Turkey, where jewelry, fabrics and spices have been haggled over in bazaars for centuries, was among the last European countries to embrace modern shopping centers. It’s catching up quickly.
Property developers attracted by one of the youngest populations in Europe are building malls at a faster rate than in any other country on the continent except Russia. Istanbul, Turkey’s wealthiest and most populous city, is leading the way with about 30 centers in the pipeline.
“The attraction of Turkey is the enormous power of young people wanting to go out and improve their lot and their willingness to spend,” said Frank Billand, board member in charge of shopping centers for Union Investment Real Estate GmbH. The Hamburg-based money manager owns four centers in Turkey valued at 450 million euros ($574 million).
Private consumption fueled an 8.2 percent increase in gross domestic product in the third quarter, three times Germany’s growth rate. The economy’s strength encouraged Multi Corp. BV, Inditex SA and Abercrombie & Fitch Co. to invest in a country which, according to Cushman & Wakefield Inc., has 76 square meters (818 square feet) of mall space for every 1,000 inhabitants. That compares with 240 square meters in the European Union.
Canada Pension Plan Investment Board chose Turkey over Russia and Ukraine for its long-term investment in emerging European economies. Canada’s second-largest pension manager holds a 27 percent stake in the Forum Turkey Fund, which owns seven Turkish malls and is controlled by Multi Corp., the biggest developer in the country.
“It’s an emerging market, so it has its bumps,” said Wenzel Hoberg, the pension board’s head of European real estate investment.
Hoberg and Union Investment’s Billand decided to focus on centers that will dominate their area because of Turkey’s relatively low number of malls. There are comparatively few opportunities to invest in office and residential projects, they said in Dec. 21 interviews at the opening of Multi’s newest mall in Kayseri, Turkey, in which Union has a 50 percent stake.
Investment demand will support retail property prices and ensure capitalization rates have a “modest” gain even if rents decline, Kelvin Davidson, an economist at London-based research firm Capital Economics Ltd., said in a Jan. 5 report. Capitalization rates measure the amount of income a building can generate compared with its value.
Capitalization rates for prime Turkish shopping centers were little changed at about 7.25 percent in the second half of 2011 after declining by 1 point from two years earlier, Jones Lang LaSalle Inc. (JLL) said. That’s still 3 points more than equivalent properties in the U.K. and 1 point more than in the Czech Republic, one of central and eastern Europe’s best- performing property investment markets.
Turkey’s first modern mall, Galleria Atakoy, opened in a western suburb of Istanbul in 1988. Outside that city, 37 malls will open across Turkey by the end of 2013, Jones Lang said.
Istanbul accounted for almost two-thirds of the mall space that was built in Turkey last year and will represent about 60 percent of the 1.4 million square meters scheduled to open in the 18 months through 2012, Cushman & Wakefield estimates.
By the end of 2013, the city of 13 million will have 132 centers compared with 93 at the start of 2011, Jones Lang predicts. By then, there will be 275 square meters of mall space to lease for every 1,000 inhabitants, or 15 percent more than the EU average.
During the past 15 months, the strength of investor demand for mall and residential development projects enabled Turkey’s Kiler and Torun families to raise about 600 million liras ($327 million) in initial public share offerings of their real estate companies, Kiler GYO AS and Torunlar GYO AS. Multi plans an IPO for Forum Turkey Fund in about two years.
Deals are heating up in the industry. Sales of large Turkish retail properties rose 35 percent last year to 336 million euros, according to figures compiled by Real Capital Analytics Inc. The figure is likely to rise again this year, the New York-based research firm said.
ECE Projektmanagement GmbH & Co., the developer controlled by Germany’s Otto family, offered $525 million for Ankamall in Ankara and the Crowne Plaza Hotel next door. Pramerica Real Estate Investors is seeking more than 200 million euros for the TerraCity mall it opened in June in the resort city of Antalya.
Not every part of the market is thriving. The Sapphire Istanbul mall in Istanbul, occupying six floors of Turkey’s tallest building, opened in March and the owners already plan to cut rents. The 54-story tower’s mall competes with three others in the central business district. The 65,000 square-meter Zorlu Center will open in 2013 and the city’s main shopping area is just three miles away.
Kiler GYO, the mall’s majority owner, said Dec. 30 it will cut rents by as much as half and fix them at a favorable rate against the euro. Tenants include Sweden’s Hennes & Mauritz AB, the world’s second-largest clothing retailer.
“Bargaining power is back with the tenants” in Turkey’s biggest cities because of the amount of space under construction and the prospect of slower economic growth, Ecem Nalbantgil, a Bank of America Merrill Lynch analyst, said in a December note.
Kiler GYO shares have lost 56 percent of their value since trading for the first time in April 2011, while Torunlar GYO has declined 43 percent since the company’s IPO in October 2010.
Turkey’s rate of economic expansion will probably drop to 2 percent this year, the International Monetary Fund said Dec. 7.
The rent cuts are also a response to the Turkish currency’s slump. The lira fell 16 percent last year against the euro as rising corporate investment and a credit-fueled consumer spree fueled a record current account deficit.
While Istanbul’s center may be getting saturated, a subway extension has enabled developers to build malls in satellite towns, said Ismail Kazanc, chief financial officer of Torunlar GYO AS. (TRGYO) Torunlar is constructing the 135,000 square-meter Mall of Istanbul, part of a 500 million-liras ($267 million) plan for 660 homes, a 300-room hotel and 25,000 square meters of offices three miles north of the airport.
Increased competition has prompted some shopping centers to focus on new ways of winning customers. Forum Istanbul, Turkey’s largest mall, attracts 2 million visitors a month with 265 retail brands, an aquarium, ice skating, bowling and a 10,000 square-meter dinosaur exhibit.
Some Will Die
“Some shopping centers will die, some will continue to grow, but some adaptation will definitely happen,” said Anthony Khoi, chief executive officer of Cenor Group, which manages Carrefour SA’s nine outlets in Turkey.
Istanbul’s Istinye Park is a modern Turkish center that’s focused on high-end brands and attractions. The mall, owned by the Dogus and Orjin groups, features luxury stores including Prada SpA and Gucci. The food court is styled like a market, so diners can eat freshly prepared produce.
Mike Rodda, Cushman’s head of European retail capital markets, said it’s one of the best shopping centers he had ever visited. “The food court is amazing,” he said.
“There’s a need to differentiate and create variety in new types of shopping centers,” said Avi Alkas, Jones Lang’s head of Turkey. “There might be some casualties of centers which are too near to each other and cannibalize each other.”