Istanbul A+ Office Market Analysis, 2023 First 3 Quarter Analysis

Due to the lack of new office investments in Istanbul since 2017, the existing stock size has remained constant at 5.9 million m2 for a long time. On the one hand, the current demand continued to increase every year, which caused the vacancy rate to decrease from 25% to 11.1%. The downward trend in vacancy rates causes office rents to increase. If current market conditions continue, the current rent level is expected to continue upwards. f The increasing rent level has increased the value of office investments. Depending on economic conditions, it is possible that office investors will follow a wait-and-see policy next year and office investments will increase in the following years. However, increasing construction and decoration costs continue to suppress demand, causing companies to postpone their relocation decisions.

There has been no growth in the office stock due to the lack of new supply since 2017, the zoning of the projects being changed from office to hotel or residence, and the conversion of some office buildings in the existing stock into hospitals or residences. Class A office supply in Istanbul is at the level of 5.9 million m2, the largest new supply to be added to the existing supply is the Istanbul International Financial Center with 1.5 million m2. With the entry of an office supply of this size into the market, Istanbul International Financial Center will emerge as the biggest player in the Istanbul Office Market. With the opening of the Istanbul International Financial Center, office supply will exceed 7.5 million m2.

The vacancy rate in the Istanbul Central Business District continues its downward trend. The third quarter vacancy rate of 2021 is 18.3%, . The third quarter vacancy rate of 2022 is 14.4%, . The vacancy rate in the third quarter of 2023 was 11.1%. The intense demand of users for Class A office buildings, especially due to pandemic and earthquake risks, has been the main reason for the decrease in vacancy rates. Continuing the trend in this way will lead to market conditions where there is no supply and the vacancy rate is at its lowest level. This situation occurred before in 2007 and there was a tendency towards office investments in the following years.
The highest office rent in the Istanbul Office Market was realized in the Central Business District. The decrease in the vacancy rate in the Central Business District will support the upward trend in the prime rent figure. The highest square meter rental price in the Istanbul Office Market as of the third quarter of 2023 was 38 USD in American Dollars and 850 TL in Turkish Liras. We can show the main reasons affecting office rent as the decrease in the vacancy rate, the high demand for Class A Offices and the increase in the inflation rate.

While the falling vacancy rate in the Central Business District supports the increase in rents; We expect demand to direct itself to secondary regions. Until the Istanbul International Financial Center enters the market at full capacity, continuing demand at this intensity will cause the vacancy rate to reach its lowest levels. We expect this situation to increase the high rental price to over 45 USD per square meter. With office rents rising above record levels, office developers may once again turn to office investments.
We expect vacancy rates to continue their downward trend in the last quarter of 2023 and the upward trend in rent figures to continue due to the decrease in vacancy rates and limited supply. We foresee 40 USD/m2 in 2023, 45 USD/m2 in 2024, and 47 USD/m2 in 2025. Due to the limited supply in the first region for both the European and Anatolian Sides, the demand is transferred to Ayazağa, Kağıthane, Seyrantepe regions for the European Side; For the Anatolian Side, we expect it to head towards Küçükyalı, Maltepe and Kartal regions. We predict that office developers will turn to new office investments as the downward trend continues in the medium term and rent figures, which increase with the effect of inflation along with the downward trend, exceed record levels for the Istanbul Office Market.