Online shopping has transformed the retail landscape and in Turkey it's no exception. However, you could say Turkey has lagged behind the rest of the world in its development of online shopping. But this is about to change, and the shift to online shopping will affect just about every industry - including property investment.
On the brink of change
With a 300% increase in online shopping over the last five years, an online revolution is brewing, says Property Turkey director Cameron Deggin. There are a few factors behind the shift:
- The rise of domestic demand: Turkey's rapidly-growing middle class has money in their pocket and a desire to spend it.
- Turkey's youthful population: half the country's population is aged under 30, and this increasingly educated demographic lives, works and plays online.
- Investment in infrastructure: rapid expansion of Turkey's internet expansion has put more people online than ever before.
- Entrepreneurship: the young, dynamic population are starting businesses, taking advantage of online systems to grow start-ups at minimal cost.
- Pandemic expansion: isolation forced companies who hadn't considered going online to quickly adapt, widening the online retail landscape.
Online's knock-on effect on commercial property
The shift to online has sent shockwaves through the commercial real estate investment sector, explains Deggin.
"It is expected that by the year 2025, at least 40% of all independent retail outlets in Istanbul will be out of business. We've already seen this happen in London, Paris and New York. Istanbul being around 10 years behind, we're about to see the same thing happen in Turkey."
This has significant implications for Istanbul commercial property investment, Deggin explains.
"We're seeing investors leave this once-lucrative sector. Firstly, it's difficult to find credible tenants. And when you do, signing them up for anything long-term is almost impossible, putting investors' cashflow at risk."
And even for the investors who manage to find credible tenants, the low rental yield means owning commercial real estate just doesn't pay off. Rental returns on commercial outlets in the Taksim area sit around 3%, at least 50% lower than rental gleaned from the average residential investment.
"This is not an acceptable investment rate in my opinion."
The reason the value is low is down to the poor ratio of property price to retail profitability. "Rental incomes are not catching up with freehold values; and I expect rental returns to diminish even further before alternative strategies are implemented to utilise the freeholds freed up from closing shops."
And lastly, there's the all-important exit strategy, Deggin continues.
"It's getting more and more difficult to shift commercial real estate, even in places once considered bullet-proof, like Taksim. As the years go by, it will become even harder to shift commercial real estate."
Is this the death of commercial property investment?
Unless you're investing in a hypermarket, the answer is yes, Deggin says.
"Over the next decade, as the smaller retail outlets fade away, the only viable commercial outlets will be large warehouses on the outskirts of the city, hypermarkets, and restaurants," he says.
"Unless you're willing to invest large sums of capital, I do not recommend commercial investments."
Tapping into Istanbul's future trend
So, if commercial real estate investment in Turkey is out, what does Deggin recommend instead? "With an investment of up to $1m, I would 100% recommend residential," he says.
"Istanbul has an average age of only 28 and a population of 18 million people, and that's growing at a rate of 5% per annum. The future demand for real estate in Istanbul is from young and aspiring professionals; newly married couples with or without kids."
This "vibrant segment" is driving the domestic market, as well as the rental market, he points out.
The properties coveted by this demographic are typically one or two-bedroom homes, with excellent lifestyle facilities and top travel links.
"It's known as 'affordable luxury'," he says. "Really high quality accommodation at a price young professional buyers can afford."
Investing in several of these properties nets investors:
- 6% rental income rising to 8% by year 4/5
- Minimum 10% annual price growth hence over 50% in 5 years
- Very easy exit strategy when you wish to sell hence a very fluid portfolio
Three affordable luxury developments
"This is part of Istanbul Finance centre, which is one of Istanbul's mega projects sponsored by the office of the President of Turkey," Deggin says. There is a huge amount of development happening here.
"The Turkish central Bank is moving here next year, as well as Turkey's top banks and financial institutions." Many international businesses will also have their offices here, the location is second to none.
The brand new project will become a major financial hub and meeting point, not only for Turkish companies but for companies worldwide looking to gain a foothold in Turkey.
Enquire today for full details and a list of availability.
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