Now Available: Turkey Real Estate Report 2016

A tentatively improving economy and established banking sector should support growth in the commercial real estate industry in the medium term. However, in the short term the outlook is marred by security concerns, both domestically and regionally, and Russian trade sanctions, which will all dampen investor and consumer confidence.

The government's economic reform agenda, as well as a stable banking sector, provides a good backdrop for commercial real estate growth. However, domestic political issues and regional tensions have raised uncertainty about business and consumer confidence. Geopolitical turmoil from Islamic State (IS) and Russain sanctions, expected to lose the country some USD3.1bn worth of trade in 2016, will weigh in on Turkey's economic recovery. We forecast real GDP growth of 2.9% in 2016, down from 3.3% in 2015. However, the commercial real estate sector has proved resilient, with rental rates remaining fairly stable.

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In the office sub-sector, rental and occupancy rates have been rising over the past few years in both cities that we cover. The Ankara office market is dominated by local firms, although we expect an increase in foreign investment in the city. In Istanbul the market is characterised by a small pipeline of new developments, with investors cautious about the city.

Retail rental rates are expected to rise in coming years in Istanbul, although in Ankara the market is expected to be stable, as rental rates there are already high. Although retail market players have become cautious given political uncertainty, good demand for premium space will continue to support the market. However, for smaller-scale units, particularly in Istanbul, a drop off in tourist numbers following the January 2016 terror attacks in the city could dampen demand significantly. The development pipeline could well be limited as a result.

Russia and Iraq are two of Turkey's main trading partners. Turbulence in the latter and sanctions imposed by the former will dampen export trade, affecting demand for industrial space. However, the industrial real estate market in Istanbul is tenant-driven, with class A property still in demand. Meanwhile, Ankara's status as a central industrial hub, in close proximity to good infrastructure, should support sector growth over 2016, especially with the launch of the 7.2mn sq m aerospace industrial zone. Overall, rentals should remain fairly stable in both locations in 2016.

Vigilance is key in the Turkey commercial real estate market, as short-term issues could hinder long-term development opportunities. Further tensions with Russia and the proxy-war with Syria could create turbulence in the business environment, and see rentals come under downward pressure, although our medium-term outlooks remains positive.

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