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TURKEY GREETS WORLD’S RETAIL EXECS WITH VIBRANT INDUSTRY, ECONOMY

BY SUSAN THORNE

Even as Turkey prepares to be host to the Retail Real Estate World Summit this month, its shopping center industry is undergoing an unprecedented surge of new development.

There is no doubt that these are good days for retailers and developers in Turkey. This nation of 71.3 million people has shrugged off the financial turmoil and retail stagnation that had been undermining its development for the past few years. Inflation is falling (11 percent as of the fourth quarter, down from about 25 percent in 2003), and economic output is rising.

Other factors, too, bode well for the industry and feed demand for modern shopping centers. Turkey’s population is young (half the people are under 25), and there is an extensive national retail base, supported by local manufacturers, eager to find new outlets for its wares.

Yet another strength is the size of the market, which is projected to exceed that of Germany (Europe’s most populous country, at 82 million inhabitants) by 2010, the year Turkey may gain admission to the European Union.

“There is a booming market here, with demand for modern retail and modern shopping centers,” said Matthias Brink, regional manager in Turkey for ECE Projektmanagement, a Hamburg, Germany-based shopping center development and management firm. ECE, the largest center developer in Germany, has been active in Turkey since 2000.

So far, demand far exceeds supply.

“If you compare our 16.5 million square feet of shopping center GLA [gross leasable area] with that of France or the U.K., they have nine times as much as we do,” said Avi Alkas, ASM, AMD, general manager of Alkas Consulting, a shopping center management and development firm based in Istanbul.

In fact, the French and British numbers may be slightly higher than that. According to Cushman & Wakefield Healey & Baker, Turkey has about 0.21 square feet of shopping center space per capita, less than a tenth of Britain’s 2.5 square feet and France’s 2.3 square feet. Turkey’s figure is truly dwarfed against U.S. shopping center supply: roughly 21 square feet per capita.

“Because we are in last place in Europe in GLA per capita, this gives us hope that we will expand rapidly,” Alkas said.

Indeed, Alkas says 47 new shopping centers will be added to Turkey’s current complement of 94 over the next five years, mainly in or around the principal cities of Ankara, Istanbul and Izmir; there are 34 already under construction. “We have some very fine major projects in the pipeline,” Alkas said.

One of these is Istinye Park, a 30-acre mixed-use project (half residential, half retail) under construction within the Istanbul city limits, in the hills above the Bosporus, the strait that connects the Marmara and Black seas. The project broke ground in January.

The 775,000-square-foot retail center will have indoor and outdoor components, including an open-air, one-level lifestyle center with a central park, curbside parking, high-fashion retail and premier food service.

Nearby, a three-level, limestone-and-marble rotunda with a glass roof will enclose climate-controlled shopping and entertainment space and a hotel.

The entertainment will include a 10-screen cinema, which will be Turkey’s largest, and a spa. An attached, two-level mall anchored by a department store and a supermarket will provide midmarket offerings.

“We’re designing Istinye Park to be a place of high fashion and fun, a place you’d want to hang out in,” said Roy H. Higgs, CEO of Baltimore-based DDG, which designed the project for its developer, the Istanbul-based Orjin Group.

The center’s primary market will be Istanbul’s prosperous young middle class, says Higgs.

Both American-style shopping centers and those with a continental European format are popular in Turkey. The 377,000-square-foot Akmerkez, which opened in central Istanbul in 1994, remains a leading upscale fashion mall. Turkey’s first themed mall, the 557,100-square-foot Tepe Nautilus Shopping Center, which has an aquatic motif, opened in Istanbul in 2002. And there are outlet and power centers as well.

But five of the seven largest shopping centers in Turkey are hypermarket-anchored centers, according to Istanbul-based P&D Real Estate Consultants, an associate of Cushman & Wakefield Healey & Baker. These were developed by conglomerates, such as Germany’s Metro Group; the Istanbul-based Koç Group (owners of the Migros brand); and France’s Carrefour, which operates in Turkey through a joint venture with The Sabanci Group, also based in Istanbul.

British grocery chain Tesco formed a partnership with Izmir-based hypermarket retailer Kipa in November 2003 and is expanding that chain under the Tesco Kipa name with Kipa’s branded merchandise.

Hypermarket opportunities
Neil Cadman, property acquisition manager at Tesco Kipa, says he is impressed with Turkey’s dynamic retail environment.

“There is a sort of hidden energy in the place,” Cadman said. “People are interested in another style of retailing, and if you provide big stores, they’re very popular here.”

And he sees great potential for the construction of more hypermarkets, which he says are in short supply.

“There are probably more hypermarkets in Warsaw than in Turkey,” he said, noting the Polish capital’s 1.9 million people, little more than 2 percent of Turkey’s overall population.

Foreign players are assuming a growing role in center management and retailing, as well as development. The most recent European arrival is Netherlands-based development firm AM-Amstelland MDC, which teamed up in 2004 with Istanbul-based development and management firm Turkmall to form MDCTurkmall. The new company is building a shopping center in Izmir in cooperation with The Tepe Group.

Nearly five years after its entry into Turkey, ECE now manages a portfolio of five hypermarket centers in Turkey’s Aegean area.

Though spending power and income levels are lower in Turkey than in Europe, says ECE’s Brink, population density is higher, and this keeps sales high. The Turkish centers ECE manages post annual sales of $424 per square foot on average. “This is an excellent performance,” Brink said.

Both large- and small-format foreign retailers show growing interest in Turkey. Ikea is opening its first store this spring, a 52,920-square-foot unit in the Istanbul area, and it plans to open four more stores over the next four years in Turkey. German do-it-yourself retailer Bauhaus is also active in Turkey, and Starbucks, which entered in early 2003, has 17 stores at present. (The Seattle-based coffee purveyor caters to local tastes by including strong Turkish coffee on its menus). Such fashion retailers as Hugo Boss, Lacoste, Ralph Lauren and Tommy Hilfiger are in-line tenants at hypermarket centers and downtown enclosed malls.

Wal-Mart, too, is talking with domestic retailers in Turkey, says Behiç Özek, general manager of shopping center construction firm Tepe Emlak, a member of the Istanbul-based Tepe Group. “These retail investors and other foreign companies recognize the value of investing in Turkey,” he said.

Despite the attractions, however, the business environment in Turkey is very different from the conditions in Europe, says Rahsan Cebe, head of P&D Real Estate Consultants. Debt financing of shopping centers, for example, is virtually unknown, so most developers and investors pay cash. Land is expensive, and permission for a shopping center development can be difficult to obtain. For help in navigating that troublesome government approval process, Cebe strongly recommends that foreign developers do what retailers have done: find a native partner.

But reform — legal, financial and otherwise — is under way as Turkey works to meet the requirements for entry into the European Union, all of which will create a level new playing field for international companies, Cebe says. “Then,” she said, “we’ll really see foreign investment.”