Russian Investors Target Turkey

Turkey has liberalized its laws for international property investors. The law abolishing reciprocity in real estate transactions came into effect in August 2012. Nationals of Russia, China and India were among those who faced restrictions on buying in Turkey. REQ's Mark Gay spoke to Toğrul Gönden, Managing Partner, Cushman & Wakefield, Turkey, who recently returned to Istanbul from Moscow, where he was Head of Retail Property and Asset Management for Jones Lang LaSalle in Russia.

Toğrul Gönden
Cushman & Wakefield

How prominent are Russian buyers in the Turkish retail and commercial office market?

We have not seen many transactions by foreigners as yet and therefore not many Russian buyers in the retail and office market. However I am aware of serious interest of Russian investors in the Turkish market.

The picture changes when you look at the residential market as more and more Russians are keen to buy property in Turkey. This is either focused on the southern seaside or in Istanbul. There are a lot of attractive projects but we cannot say that the Russian market has actively been tapped into as potential buyers.

Can you name Russian companies active on the Turkish market?

There are various but the ones with the highest visibility are probably Lukoil and Yandex. Yandex made a very strong entry into the market. They have spent a lot of money on marketing which resulted in good market share for them.

Another law increased the amount of land a foreigner could buy from 2.5 to 30 hectares. What kind of developments will this attract?

All kinds of developments are thinkable. This is ultimately a very significant increase. It is hard to exclude anything which is not excluded already by law.

Some developers link together Russia, Turkey and Poland as the "Asia of Europe" — as having the greatest potential for long-term property investment and development. Which is he leading sector?

Istanbul Office / Yandex

As for Turkey there is a serious demand for hotels as tourist numbers are rising steadily. Just for Istanbul there is a target of 40 million visitors per annum announced by the government. The current figure is 11 million! That ls why all major hotel developers are active there.

As for Russia there is strong demand in some of the regional cities and for St. Petersburg. Whoever visits the city during summer will face serious trouble finding a decent hotel room.

But coming to the domestic market this is certainly the case for both Turkey and Russia. Both have a combined population of 220 million which amounts to 30 percent of the European population. A growing middle class in these countries has a major impact and is therefore a main target for investment.

Which areas of the Turkish real estate market should be most attractive to Russians: warehousing, retailing or office developments?

Although all have a quite reasonable attractiveness the office market is probably the one which will witness the most changes in the future. The quality office stock is still very low compared with other cities with approx. 3 million square meters. This could well double in the next three to four years as occupiers are ever more demanding and Turkish developers have understood these demands.

Which are the most attractive projects in Turkey: leasing developments, or building and selling?

This depends on the exit strategy of each and every individual investor. Building and selling office buildings floor by floor is still relatively popular among Turkish developers. But this changes as the investment strategies become more and more diverse.

For an international investor, how do you compare yields in Russia and Turkey?

It is quite difficult to speak about yields in the Turkish market where most transactions are off market and foreign investment has been limited. I also believe that yields are still in the process of finding the balance as a mismatch between asking price and the perceived market value in the past has been an issue.

Vladimir Filonov / MT

Is Turkey now a rival to Russia, as a destination for international investors or does each market have its own characteristics — and what are they?

They do of course have their own characteristics. Turkey has always had a very strong construction history and culture. Family owned businesses dominate and they have a special relation to their assets, which sometimes does not make it easy to find a deal with a potential buyer. But this is changing slowly. The historic method of exchanging floors for the right of using the land has made it difficult at times to find adequate buyers as well as ownership structures becoming more complicated.

In Russia on the other hand some investors are still concerned about the safety of their investment but the actual investments in the past have proved that this is not necessarily an issue.

One could say the two countries are rivals simply because they both offer good investment opportunities in a generally currently difficult environment. 

Georgiyevskaya Maria / MT

Comparing office and retail markets



• Prime office rents in central Istanbul reached $44 per square meter monthly at the end of 2012.

• The supply of A class office space is very limited, despite the expected completion of several projects in 2014.

• Lack of land in central Istanbul has led to the emergence of submarkets on the periphery of the city. Currently the lack of product holds back investors.

• The tightest yield in the office sector is 7.50 percent in Istanbul's European side and up to 225 basis points higher in Izmir and Ankara.


• Prime rental space in Istanbul and Izmir saw uplift of 5 percent. Other rents stable.

• Lots of new supply across the country: 30 new shopping centers, 1.1 million square meters, expected in 2013.

• Legislative changes delayed many transactions. Blackstone bought three shopping centers from Redevco.

• Yields of 7.25 percent in Istanbul, 10.25 Izmir at the end of 2012.



• Prime office rents in central Moscow reached $69-100 per square meter monthly at the end of 2012.

• Office supply and demand have been in balance in Moscow for the past two years.

• Most investment grade product is in Moscow and the submarket of Moscow City accounts for about 40 percent of all new space coming on stream in 2013.

• Prime yields in Moscow were unchanged at 8.75 percent in Moscow at end 2012.


• Stable rents of $208 per square meter monthly in St Petersburg and Moscow (Tverskaya $375).

• Illiquid market and lack of competition in prime locations.

• Freeze on construction in central Moscow worsens lagging delivery of projects.

• Yields of 9.5 percent in Moscow amid strong demand to enter the market.

Source: Cushman & Wakefield