A Thumbs-Up to Investors from the Real Estate Sector

According to Colliers International, an international real estate consulting firm, its evaluation of the market in a report entitled “2007 Turkey Real Estate Review” states that there are currently 30 various 5-star hotels either in the planning stages or under construction in the Istanbul real estate sector.

In addition to the 43 shopping centers in Istanbul, there are 35 additional shopping centers under construction and 30 are in the planning phases. By the end of 2006, the combined square-meter area of closed shopping centers reached 2,165,698 m² and is expected to reach 4,180,347 m² by 2008. The annual housing demand has reached 250,000 in Istanbul and there are currently 300 apartment complexes under construction.

OFFICE MARKET
According to Colliers International, there has been a significant increase in office supply in the most preferred regions, such as Levent, Etiler, Taksim, Gayrettepe, Zincirlikuyu, and Kavacık, although demand for quality offices in these locations continues to increase. Demand for buildings in the city center will continue in the future and tenants generally prefer quality office space in a central location.

This presents a strong opportunity for investors to redevelop areas, particularly in the business corridor between Zincirlikuyu and Levent. Refurbishing or remodeling older and insufficient B and C class office buildings to a higher standard will be able to meet the increased demand for quality office space. The increase in demand for B class office buildings due to the lack of A class office stock in these locations is highly indicative of potential investment opportunities within this segment.

RETAIL MARKET
The Colliers International report indicated that the retail market is developing considerably in Istanbul. To date, there are currently 43 existing shopping centers, with an additional 35 centers under construction, and 30 retail centers in the project planning phase. Considering that over half of the gross leasable area (GLA) in Turkey exists in Istanbul, competition in the Istanbul market has increased significantly. In an effort to differentiate themselves from the existing competition, new centers have employed strategies such as diversification of shop-mixes and brand introduction, coupled with strong project design to reinforce a particular concept. One strong example of a retail newcomer is Kanyon in Levent. Other new centers include the Maslak Power Center, Colony Outlet, D’silva, and Kaya Millenium in 2006.

INTERNATIONAL BRANDS IN ISTANBUL
2005 and 2006 saw an increase in the number of international brands present in the Istanbul market. Both Istanbul Cevahir and Kanyon were able to secure multiple tenants who had not previously operated in the Turkish market. Of particular interest is the advent of two new department stores in Turkey, namely Harvey Nichols and Debenhams. These new stores have increased department store competition, which has been until now dominated by domestic brand Boyner, and international brand Marks & Spencer. It also indicates that there is strong growth potential for this sub-sector within the retail arena in Istanbul and elsewhere in Turkey.

HOTEL MARKET
The market niche for Western-style four and five-star hotels continues to grow in Istanbul, particularly in strongly developed areas that are lacking this type of hotel infrastructure, such as the business districts on the Asian side of Istanbul. The five-star hotel market has grown progressively in the last decade, with the emergence of many international hotel chains in the Turkish market. These hotels are predominantly located on the European side of the city, in the tourism and business centers.

One-third of the total number of hotels in Istanbul falls within the four and five-star class. This would lead some to believe that there is an overabundance of high quality hotels in the city; however, it is important to note that there are not many mid-tier hotels within the city, and foreign and business travelers generally prefer to stay with names that they recognize.

There are many international hotel brands currently operating in Istanbul and elsewhere in Turkey. However, some of the five-star chains operating in Istanbul are either currently operating in more than one location or plan to do so in the near future. This is indicative of the strength of the five-star hotel market in this city, and we believe that there is space in the market for new chains to enter and operate here. This is proved further by the entrance of W Hotels, which will operate their first European outlet beginning in Istanbul in 2008.

There is also significant room for new luxury brand presence within the five-star hotel market, and many franchises are looking into developing and operating locations in Istanbul.

There are a total of 30 planned and under-construction five-star hotels entering the Istanbul market. It is unlikely that the introduction of these new hotels will be able to satisfy expected demand for five-star hotels in the city, which is expected to more than double in the next five to ten years.

SELECTED HOTEL PROJECTS
Name of Project                                                                Location                Opening Date
Atik Paşa Four Seasons Bosphourus Hotel               Beşiktaş                2007
Maçka Hotel                                                                       Maçka                    2008
Diamond of Istanbul                                                        Maslak                      *
Mariott Asia                                                                        Kozyatağı               2007
By O Tell                                                                             Kozyatağı               2007
MNG Bentur Airport Hotel                                               Atatürk Int. Airport    *
Büyük Tarabya Hotel                                                       Tarabya                     *
Park Hyatt                                                                          Maçka                        *
Crowne Plaza Istanbul Old City (old Merit Antique)   Laleli                      2007
W Istanbul                                                                         Beşiktaş                2007
Green Park                                                                        Pendik                   2007
Marriot Bomonti Hotel Convention                               Bomonti                 2009
* (by Taşyapı A.Ş.)                                                           Koşuyolu               2008

* not known yet
Source: Colliers International Turkey

CLASSIFICATION OF SHOPPING CENTERS
Shopping Center                             Location                        Opening Date                    GLA (m2)
TRADITIONAL
VERY LARGE
Istanbul Cevahir                              Şişli                                2005                                    107,000
Sub Total                                                                                                                                107,000
LARGE
CarrefourSA                                     Kozyatağı                      1996                                       47,250
CarrefourSA                                     Ümraniye                      2000                                      60,630
Galleria                                             Ataköy                            1988                                      42,974
M1 Tepe                                            Kartal                             2000                                      42,942
Maxi Shopping City                         Silivri                              1998                                      45,000
Profilo                                                Mecidiyeköy                  1998                                      40,600
Tepe Nautilus                                  Kadıköy                         2002                                      51,776
Sub Total                                                                                                                               331,172
MEDIUM
Akmerkez                                          Etiler                              1993                                       34,680
Beylicium                                          Beylikdüzü                    2005                                       22,000
Capitol                                              Altunizade                     1993                                       31,000
Carousel                                          Bakırköy                        1995                                       24,400
CarrefourSA                                    Bayrampaşa                 2003                                      25,030
CarrefourSA                                    Maltepe                          2005                                      30,500
D’silva                                              Büyükçekmece             2006                                      20,000
Kanyon                                             Levent                            2006                                      37,500
Metrocity                                           Levent                            2003                                      32,638
Migros                                              Beylikdüzü                     1997                                      33,000
Sub Total                                                                                                                               290,748
SMALL
Atirus                                                Büyükçekmece             2005                                      12,000
Artium                                               Ataköy                            1989                                       11,232
Aquarium                                         Bayrampaşa                 2005                                      10,500
Başak                                               İkitelli                              2005                                        8,724
CarrefourSA                                    Haramidere                  2000                                      17,831
Flyinn                                                Florya                             2003                                     15,300
G-Mall                                               Maçka                            2003                                        4,228
Kaya Millenium                               Beylikdüzü                    2006                                      15,000
Kule Çarşı                                       Levent                            2000                                         3,679
MKM                                                  Akatlar                           2004                                      15,000
Mayadrom                                       Etiler                              1998                                         2,976
Maxi City                                          Çengelköy                     2003                                      13,500
Maxi Center                                     İstinye                            2003                                      11,000
Mesa Studio Plaza                         Kemerburgaz              2003                                         6,240
Ömür Plaza                                     Bahçelievler                 2005                                       10,000
Paradise                                          Beylikdüzü                    2005                                         9,838
Sunflower                                        Esenkent                      2005                                         6,000
Town Center                                   Bakırköy                        2003                                      13,400
Uptown                                            Etiler                              2003                                         6,500
Sub Total                                                                                                                             192,948
SPECIALIZED
RETAIL PARK
Maslak Power Center                   Maslak                           2006                                     42,000
Sub Total                                                                                                                               42,000
FACTORY OUTLET CENTER
Olivium                                            Zeytinburnu                   2000                                      33,995
Colony                                             Sefaköy                          2006                                         7,000
Sub Total                                                                                                                                 40,995
THEME ORIENTED CENTER
1000a Dekorasyon Merkezi       Şişli                                 2003                                         8,500
Address Istanbul                           Okmeydanı                     2005                                         5,800
Kadir Has Çocuk Dünyası            Bahçelievler                   2003                                      17,500
Sub Total                                                                                                                                   31,800
TOTAL                                                                                                                                   1,036,663
Source: Colliers International Turkey

THE NEW MODEL IN REAL ESTATE: THE TURKISH INVESTMENT FUND
The dynamism of the Turkish real estate sector has also brought forth new financial models with it. The Turkish Investment Fund, which was formed by English-born Barry Kartal, based in England but active in the Istanbul real estate market, presents a new financial model for real estate projects. The Fund is now carrying out construction on two 45-million dollar projects in Kemerburgaz (in Istanbul) and Bodrum-Milas. They fund the projects completely with their own funds and then sell them. Kartal is attempting to move away from the previously established model of “first sell, then construct” mentality.

The Capital Courtyard project located in Kemerburgaz, the most popular suburban area of Istanbul, consists of 99 residential and 19 retail units built on 17,000 square meters. T.I.F. developed the 15 million dollar project with an international team of architects and structured the deal on a wholesale basis and plans a February 2009 opening.

The 30 million dollar Labranda Park project consists of 24,000 m2 retail space and 1500 m2 of social facilities. The Project has been contracted and is at the finance stage.

ABOUT TIF
Turkish Investment Fund is a U.K. registered Limited liability Partnership, which specializes in property investment and development. It holds LLP assets. TIF occasionally brokers mid-size investments for selected international investors.

The company is also working towards its first capital market bond, for the construction of its larger scale developments. T.I.F. is looking to invest its funds in quality, high yielding projects, which are clean and unencumbered, with planning having been granted (Imar). Should your project fit into these criteria, our project team can explore options with you for the realization of your project.

February 2008, Special Tourism Issue