Significant yield compression has already been experienced in Turkey with prime yields decreasing to 7% by the end of 2006, with further decreases likely in the first half of 2007. This new level is comparable with prime shopping centre yields in Eastern Europe, where the yields vary between 7.5% (Bulgaria) and 6.0% (Slovakia).
Jeremy Eddy, a Director in the European Retail Capital Markets team at Jones Lang LaSalle who advised on the Cevahir transaction commented: “A growing number of investors are putting Turkey on their shopping list, attracted by a stable economic environment and one of the fastest growing economies in Europe. A key factor driving the investment market in 2007 is that investors are seeking rental and income growth through active asset management. Investment yields are expected to remain stable or decline as the market matures and shows signs of greater transparency and long-term stability. By 2009, we forecast that Turkey will be one of the largest retail investment markets in Europe.”
Neville Moss, Head of European Retail Research at Jones Lang LaSalle added: “Although in Turkey you will find some of the most innovative design concepts in Europe, the shopping centre market is still emerging and Turkey remains very undersupplied. Over 60 new shopping centres are due for completion before the end of 2008; the second highest development pipeline after Russia. Jones Lang LaSalle believes that there is potential for another 300 new shopping centres in Turkey over the next 10-15 years, substantially increasing the availability of high-quality product to investors.”
Institutional investors such as Corio and Meinl European Land, German funds such as CGI and DIFA, and British fund Aerium have all entered the Turkish market since 2003.
Most of the existing shopping centres were developed by Turkish development companies, but international companies are now leading the way, driven by the increase in investor interest, which has enabled projects to be activated. Multi Turkmall is the most active developer in Turkey and ECE has developed and now manage six centres. Other international companies looking at Turkey include Foruminvest, Redevco and German developers Hfs and mfi, which recently announced plans to open 10 new shopping centres over the next decade. Local developers/investors also remain active including KKG Group, Toray Construction, Renaissance Construction, Tesco-Kipa, ISGYO and Profilo.
Rents across the Turkish retail market vary extensively, determined by location, unit size and achievable turnover with an obvious premium in Istanbul. As in most other markets, high street and city centre locations tend to achieve the highest rent, due to high retailer demand and lack of suitable space. Average shopping centre rents across Istanbul range from €20-25/m2 per month for smaller and older centres (i.e. hypermarket-anchored out of town schemes such as the older Carrefour malls) to €40-45/m2 per month for prime Istanbul centres such as Cevahir, Kanyon and Capitol. Increasing occupier demand from international retailers entering the market and/or expanding into regional markets, underpinned by strong retail sales growth, will drive shopping centre rental growth across Turkey. Modern, high-quality shopping centre schemes and high street locations are likely to see the highest growth.
Over 100 international retailers are already in Turkey including recent entrants such as IKEA in 2005 and Harvey Nichols in 2006. Cross-border retailer demand is very high and with a lack of suitable space in high street locations, retailers are focusing their expansion plans on modern high-quality shopping centres, securing market share and developing new chains.
Retail sales are being driven by a young, increasingly urban population that is growing richer and embracing Western shopping habits. More than 30% of the population is under 20 and 70% is under 35, compared with less than 50% in Western Europe. Since the financial crisis of 2001, national disposable income has grown by 40% and retail sales per capita, now higher than Bulgaria and Romania, are growing rapidly by over 5% pa.