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.

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