Turkey

Turkey

Turkey, the bridge between East and West, is fast becoming a regional power. The Turkish economy has shown remarkable performance over the last 10 years. Its sound macroeconomic strategy in combination with tight fiscal policies and major reforms has integrated Turkey into the globalized economy and made it a major recipient of foreign direct investment in the region. Turkey is now the 17th largest economy in the world and the 7th largest within the EU. One half of its population is under 30 years of age.

The economy finished 2014 strongly with 2.9% growth. Turkish economy grew on the back of domestic demand in the first quarter of 2015, having registered an export-led growth performance in 2014. In fact, the upturn in consumption expenditures observed since the last quarter of previous year became more evident in this period. The outlook for the economy is positive, with GDP growth forecast to accelerate to 3.1% in 2015, before averaging 4.7% in 2016-2018.

According to a report by Deloitte (Retail Sector Update 2014 June), the total size of the retail sector (organized and unorganized) in Turkey is estimated to have reached US$303 billion in 2013 and is expected to grow with a CAGR of 7% between 2014 and 20172018. This is due to continued economic growth, expanding urban population, rising levels of disposable income and continued development of the retail infrastructure.

Both the number and total gross leasable area of shopping centres has experienced rapid growth and had a positive impact upon retail sector growth. Increased in competition to build larger shopping malls with entertainment components has created differentiation and attracted a higher number of consumers.

ECONOMIC SUMMARY
ECONOMIC INDICATORS*20142015F2016F2017F2018F
GDP growth 2.93.34.24.95.0
Private Consumption Growth 1.33.66.05.25.0
Industrial production 3.63.37.15.95.6
Investment -1.33.36.95.85.0
Unemployment rate (%) 9.99.69.08.68.2
Inflation 8.96.76.55.55.4
Lira/€ (average) 2.92.82.72.72.9
Lira/US$ (average)2.22.62.72.72.7
Short-Term Interest rates (%) 10.18.57.37.37.3

Note: *annual % growth rate unless otherwise indicated. E estimate F forecast
Source: Oxford Economics Ltd. and Consensus Economics Inc

ECONOMIC BREAKDOWN
Population 75.8 million (2013)
GDPUS$820.4 billion (2013)
Public sector balance -1.6% of GDP (2013)
Public sector debt 41.1% of GDP (2013)
Current account balance -7.6% of GDP (2013)
Parliament The Justice and Development Party (AKP) government
PresidentRecep Tayyip Erdogan
Prime Minister Ahmet Davutoglu
Election dates
RETAIL SALES GROWTH:
% CHANGE ON PREVIOUS YEAR
TURKEY200920102011201220132014
Retail Volume0.840.900.252.051.91
Retail Value1.692.513.332.601.25

Source: Oxford Economics Ltd

LARGEST CITIES (2014)
CITYPOPULATION
Istanbul14,37m
Ankara5,15m
Izmir4,11m
Bursa2,78m
Antalya2,22m
Adana2,16m
Konya2,10m
Gaziantep1,88m
Sanliurfa1,85m
Mersin1,73m
Kocaeli1.72m
Diyarbakir1.64m
Hatay1.52m
Source:  TURKSTAT

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Istanbul: 41.005270, 28.976960
Ankara: 39.920770, 32.854110
Izmir: 38.418850, 27.128720
Bursa: 40.266864, 29.063448
Adana: 37.000000, 35.321333
Gaziantep: 37.066220, 37.383320
Konya: 37.866667, 32.483333
Kocaeli: 40.853270, 29.881520
Antalya: 36.884140, 30.705630
Mersin: 36.800000, 34.633333
Diyarbakir: 37.914410, 40.230629
Kayseri: 38.731220, 35.478729

MAJOR DOMESTIC FOOD RETAILERS

Migros, BIM, Sok, A101

MAJOR INTERNATIONAL FOOD RETAILERS

Carrefour, Tesco/Kipa, Metro

MAJOR DOMESTIC non-FOOD RETAILERS

Koçtas, Teknosa, Bimeks, Vakko, Boyner, YKM, Beymen, Mudo, Koton, Ipekyol, Kigili, Damat Tween, Network, Mavi Jeans, LC Waikiki, Atalar, Desa, Park Bravo, Fabrika, Colin/Loft, Adil Isik, DeFacto, English Home, Gratis

INTERNATIONAL RETAILERS in turkey

Ikea, Media Markt, Decathlon, Harvey Nichols, Ralph Lauren, Channel, Louis Vuitton, Tod’s, Armani, Versace, Prada, Swarovski, Dolce Gabbana, Cartier, Hugo Boss, Bvlgari, Chanel, Max Mara, Miu Miu, Furla, Fendi, Calvin Klein, Zilli, Longchamp, Zadig&Voltaire, Zegna, Burberry, Guess, Diesel, Tommy Hilfiger, Scotch & Soda, Marks & Spencer, Debenhams, H&M, C&A, GAP, Levi’s, Banana Republic, Swatch, Zara, Mango, Benetton, Mothercare, Foot Locker, Victoria Secret, The Body Shop, Watson’s, Oleg Cassini, Tchibo, Nike, Yves Rocher, L’Occitane, Lacoste, Adidas, Calzedonia, Intimissimi, MAC, TopShop, Deichman, Lacoste, Sephora, Douglas, Clarks, Ecco, Kipling

Food & Beverage Operators

Paper Moon, Cipriani, Mezzaluna, Creameria Milano, Carl’s Junior, Schlotzsky’s Deli, Starbuck’s, Caribou Coffee, Café Nero, Ben & Jerry’s, Haagen Dazs, Paul, McDonalds, Burger King, Pizza Hut, Kentucky Fried Chicken, Shake&Shack, Cold Stone, Eatly, Jamies Italian, Hard Rock Coffee, Quick Burger, Soho House

TYPICAL HOURS
MONDAY - FRIDAYSATURDAYSUNDAY
10.00-22.0010.00-22.0010.00-22.00

Turkey is one of Europe’s and the Middle East’s largest potential markets. Its geographical location as a bridge between the East and West makes it a favoured destination for both business and leisure. The shopping centres are open 12 hours a day, 7 days a week, and most smaller retailers are also open 7 days a week but with shorter hours. The month of June hosts a 20 day shopping festival in major cities which are gaining in popularity each year. Turkey is also encourages tax free shopping as it is not a part of the EU, a huge draw for European tourists.

Turkey currently has 361 shopping centres covering a total of 10.3 million sqm and an additional 2.2 million sqm currently under construction across 50 new centres due to open in 2015-2017. The shopping malls in Turkey also offer entertainment, providing the malls with high footfall. Easily accessible malls located near heavily populated areas have the greatest potential growth for international retailers.

“High Street” shopping can be found in Istanbul and Ankara. In Istanbul, Nisantasi Street is the top niche retail area followed by Bagdat Street (Asian side) and Istiklal. In Ankara, Tunali-Hilmi and Kizilay Boulevard are the most well-known and busiest shopping streets followed by Filistin and Arjantin streets. All of these locations feature a mix of international and local brands as well as cafes, restaurants, theatres and entertainment.

The retail park concept has not really caught on in Turkey. Currently Metro Gross market dominates the industry and is mainly expanding in Anatolian Cities. This concept is slow to develop in Turkey as buying in bulk does not lend itself to the size of Turkish homes. Large stores to house these concepts are expensive for Istanbul due to the cost of the land and high rents. However, more specialized large stores such as IKEA and DIY are becoming popular as the middle class of Turkey grows.

Turkey does have factory outlet stores like European and American markets. In Turkey, outlet malls carry a mixture of merchandise, both new and last season, and the locations of these malls are usually near an airport or on a heavily travelled freeway/transit road.
E-commerce is fairly new in Turkey but growing rapidly due to the high level of internet connectivity, credit and debit card usage and rising confidence in online security. This method of shopping has provided successful due to Turkey’s advanced delivery system.

Private equity firms show interest in fast growing Turkish retail brands. The Turkish retail market experienced an increasing number of private equity transactions with foreign investors over the past few years.

New Entrants to the Market

Skechers Chloe Hacckett IRO The Athlete's Foot PucciBrunello Cucinelli
Moncler Ulysse Nardin Versace

TOP SHOPPING CENTERS BY SIZE
NAMECITYSIZE (GLA SQM) YEAR OPENED
Mall of Istanbul Istanbul155,0002014
Forum IstanbulIstanbul175,0002009
Istanbul135,0002011
ToriumIstanbul95,3002010
Vialand Tema ParkIstanbul93,1932013
Istinye ParkIstanbul87,0002007
AntaresAnkara85,6582008

KEY FEATURES OF LEASE
ITEMCOMMENT
Lease TermsRetail High Street: the lease period is between 3-5 years depending on the investment of the lessees. Shopping Centre: the common lease period is 5 years. Rents are quoted in US$ or € per gross sq.m. However, the US$/€ amount is usually paid in Turkish Lira at the payment date. Rental payments in Turkish Lira have started to become more commonplace mainly on high streets. There are no restrictions on break options. For leases between 3 and 5 years break options are provided after the second year or third year on a 5 year lease. 3 to 6 months notice should be provided. If the tenant wishes to vacate the premises prior to a break legal proceedings can be extensive. In the event of the sale of a property, the new landlord has the right to break existing leases provided adequate notice is given, unless the lease is registered with the title deeds (which requires landlord consent and incurs a charge to the tenant). There is no security of tenure outside the lease term. The lease agreement can only be terminated by the tenant. Exceptions along to the Decree Law 6570 concerning the rentals of immovable, which allows the landlord to vacate the premises are: 1) The landlord can ask the tenant to vacate the premises if it is to be occupied by a "first degree" family member. 2) If the tenant have signed a moving out notice. 3) In case that the premise where sold; if there is a need of the new landlord or his first degree family members to occupy the premise for residential or trade purposes. 4) If the tenant did not pay the required rents after two formal notices. 5) If there is any kind of treatment of the tenant against the contract and the law.
Rental PaymentRents are paid typically monthly. There will be a base rent supplemented by a turnover percentage, which can vary by sector. A deposit of average 3 months rent is general. In most circumstances, the deposit can be exchanged for a bank guarantee for the duration of the contract. Key money may be paid for the best high street retail space where there is no fixed market rate or existing fully occupied successful shopping centres.
Rent ReviewCPI for USD or € for contracts in US$/€ if paid monthly or quarterly. For rents paid in Turkish Lira, annual indexation is seen to the published rate given by the government. Rent review at lease end or by negotiation.
Service Charges, Repairs and Insurance The service charge is on average 15% of the gross rent in good working SCs. Service charges usually include cleaning of the common areas, elevator and other technical infrastructure maintenance, security, car parking facility and management fees. In particular buildings, service charge includes electricity and water usage. According to the law, it is the landlord's responsibility to maintain the external structure. The tenant is responsible for the internal repair and common parts (often via a service charge). External insurance is included in the service charge whilst the tenant has to arrange internal insurance.
Property Taxes and other costs There are two kinds of taxes. The "Property Tax" is paid by the landlord, whilst the "Environment Tax" is paid by the tenant. These taxes are paid to the relevant local municipality. The "Property Tax" is specific to each case and is calculated on the basis of the value determined by the relevant local municipality. The fixed multiplier rates are; 0.4% for the building, 0.6% for land and 0.2% for land without planning permission for the metropolis like Istanbul, Izmir and Ankara. 18% if the property is commercially owned. Withholding tax (stoppage) of 20% if the property is privately owned.
Disposal of a LeaseAssignment/Sub-letting is not permitted but it is subject to negotiation. Early termination is by break clause only. There are no tenant building reinstatement responsibilities at lease end, provided the building is returned to the occupier in its original condition after allowances for normal wear and tear.
Valuation MethodsThere are no formal standards however gross built or external area is most common and include common areas, fire staircase, elevators, and rest rooms, walls etc. Also, the length of the façade, depth, ceiling height and ground floor area if it is a multi-storey store, can be considered in rent evolution.
LegislationTurkish Code of Obligations numbered 6098 (2011)


Turkey Contacts

DUYGU OZER

Manager, Retail
River Plaza, Buyukdere Cd., Bahar Sk., No:13, Kat:15
Levent, 34394, Istanbul / Turkey
Tel: +90 212 334 78 00
Mob: +90 530 834 71 04

DILEK PEKDEMIR, PhD.

Director, Research
River Plaza, Buyukdere Cd., Bahar Sk., No:13, Kat:15
Levent, 34394, Istanbul / Turkey
Tel: +90 212 334 78 00
Mob: +90 537 855 10 84