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Turkey Real Estate Report Q2 2012

Turkeys real estate market is in a highly advantageous position. While the long-term domestic demand credentials of the BRIC (Brazil, Russia, India and China) economies are often heralded, Turkey may well be discussed similarly in the years to come. It has a number of factors in its favour, including a dynamic and youthful population in excess of 75mn, a strong economic outlook and an improving business environment and private sector mentality. Over the next few years we expect strong growth in the consumer sector, infrastructure and construction - with all three key factors in buoying the commercial real estate landscape.

Nothing highlights this more than our most recent data collection, which registers growth across all commercial real estate sub-sectors in the countrys two main cities of Ankara and Istanbul. The data is increasingly impressive when viewed alongside the performance of its EU neighbours. Nevertheless, we would highlight the increasing risks to this stellar performance to date, as the risks of a hard-landing in Turkey are ever increasing. Demand for office space, especially in Istanbul, is growing and is generally likely to continue doing so. In the city, especially in premium areas, increasing demand combined with limited supply is lowering vacancy rates and leading to rent increases.

In the retail sub-sector, high consumer demand for retail products - owing to sustained high consumer purchasing power at a time of low unemployment - has tended to push up retail rents, especially in prime areas. Although the market was flat in 2009 and early 2010, the sector has revived. Retail projects are being completed throughout the country - not just the main cities of Istanbul, Ankara and Izmir - and are trading successfully.

Industrial production is in good shape, and the industrial sub-sector is expected to maintain its momentum throughout 2012. Industrial vacancy rates in Istanbul are among the lowest of any of the countries whose real estate sectors are profiled. This is largely a reflection of the countrys highly favourable economic fundamentals. Logistics is the leading industrial sub-sector, driven by increasing industrial production and growing export-import and retail markets, with increased outsourcing to third-party logistics companies.

Key Opportunities/Drivers

- Real estate fundamentals are sound and favourable, based on a high-performing economy, among other factors.

- The Turkish real estate investment trust (REIT) sector is increasingly active, affording financial opportunities in a relatively institutionalised and transparent area.

Key Risks To Outlook

- Turkeys real GDP growth is expected to slow in 2012, and the economy remains at risk of overheating.

- Turkey is facing increased security and political problems. There is instability in Syria, Israel and other Middle Eastern nations, and Turkey is in profound disagreement with Israel over attacks on a flotilla in 2011. Internally, renewed military clashes with the Kurds and large street protests in Istanbul have further increased political pressure on the government over this longstanding issue.

- A hard landing in the country would negatively affect the real estate sector: amid the European debt crisis, structural flaws in the domestic pension and bank sectors, erratic monetary policy, and rising cost for credit, we highlight mounting real risks to Turkeys construction and real estate sector outlook.

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