Class B

The General Vacancy Rates of İstanbul Office Market for the first quarter of 2012 is stated above. The vacancy rate of class A office buildings in the CBD RONESANS MECIDIYEKOY was around 11,1% and the vacancy rate in class B  Delivery at the third quarter of 2012 office buildings was around 6,4%.  Interior garden and penthouse The general vacancy rates of class A buildings and  Office areas varying between 622 m² - 2.370 class B buildings in the Out of CBD – Europe were m² on one single floor determined as 7,7% and 25,6%. The general vacancy

rates of class A buildings and class B buildings in the No agency service charge.Please click on www.propin.com.tr for other properties we represent and for detailed information. Out of CBD – Asia were around 15,4% and 9,2%.

VACANCY RATES BY DISTRICTS 2012 The Second Quarter

50% 38,4 40% 30,5 30% 24,6 25,5 17,7 20% 14,9 10,7 13,0 12,410,6 7,2 9,7 8,5 8,8 9,2 4,5 5,6 4,9 4,5 5,2 5,9 10% 2,6 1,5 2,0 0% Levent Etiler Maslak Zincirlikuyu Beşiktaş Taksim Şişli Fulya Airport Kozyatağı Altunizade Kavacık Umraniye Esentepe Balmumcu Nişantaşı Otim Gayrettepe Class A Class B Figure 2 | Source: Propin

The figure 2, which shows average vacancy rates in class B office buildings are determined as 5,6%. twelve office districts in İstanbul, is stated above. Even though an class A office, which had been for rent When vacancy rates by districts of İstanbul Office Market since the First Quarter of 2010, covering approximately for the second quarter are compared, it is seen that the 2,000 m², was rented, the vacancy rate of class A office most significant change has happened in Ümraniye buildings which are located in Maslak District, remained District. With the rental of a class B office building which stable in the Second Quarter of 2012. is located in Ümraniye District, covering approximately 6,500 m², the general vacancy rates of class B office Due to completed stand alone office buildings’, buildings has receded to 5,9%. located in Etiler District, being included in An office building which is located in Taksim - Nişantaşı stocks, the vacancy rate of class A office build- District has been removed from stocks due the fact that ings has increased by 5,6% compared to prior it was transformed into an hotel in the Second Period of period. 2012 in İstanbul Office Market. The vacancy rates of www.propin.com.tr 4 HISTORICAL VACANCY RATES IN ISTANBUL OFFICE MARKET

HISTORICAL VACANCY RATES BY CLASS A BUILDINGS Rental Office Building / BALMUMCU 3 Last Four Quarters

25% 20% 17,2 16,9 16,4 15,4 15% 12,4 11,1 11,1 11,1 10% 10,7 10,3 10,2 5% 7,7 0% '11-3ndQ '11-4thQ '12-1stQ '12-2ndQ

CBD (BUYUKDERE AVE) Out of CBD-ASIA Out of CBD-EUROPE Figure 3 | Source:Propin BALMUMCU OFFICE BUILDING The figure, which shows the change in general vacancy rates of class A office buildings in the last four quarters, is  The only stand alone building within the district stated above.  Decorated building  1.725 m² closed area When the vacancy rates of office buildings in CBD are analyzed, it is seen that the general vacancy rates in class A  Light - well office areas office buildings are determined as 11,1%, without undergo-  Whole building or floor by floor leasing ing any changes since the Last Quarter of 2011. The afore- opportunity mentioned vacancy rate which remained stable for the last No agency service charge.Please click on www.propin.com.tr for other three quarters has been subject to considerable interest. properties we represent and for detailed information.

In Out of CBD – European, office buildings, which were HISTORICAL VACANCY RATES BY CLASS B BUILDINGS involved in stocks for a long duration have been rented as Last Four Quarters wide areas in square meters, causing a decrease of 2,5% in vacancy rate. 50% In Out of CBD – Asia, the vacancy rates of office buildings 40% have decreased by 1% compared to prior quarter. In the 29,9 28,3 30% 27,5 25,6 Second Quarter of İstanbul Office Market 2012, the general 17,2 average of vacancy rate of Out of CBD - Asia is determined 20% 17,5 13,7 9,2 as 15,4%. 10% 0% 6,6 6,6 6,4 6,4 For Sale or Rental Office Building / KAVACIK 2 '11-3ndQ '11-4thQ '12-1thQ '12-2ndQ CBD (BUYUKDERE AVE) Out of CBD-ASIA Out of CBD-EUROPE

Figure 4 | Source:Propin

The figure, which shows the changes in general vacancy

rates of class B buildings throughout the last four quarters, is stated above.

In the Second Quarter of 2012, there has been no change in the vacancy rates of class B buildings of CBD SMART PLAZA since the First Quarter of 2012.  With Breeam certificate As observed in the last four quarters, the vacancy rates  Overlooking TEM of Out of CBD - Asia class B office buildings have continued to recede and decreased by 4,5% compared to prior  New building with the occupancy permit quarter.  Approximately 900 m² - 3.900 m² of floor areas  Users: Securitas, Hedef Construction In the Second Quarter of 2012, the vacancy rate of class B buildings in Out of CBD – Europe has receded by 1,9% No agency service charge.Please click on www.propin.com.tr for other and determined as 25,6%. properties we represent and for detailed information.

www.propin.com.tr 5 AVERAGE RENT RATES IN ISTANBUL OFFICE MARKET

GENERAL AVERAGE RENT RATES Rental Office Floors / ETILER 4 2012 The Second Quarter

50 $

40 $ 30,0 30 $ 19,4 14,3 16,7 20 $ 10,9 13,0

$/m2 /month 10 $ 0 $ CBD Out of CBD - Out of CBD - Asia Europe Figure 5 | Source:Propin Class A Class B LE MERIDIEN ETILER The General Rent Averages for the First Quarter of 2012  are stated in the figure above. Office areas up to 2.580 m² on one single floor  Direct access road to FSM Bridge The rent average for class A buildings in CBD was 30 US$/  The advantages of social facilities located within m²/month and the average rent for class B buildings in CBD was 14,3 US$/m²/month. the hotel area  Users: Socar Energy The rent average for class A buildings in Out of CBD - Asia No agency service charge.Please click on www.propin.com.tr for other is determined as 19,4 US$ /m² /month and the rent aver- properties we represent and for detailed information. age for class B buildings in Out of CBD is determined as 13 US$ /m² /month.

AVERAGE RENT RATES BY DISRICTS 2012 The Second Quarter

50 $ 36,4 37,7 40 $ 31,4 34,5 26,3 28,8 30 $ 23,0 19,7 21,4 18,5 19,0 19,6 21,2 18,1 19,4 20 $ 12,0 12,4 13,7 13,2 15,2 13,3 8,4 11,4 9,0 $/m2 /month 10 $ 0 $ Levent Etiler Maslak Zincirlikuyu Beşiktaş Taksim Şişli Fulya Airport Kozyatağı Altunizade Kavacık Ümraniye Esentepe Balmumcu Nişantaşı Otim Figure 6 I Source:Propin Gayrettepe Class A Class B

The Rent Averages According to Districts for the Second buildings located in Etiler District was 16 US$/m²/month Quarter of 2012 are stated in figure 6. and in the Second Quarter of 2012, rent average has increased and reached the level of 23 US$/m²/month. The rent average of class A buildings located in Taksim - Nişantaşı District has increased by 8,2 US$ / m² /month For the Second Quarter of 2012, the rent averages of class and determined as 34,5 US$ /m² /month in the Second A and B office buildings in 4 main office districts which are Quarter of 2012. The main reason for the most significant located in İstanbul Asia 2012 has been stable without any change in this quarter is the rental of buildings with low significant changes compared to 2011. rental prices and newly emerging rental office areas, such While the rent average of class B office buildings in Levent as Süzer Plaza, with rental prices determined quite higher District has remained stable, the rent average of class A than the average. office buildings has decreased and determined as 31,4 In the First Quarter of 2012, the rent average of class B US$/m²/month due to rentals.

²The regional rent averages are being calculated in accordance with the list prices declared by the property owners to the market. Room for negotiation has not been taken into account during evaluation

www.propin.com.tr 6 HISTORICAL AVERAGE RENT RATES IN ISTANBUL OFFICE MARKET

HISTORICAL AVERAGE RENT RATES BY CLASS A Rental Office Floors / ATASEHIR 6 BUILDINGS Last Four Quarters

50 $

40 $ 29,3 30,2 30,0 30 $ 27,6 19,4 19,3 20 $ 18,8 19,4 18,9 17,7 16,7 10 $ 17,9

0 $ '11-3ndQ '11-4thQ '12-1stQ 12-2ndQ CBD (BUYUKDERE AVE) Out of CBD-ASIA Out of CBD-EUROPE Figure 7 | Source:Propin BÜYÜKHANLI PLAZA The change in rent averages of class A buildings, observed  Breeam certificate within the last four quarters, is stated in the figure 7 above.  Floor areas of1.212m² In the Second Quarter of 2012, the rent averages of class A  The advantage of using Marriott Hotel’s office buildings in CBD “has receded to 30 US$ /m² /month. social facilities In the First Quarter of 2012, the rent average of class A of- No agency service charge.Please click on www.propin.com.tr for other properties we represent and for detailed information. fice buildings in Out of CBD - Europe decreased to the lowest level seen in the last year, In this quarter, the rent aver- HISTORICAL AVERAGE RENT RATES BY CLASS B age of class A office buildings in Out of CBD - Europe has BUILDINGS Last Four Quarters continued to decrease and finally receded to 16,7 US$ /m²/ month. 25 $

20 $ 14,9 15,6 For the last four quarters, it is observed that the average of 14,8 14,3 class A office buildings in Out of CBD - Asia occurred at 15 $ 13,3 12,9 12,5 13,0 similar levels for each quarters without any significant fluc- 10 $ 10,4 10,3 10,5 10,9 tuation. 5 $ For Sale or Rental Office Block / ZINCIRLIKUYU 5 0 $ '11-3ndQ '11-4thQ '12-1stQ 12-2ndQ CBD (BUYUKDERE AVE) Out of CBD-ASIA Out of CBD-EUROPE

Figure 8 | Source:Propin

The change in rent averages of class A buildings, observed within the last four quarters, is stated in the figure above.

With an insignificant decrease, the rent average of class B buildings in CBD has receded to 14,3 US$ /m² /month.

ISTANBLOOM The rent average of class B office buildings in Out of  Leed certificate CBD – Europe and Out of CBD – Asia has remained sta-  Office floor areas between 4.620 m² - 1.945 m² ble during the last four quarters. When related graphs are  The advantage of accessing interior garden and analyzed, especially the graphs which include last two penthouse via floors years, it is seen that the rent averages of class B office  Office area of 9.700 m² for one single user buildings in Out of CBD – Asia has occurred at similar No agency service charge.Please click on www.propin.com.tr for other properties we represent and for detailed information. levels.

www.propin.com.tr 7 PRIME RENT RATES IN ISTANBUL OFFICE MARKET

3 PRIME RENTS BY DISTRICTS IN ISTANBUL OFFICE MARKET Last Four Quarters

70 $

60 $

50 $ 50 50 46 45 45 40 $ 43 4245 4040 42 40 38 38 38 40 40 38 40 35 35 35 35 35 35 30 $ 3535 32 35 35 35

31 3131 / month / 2 26 2525 25 20 $ 24 22 22 22 22

/m 21 $ $ 10 $ 15 15 15 16

0 $ Levent Etiler Maslak Zincirlikuyu Beşiktaş-Balmumcu Taksim-Nişantaşı Şişli-Fulya-Otim Airport Kozyatağı Altunizade Kavacık Ümraniye Esentepe Figure 9| Source:Propin Gayrettepe '11-3rdQ '11-4thQ '12-1stQ '12-2ndQ

The comparison of “The Highest Rent Listing Prices Requested According to the Districts” is stated in Figure 9, based on the data acquired from last four quarters.

The highest rent price has been requested in Levent District due to an office building with a rental price of 42 US$ / m² /month.

In the second quarter of 2012, Etiler, Beşiktaş - Balmumcu and Taksim - Nişantaşı Districts have the second highest rental price which is 40 US$ /m² /month, followed by Maslak, Şişli-Fulya-Otim and Kavacık Districts which have a rental price requested at the level of 35 US$ /m² /month

As seen in every quarter, Airport District has been the area where the lowest rental price is requested.

3 The rent numbers given in the graphic are the prices declared by the property owners to the market. The general rent averages in districts are shown in page 6.

Rental Office Floors / KAVACIK 7 Rental - Sale Office Floors / KAGITHANE 8

PERMAK PLAZA PAPIRUS PLAZA  Delivery at the third quarter of 2012  Delivery at December 2012  The advantage of overlooking the road  Wide parking lot  Accessing parking lot via main road  Areas for sale and for rent varying between  Total office area of 8.414 m² 159 m² - 4.907 m²

No agency service charge.Please click on www.propin.com.tr for other No agency service charge.Please click on www.propin.com.tr for other properties we represent and for detailed information. properties we represent and for detailed information.

www.propin.com.tr 8 ISTANBUL OFFICE DISTRICTS CLASS A STOCK COMPARISON

COMPARISON OF CLASS A OFFICE STOCKS

*Light colors show the vacancy Class A Total Stock ( m2) 500.000

Percent of Suply *%8,5 400.000 *%7,2 *%14,9

*%2,6 2 1 *%30,5 *%25,5 3 300.000 4 *%12,4

200.000 25% *%4,916,9 17,2 *%5,2 16,9 16,4 20% 16,2 *%17,7 *%2,0 100.000 15% 12,4 11,1 11,1 *%9,7 10,3 10%9,8 10,7 10,2 5% 0 Levent Etiler Maslak Zincirlikuyu Beşiktaş Taksim0% Şişli Airport Kozyatağı Altunizade Kavacık Ümraniye Esentepe Balmumcu Nişantaşı Fulya Gayretttepe Otim'11-2ndQ '11-3ndQ '11-4thQ '12-1stQ CBD (BUYUKDERE AVE) Out of CBD-EUROPE Out of CBD-ASIA Figure 10 | Source:Propin

The stock graph of the class A office buildings in the Is- periods will expand the limited stocks. tanbul Office Market 2012 (located in Istanbul‟s twelve Out of CBD – Europe [Taksim-Nişantaşı, Şişli, Fulya, districts) for the Second Quarter of 2012 is stated above. Otim, Airport]; is equal to 24% of total stocks. The districts with stocks larger than 300.000 m2 are numbered on the graph in connection with their sizes. Stocks in Airport District, which has the largest stocks of İstanbul Office Market, has decreased by 3,6%. CBD [Levent, Etiler, Maslak, Zincirlikuyu-Esentepe- Gayrettepe, Beşiktaş-Balmumcu]; is equal to 41% of total Out of CBD – Asia [Kozyatağı, Altunizade, Kavacık, stocks. Ümraniye]; is equal to 35% of total stocks. There hasn‟t been any significant change observed in In Out of CBD – Asia, rentals have caused stock rates to CBD which covers a large part of Istanbul office stocks. decrease in general. The most intense transactions have Stocks in Levent District has decreased by 1%. It is pre- taken place in Kozyatağı District. dicted that constructions to be completed in following

Rental Office Floors / NISANTASI 9 Rental Office Floors / MASLAK 10

RUMELI PLAZA WINDOWIST TOWER  Only 150 meters to  Office on a single floor Osmanbey Subway of 650 m² and ready to  Floor areas with 225 m² use  Office area ready to  Access through Rumeli Main Street and store use areas  Room offices of 12 m² at least and ready to  Bosphorus and Golden use Horn view floors  Direct access  Total office area of 1.953 to Maslak m² subway

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