The real estate sector is in a healthy state in Turkey overall, with high domestic and international demand for property; however, interest rate hikes and weak liquidity flows may cool down the party.

With the global financial crisis of 2009 forming a distant memory in Turkey, investment in the real estate sector is once again on the rise. At the end of 2013, the Real Estate Investment Trust (REIT) price index rose by 89% in lira terms, or 52% in US dollar terms compared to 2009. FDI in the sector had also risen in the same period, from $1.7 billion in 2009 to $2.4 billion as of November 2013, according to a report carried out by Deloitte in 2014. After a rather turbulent year over 2013, the strong showing of the Justice and Development Party (AK Party) during the March 2014 local elections brought about an air of stability to the markets and slowed the slide of the lira. This was welcome news for investors, with Blue Spot International Property predicting this could spur the sector and increase FDI. In addition, Turkey's large, young population looks likely to drive consumption in domestic demand for housing. The government's passion for megaprojects will also keep the demand for industrial and office space on the up.


The population of Turkey is largely urbanized, with over 72% of residents living in cities according to the World Bank, and this number continues to rise. This movement is constantly creating demand for more urban spaces. The average household size is also decreasing, standing at 4.7 persons in 2000, 4.3 in 2013, and an estimated 4.2 in 2017. Hence, the number of households is on the rise, jumping from 14 million in 2000 to 17.5 million in 2013, while forecasts predict 18.6 million households by 2017. This change is being driven by the growing trend of students to leave home during university, as well as the increasing presence of women in the workforce. Add these two factors to the fact that a number of buildings are being rebuilt as they fall short of earthquake regulations, and most predictions suggest growth in both the supply and demand of housing.

However, changes to the value-added tax (VAT) applied to real estate sales in January 2013 could have an adverse effect on the market. Before the new tax, dwellings with a surface area of 150 sqm or less had to pay a flat rate of 1% in VAT. However, the regulation will charge VAT based on the value per square meter. Housing valued between TL500 and TL1,000 per sqm will pay an 8% VAT, while anything above will be charged 18%. This charge will not impact residential buildings that applied for a building permit before January 2013, but will affect all housing afterward.

Since 2010, housing and mortgage sales have been steadily rising, from 124,000 units in 1Q2010 to 295,000 units in 3Q2013. The total volume of housing loans has also shown a similar steady increase from an estimated total value of TL20 billion in 1Q2007 to TL116 billion in 4Q2013. However, an interest hike to the lending rate in January 2014 from 7.75% to 12% and borrowing rates from 3.5% to 8% was likely to tighten the purse strings of many home owners and buyers. A recent 2% drop in the rate in April 2014 is still unlikely to alleviate the pressure on many looking to access the mortgage sector. Even though the interest hikes might have an adverse effect on the market in the short term, it is expected that the overwhelming demand for housing will counter any negative impacts. As demand for new housing increased, so has the price. Between 2010 and 2013, the average price of a house rose by 11.4% nationally, while Istanbul saw slightly higher increases of 15.2%.


The office sector in Turkey continues to perform well, especially in the business districts of Istanbul and Ankara. As an increasing amount of multinational companies look to set up regional offices in Istanbul, the demand for both Grade A and B office space is high, keeping vacancy rates low. Grade A vacancy rates on the European side stood at 16.92% in 2013, a slight increase on the year before at 10.36%. On the Asian side, vacancy rates of Grade-A office space were at 13.42% in 2013, a significant drop from the year before (23.46%). This drop is possibly due to inexpensive and modern office space coming online in areas such as Kavacık, as well as the growing trend for some companies to move from the more expensive European side to the up-and-coming business districts across the Bosphorus. The amount of Grade-A office space on the European side was a little under 1.2 million sqm in 2013, and around 500,000 sqm on the Asian side of Istanbul. Grade B office space on the European side had a vacancy rate of just below 6.97% and totaled 400,000 sqm. On the Asian side, vacancy rates were slightly lower at 6.54%; however, total floor space was also lower at just over 200,000 sqm.

Supply wise, total Grade A office stock reached 3.3 million sqm in Istanbul, with 1 million sqm in the Levant, Beşiktaş, and Şişli districts, which also has a further 400,000 sqm under construction. Another up-and-coming business district in Istanbul is Maslak, which currently has around 500,000 sqm of floor space; however, it has a further 300,000 sqm under construction, which is set to make the neighborhood the second largest business district in Istanbul. The two most expensive districts in Istanbul in 2013, as well as in 2012, were Taksim and Beşiktaş at $40 and $39.9 per sqm per month, respectively. The cheapest area for office space is around Atatürk Airport on the European side and Kavacık on the Asian at $15.2 and $19.2 per sqm per month, respectively.

One of Istanbul's main business districts, Levant, also saw one of the largest real estate sales in recent times in Turkey. In March 2014, the National Bank of Greece (NBG), which owns Finansbank in Turkey, bought the 40-story “Crystal Tower" for $303 million. The 170-meter-high tower will provide the bank will 60,000 sqm of Grade A office space in a prime location.


Turkey's industrial sector has performed well over 2013, and total industrial production grew by 7.1% YoY. However, the interest rate hikes are expected to negatively affect domestic demand in early 2014. Still, the weakened lira will likely prop up the industrial market as external demand for industrial space is set to increase. Turkey is also introducing a number of Industrial Free Zones across the country. Some of the major zones include Istanbul Atatürk Airport for services and software, Kocaeli for shipbuilding, Mersin for textiles, Bursa for automotive and related sub-industries, and Izmir for leather. When it comes to warehousing, the majority of the key hubs are located around airports, ports, and major road intersections. The largest logistic-specialized real estate investment company (REIC) in Turkey is Reyşaş, which owns a total of 183,000 sqm of warehousing in Istanbul, Kocaeli, Adana, Bursa, and Eskişehir. Prices for warehousing in Istanbul remained steady from 2012 to 2013, only dropping 0.1% to $7.70 per sqm per month. In Ankara, prices dropped somewhat more significantly in YoY terms by 7.1% to $4.50 per sqm per month.


The retail sector continues to grow in Turkey, with the gross leasable area (GLA) increasing by 13% from 2012 to 2013 to reach 9.4 million sqm. The national average for GLA per 1,000 people is around 120 sqm; however, in places such as Ankara and Istanbul, this figure is higher at 246 sqm and 277 sqm per 1,000 persons, respectively. The national number is still lower than in more developed markets, with the average in the EU being 259.9 sqm per 1,000. As of 2013, there are 340 shopping centers in total across the country. While Ankara and Istanbul are reaching saturation point for GLA, cities with a population of 1 million or more show great potential for growth. In 2013, still nearly half of the top-10 largest shopping centers opening were in Istanbul or Ankara. The largest to open was Vialand in Istanbul, which provided a further 140,000 sqm of GLA. The second largest opening was in Samsun, with 65,936 of GLA coming onto the market at Piazza Samsun. The third largest center to open was the upmarket Zorlu Center in Istanbul with 60,000 sqm of GLA. Gaziantep also introduced nearly 100,000 sqm of GLA onto the market through the opening of two new shopping centers, Prime Mall and Forum Gaziantep. The new supply of GLA is expected to continue up until nearly the end of the decade, with a further 3 million sqm of GLA poised to hit the market by 2018, taking the total space to over 12 million sqm. This should also take the national average of GLA per 1,000 people to 160 sqm. Istanbul will still dominate the shopping center market, with 58% of new developments currently underway taking place there, compared to 9% in Ankara, 8% in Izmir, and 5% in Kocaeli.