Turkey tackles structural obstacles in local office market

The structure of the Turkish office market acts as a barrier to cross-border real estate investment but change is afoot, PropertyEU's Turkey Investment Briefing heard.

One of the main issues is that low-grade stock is relatively common in Istanbul and in other cities, Jos Tromp, CBRE's head of research for CEE, explained in his presentation. The quality of such assets is not of interest to institutional cross-border investors, he added.

A second issue is that office buildings tend to be marketed floor-by-floor while institutional investors generally require outright ownership of an asset.

But structural obstacles are being tackled, he said. 'Based on what we are seeing happening on the development side and on the demand side among corporate occupiers, expectations are that within the next 3-10 years the office institutional investment market in Istanbul will change,' Tromp added.

Nevertheless, yield expectations in the market remain an impediment for international investors. Prime yields in the Istanbul office market - which is dominated by domestic investors - stand at about 6.5%, while international investors would want a yield premium when entering a new market such as Turkey, according to panellist Anthony Labadie, managing director at CBRE Turkey. This would translate into a yield of 7.5% to 8% in the office sector.