As Turkey's economic leader, Istanbul has undergone significant changes in its commercial real estate market in recent decades.
What are commercial properties?
Commercial properties are briefly real estate that is used for business purposes. It might include buildings or lands from which you can generate profit in either rental income or capital gains. For example, malls, grocery stores, offices, industrial estates, manufacturing shops, etc..
Historical Context
Commercial real estate in Istanbul has a rich historical context deeply intertwined with the city's centuries-old legacy as a crossroads of culture, trade, and civilization.
Istanbul's strategic location at the junction of Europe and Asia has made it a thriving hub for commerce and business since ancient times, with its iconic bazaars, such as the Grand Bazaar and Spice Bazaar, bearing witness to centuries of bustling trade.
Over the years, the city has witnessed dynamic economic shifts, from its role as a significant trading center in the Ottoman Empire to its modern transformation into a global metropolis.
Today, Istanbul's commercial real estate sector continues to flourish, reflecting its status as a strategic gateway between East and West, with modern office spaces, retail centers, and commercial developments catering to a diverse and cosmopolitan business community.
Location Importance
Location plays a critical role in commercial real estate in Istanbul investment; the location of a commercial property can significantly impact its value, potential return on investment, and overall success.
The location of a commercial property in Istanbul strongly affects its accessibility to the target market. As an example, businesses that depend on foot traffic, such as retail stores and coffee houses, being located in a busy and easily reached area is essential. It is the same regarding offices and industrial companies that should be near major transportation hubs and roads to facilitate employee and client access.
Analyzing and studying the competition in a specific location is essential for identifying market saturation and assessing the viability of a commercial property. Investing in an area with high competition may lead to challenges in attracting tenants or achieving desirable rental rates. On the other hand, choosing a location with limited competition may present opportunities for higher returns and increased demand.
Current Landscape
The commercial real estate market in Istanbul, Turkey, was experiencing a mixture of challenges, especially after the earthquake that occurred in 2023.
Istanbul (European side and Asian side), as Turkey's economic and cultural hub, has traditionally been a hotspot for commercial real estate investments. The market was undergoing transformations and changes in consumer behavior. Also, the COVID-19 pandemic led to a temporary slowdown in the demand for office spaces as remote work gained remarkable growth.
Still, it also prompted a surge in demand for warehousing and logistics properties to support the e-commerce sector.
Turkish businesspeople opened their international work projects, especially in Istanbul, to support the Turkish economy and attract prospective investors worldwide, such as Russia, Qatar, Saudi Arabia, Iran Republic, the United Arab Emirates, and Azerbaijan, which showed considerable interest in Turkish projects.
Office Spaces:
The office sector remains at the top with a five-year high, so office supply is important in this highly competitive environment (Turkish market) and will significantly increase the future supply.
The enormous earthquake on February 6, 2023, in Turkey significantly impacted the eastern cities of Turkey and other neighboring provinces and nations.
As a result of this earthquake, many discussions about Turkey's earthquake-prone building supply have surfaced. Consequently, there is a growing demand among users and investors in commercial real estate for comprehensive ground survey reports, particularly those about earthquake resistance.
Retail and Shopping Centers:
Demand in retail and shopping centers remained high in the first quarter of 2023; brands are having trouble finding empty storefronts because of the high occupancy rates in both streets and shopping centers.
As offices, rent prices in the retail market have risen, increasing in Turkish Lira (₺) and US Dollars ($). During the first three months of the year, the prime rent level on Istanbul's main streets saw a remarkable 67% growth in dollars compared to last year.
Industrial and Logistics:
The earthquake disaster destroyed industrial facilities and affected production. Furthermore, the enormous loss of workers has reduced production in Istanbul.
Many people left the area after the earthquake to be safer and to find a place to live, which led to moving the production facilities of many companies to other regions of Turkey, especially Central Anatolia.
The demand for warehouses with vast indoor areas remains high, and good warehouse availability is restricted. So, the increase in prime rents increased by 45.5% compared to the last year.
It is also expected that this net rise will continue in both the short and medium term after the continued demand for warehouse needs.
Hospitality and Tourism:
Istanbul's hospitality and tourism sector continues to be a driving force behind the city's commercial real estate market. Istanbul's rich history, cultural attractions, and strategic location at the crossroads of Europe and Asia make it a magnet for tourists and business travelers.
As a result, there is a growing demand for high-quality hotels, serviced apartments, and other hospitality-related properties.
Investors are increasingly eyeing opportunities in Istanbul's commercial real estate market to meet this demand, focusing on mixed-use developments that combine accommodation, dining, and entertainment options.
Challenges and Opportunities
Investing in the city's growth sectors, such as tourism, technology, and logistics, while embracing sustainability can lead to profitable ventures in this dynamic metropolis.
Istanbul's commercial real estate market offers diverse opportunities, but success requires a keen understanding of the challenges, local regulations, and market dynamics.
Strategic Location: Istanbul's location as a bridge between Europe and Asia provides a unique advantage for businesses. It can serve as a regional headquarters or a base for companies looking to expand into both continents.
Tourism: Istanbul's historical and cultural attractions continue attracting tourists and foreign visitors. This presents opportunities for hotel investments and short-term rental properties.
Mixed-Use Developments: Combining commercial, residential, and leisure spaces in mixed-use developments can be lucrative. They cater to the diverse needs of a growing population.
Technology and Innovation: The city embraces technology and innovation, which can create opportunities for smart buildings and tech-focused commercial spaces and business centers.
Industrial and Logistics: Istanbul's strategic location also makes it a hub for logistics and distribution centers. E-commerce growth presents opportunities for industrial real estate.
Renewable Energy: Turkey's push for renewable energy sources creates opportunities for green building and sustainable development projects.
Infrastructure Growth: As transportation infrastructure improves, areas previously considered remote may become more attractive for investment.
The future of Istanbul's commercial real estate market
The future of Istanbul's commercial real estate market holds significant promise as the city continues to assert its position as a global business and economic hub.
With a growing population and a strategic location, Istanbul is poised to attract further foreign investment, multinational corporations, and startups.
The city's infrastructure development, including transportation projects such as the new Istanbul Airport and the expansion of the metro network, is enhancing accessibility and connectivity, further fueling demand for prime office spaces and logistics centers.
Additionally, Istanbul's evolving retail landscape and dynamic hospitality industry are expected to drive commercial real estate growth, catering to local and international businesses seeking opportunities in this thriving metropolis.
Conclusion
The commercial real estate market in Istanbul continues to attract attention in the region due to its exceptional geographical location, rich history, and vibrant culture.
Investors and businesses can benefit from numerous opportunities by implementing effective strategies and comprehending the market.