RENTAL VALUES OF OFFICES AND PLAZAS: BEFORE AND AFTER THE CRISIS

Serdar Serdaroğlu
Project Development Department

Istanbul is Turkey’s trade, services and finance center. The city holds a 27% share in the GNP of the country. More than 50% of the total employment in Istanbul is in the service sector and 38% is in the industrial sector. Among the foreign capital companies that are active in Turkey 55% are based in Istanbul. 50% of the foreign capital companies active in the finance sector are based in Istanbul.

The economical potential of Istanbul rapidly transforms the metropolitan area. Industrial zones are encouraged to shift outside of the metropolitan area; as export and import increases, logistics firms opt to establish themselves on the east and west ends of Istanbul, namely, Turkey’s most important export port and exit gate; areas on the east and west end, as well as the north end are opened to new housing zones; areas around junctions that offer high accessibility are developed into prestigious business centers.

All of these developments have escalated Istanbul to the position of a regional center, gave the city an important position among the rising markets. Based on the impact of the new companies established every year and of the increase in the number of foreign investment companies, ULI & Pwc Estate 2009 report rates Istanbul in the first place among the cities where purchase of offices is recommended in Europe. The total office stock in Istanbul is 1,654,000 m² in 2009. While decrease has been observed in the demand for offices in 2009, increase has been observed in vacancy rates in the same year. Supply on the Aclass offices market, on the other hand, is lower than the previous years. The locations where offices and plazas are predominantly positioned in Istanbul are Maslak, Levent and Zincirlikuyu- Esentepe office regions on the European side, and Kozyatağı, Ataşehir and Ümraniye office regions on the Asian side.

The rental values (USD/m2/month) in 6-month periods of 2007, 2008 and 2009 in the office regions were studied and comparatively analyzed. The office region in Kozyatağı remains in the districts of Kadıköy and Ataşehir. Therefore, the Ataşehir office region defined here is the center of the Ataşehir district, and Kozyatağı is studied as a separate region.
The Global Economic Crisis that particularly prevailed in late 2008 brought about decreases in the demand and rental values in the real estate sector as in all other sectors. Offices and plazas got their share of this outcome, which in turn gave rise to significant decreases in rental values.
Office rental values have been scrutinized based on the changing rental rates in five different regions according to periods. Maslak, Levent and Zincirlikuyu-Esentepe on the European side, and

Ümraniye and Kozyatağı on the Asian side were individually evaluated as office regions. Levent Region is the most prestigious region on the office market. The facilities offered in the area, alternative transportation connections, its location on the CBD (Central Business District) axis, and the design variety offered by the buildings, give this region an advantageous position over its peers. The rental rate of offices is $35 per m2. This rate is higher than the rates found in the other regions. Despite the economic stagnation no significant decrease was observed in the rental fees per m2 in 2009. Occupancy rate in the Levent region is 95.71%. No decrease has been observed in this rate despite the crisis.

Monthly rental values in the Levent Office Region varied between $25 and $35/m2 in the years between 2007 and 2009. Although the monthly rates have reached $54/m2 in the second half of 2008, this rate indicates the highest value achieved during this period. As was the case in all office regions, the 2nd half of 2008 reveals the highest value in terms of rental prices in the Levent region. This region holds the highest rental values average of the European side and of Istanbul in general in the 6-month period. However, decrease is observed in rental values in 2009 –a fact valid also for the other office regions.The monthly rental value that prevailed at $31/m2 in the 1st half of 2009 showed an increasing trend in the 2nd half of the same year and reached a monthly rental value of $35/m2.

Zincirlikuyu-Esentepe Region is another prestigious region on the offices market. Availability of transportation connections and the demand from large prestigious projects is one of the reasons that make this region prestigious. However, projects in this region suffer from legal processes. The offices in TAT Towers are being rented out but required licenses are not yet obtained. Large-scale mixed usage projects, such as Zorlu Center are being developed. Delays due to legal processes are encountered in these two large projects. Monthly rental values in the Zincirlikuyu-Esentepe Office Region varied between $19 and $29/m2 in the years between 2007 and 2009.

Monthly rental rates have reached their highest value of $29/m2 in the 2nd half of 2008. As was the case in all office regions, the 2nd half of 2008reveals the highest value in terms of rental prices in the Zincirlikuyu- Esentepe Office Region. Rental values remain at lower levels compared to the other regions because the prestigious office projects particularly in the Zincirlikuyu Region are not yet completed. Maslak Region is the third prestige area after Levent and Zincirlikuyu. Considerable investment is made in this region despite the problems experienced in transportation connections and infrastructure.

Construction of large-scale mixed-use projects such as Diamond of Istanbul (DOI) was started but stopped due to the economic crisis. Contrary to the Levent and Zincirlikuyu Regions, not many multiple-use projects are found in this area. This area accommodates A-class offices and 5-star hotels in general. Monthly rental rates in the Maslak Office Region varied between $18-$22/m2 in the 2007-2009 period. Rental rates reached their lowest value in the 1st half of 2007 with a monthly rate of $18/m2, and their highest rate in the 2nd half of 2008 with a monthly rate of $22/m2. Maslak Office Region showed a consistent trend in terms of rental rates in the 6 periods between 2007 and 2009. In 2009 the Maslak Region surpassed the Zincirlikuyu-Esentepe Office Region in terms of rental values. The most important reason for this is that the legal processes of the ongoing prestigious office buildings in Zincirlikuyu (TAT Towers, Zorlu Center) are not finalized.

Kozyatağı Region is the most prestigious office region on the Asian side of Istanbul. This region remains both in the Kadıköy and in the Ataşehir district zones.Kozyatağı has become one of the most important and most prestigious regions on the Asian side in terms of office development as a result of factors such as large companies established on the European side preferring to move to the Asian side for commercial reasons, the housing units developing in the vicinity, convenience of transportation via TEM and E-5,

and presence of large shopping malls such as Metro and Carrefoursa. Office areas are observed to extend from Yenisahra to Bostancı to the north and south of E-5. Monthly rental values in the Kozyatağı Office Region varied between $18 and $25/m2 between the years of 2007 and 2009. Monthly rental rates reached their highest value in the 2nd half of 2008 with $25/m2. As was the case in all office regions, the 2nd half of 2008 also reveals the highest value in terms of rental prices in the Kozyatağı Region.When all periods are considered, Kozyatağı Office Region displays a consistent trend in terms of rental fees. Contrary to other office regions, large fluctuations are not observed in the prices of this region. In this aspect, the Kozyatağı Region displays a similar outlook with the Maslak Region on the European side.

Ümraniye Region has become an important attraction area for office developments with its industrial zones, TEM connections and housing developments. Office investments are often developed according to the “Built to Suit” model for large-scale firms. Because irregular and unplanned construction, insufficient infrastructure is still dominant in the center of Ümraniye, office plazas are observed to concentrate in the environs of the TEM-Ümraniye junction, an area that offers high accessibility and is open to development.

Monthly rental values varied between $16 and $23/m2 between the years of 2007 and 2009 in the Ümraniye Office Region. The most significant aspect that differentiates the Ümraniye Region from the other office regions is that rental values have displayed continuous increase in the period from the 1st half of 2007 to the 2nd half of 2009. The monthly rental value of $23/m2 achieved in the 2nd half of 2009, in particular, is due to the presence of large A-class office projects developing around Ümraniye Carrefoursa (Ak Ofispark, Akkom Ofis Plaza). Ümraniye can be evaluated as the rising star of the Asian side in terms of plaza stock around the TEM junction and its vicinity.

Consequently, the Levent Region continues to be the most prestigious and most valuable office region in Istanbul with a monthly rental value of $35/m2. The Ümraniye office region is the only region that displays continual increase from the 1st half of 2007 until the 2nd half of 2009. The 2nd half of 2008 is the period in which almost all office regions have achieved their highest rental values.

Significant decreases were identified in the rental prices of the 1st half of 2009, whereas increases, albeit slight, were observed in the 2nd half of 2009. This is an important finding indicating that the negative impact of the Global Economic Crisis prevalent in Turkey and across the world is diminishing on the office markets. Considering the values which rental prices have achieved in the office regions in the 3 years between 2007 and 2009, Ümraniye is the region where the highest increase is observed with 44%. Levent with 40%, Kozyatağı with 33%, and Maslak with 17% follow the Ümraniye Region. The Zincirlikuyu office region is the only region where decrease is observed in rental values with 13%. Significant increase in rental values is forecasted once the A-class prestigious plazas built in the region commence their activities.

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