Anthony Khoi, President and CEO, Aerium Turkey, on the future of investment in retail real estate

Turkey is the 16th-largest economy in the world and sixth-largest in Europe, and has made impressive progress over the past decade – a fact well demonstrated by the figures. While European countries have struggled with a number of economic problems and the sovereign debt crisis, Turkey has reached a per capita GDP of $10,444, up from $5764 in 2004. Average consumer price index was at 71.6% between 1995 and 2001, and is currently below 10%; while the public-debt-to-GDP ratio was cut to 39.4% in 2011 from 53% in 2005. The budget deficit is among the few that suit the Maastricht criteria, at 1.5%. According to the medium-term programme, GDP growth is expected to be over 4% for the next three years. Under the single-party government, political stability was reached and macroeconomic stability followed. Political power is playing a significant role in improving the long-standing economic situation. The incentives scheme recently declared by the prime minister takes aim at the current account deficit and foresees a structural reformation of the industrial sector and a balancing of regional economic disparities. Through the incentives programme, Turkey aims to attract $110bn in foreign direct investment (FDI) over the next five years, an amount equal to the total received in the past 10 years. FDI in 2011 reached $15.7bn, and through geographical diversification, the government is actively promoting Turkey throughout the world. Efforts are under way to make Istanbul a new financial centre, and incentives are being issued to attract large-scale investment. Global economic conditions have left local banks as the main source of financing; however, the Turkish banking system has been able to deal with this through the help of foreign funds and investors. Looking forward, Turkey will only become more attractive for real estate investments by foreign sources as economic conditions and legislation improve. The combined efforts of the government and businesses will see a number of goals achieved, and as the global crisis passes, retail markets will recover with renewed consumer confidence and purchasing power. The expected growth in consumption, infrastructure and construction are the three major factors that will improve the real estate landscape. Rapid urbanisation and expansion of retailers, as well as high population growth will also boost the real estate market, providing an attractive opportunity to foreign institutional investors over the coming decade.

The retail real estate sector, in particular, has become more interesting during these past seven years. Some $15bn of the total $35bn invested during that period was comprised of long-term foreign investment in the retail real estate sector. The still-immature retail market in Turkey makes it more promising for new investments, with strong urbanisation and a very young population providing key advantages. Foreign investment will continue to flow in the sector, but the success of retail real estate investment depends primarily on site selection, asset quality, strong local partnerships for property, tenants and marketing management.

The new Commercial Code, entering into force in July 2012, is one of the major government’s actions to bring transparency and reliability to the markets. Several amendments to the new Commercial Code have already been proposed by real estate professionals. These suggestions include amendments to the credibility of lease contracts (regarding currencies, the rights of rental increases, contract cancellation and replacement of tenants), as well as to the management and operation of shopping centres. The implementation of regulations for urban planning and the development of shopping centres in major metropolitan areas will also have an important effect on the behaviour of investors. These necessary changes to the new Commercial Code and urban planning regulations will also increase the market's potential if they are accepted by the government. It will definitely improve the security and sustainability of investments for stakeholders in Turkey, and will aid in the promotion of both foreign and domestic investment in the retail real estate sector.