Turkey Commercial Real Estate Market Overview July 2016

Economic Outlook

Political Agenda

During H1 2016, geopolitical risks and concerns related to homeland security were on the rise in Turkey, due to the failed states of the Middle East, terrorist attacks, military operations targeting terrorist organizations and the Syrian conflict. These incidents will keep political and economic uncertainty high on the international agenda for the foreseeable future. AKP delegates unanimously elected Binali Yıldırım, the former Minister of Transport, Maritime Affairs and Communications, to serve as Turkey’s next prime minister after the resignation of Prime Minister Ahmet Davutoğlu in May. Judging by Yıldırım’s track record as a minister, the Turkish government’s focus on large infrastructure projects to maintain Turkey’s economic growth is expected to continue. The new government also prioritized reconciliation efforts to restore its relations with Israel and Russia. Considerable steps were taken in this area. The European Union and Turkey signed a readmission agreement in order to end uncontrolled migration from Turkey to the EU. However, escalating conflict between the EU and Turkey over visa freedom, along with turbulence in the process of Turkey’s EU membership, indicates problems for the future of the agreement.

On the other hand, Turkey is still offering opportunities to do business compared to neighbouring countries, thanks to its well-established financial institutions, systems and business culture. The reconciliation process with Russia and Israel is expected to have a positive impact on tourism revenues in particular. Turkey benefits from lower commodity prices, especially oil; however, its current account deficit has not narrowed as fast as expected. Its economy remains vulnerable to reversals in capital flows as a result of tightening global monetary policies, such as the Fed’s interest-rate hike decision. Murat Çetinkaya was appointed as the new Governor of the Central Bank as of 19 April, which was the expiry date of Erdem Başçı’s term of office. On 20 April, in the first monetary policy committee meeting chaired by Governor Murat Çetinkaya, the Central Bank cut its overnight lending rate by 50 basis points. It was expected that the Central Bank would lower benchmark interest rates and move to a single-interest rate system. Falling inflation and the more stable Turkish Lira (TRY) supported the easing cycle of the Central Bank; however, there is a risk of worsening in those factors for H2 2016 as a consequence of the negative impact of political unrest on the economy. Turkey needs to accomplish necessary structural reforms and assure political stability in order to boost its potential growth capacity, attract foreign direct investment and reap the benefit of its large domestic market, an expanding middle class and favourable demographics.

Economic Agenda

Geopolitical risks, among other factors, are threatening the stability of the global economy and investor confidence towards emerging markets. The possibility of a worst-case scenario following the Brexit referendum, won by the ‘leave’ camp, sits alongside various other challenges for the global economy, including the risk of a Chinese hard landing, the future of the US economy, the Federal Reserve’s (Fed’s) interest rate policy and weak commodity prices. The EU’s recovery has not reached the desired levels and the UK’s decision to leave the EU will add a new dimension to existing drawbacks.

GDP Growth

Turkey’s GDP grew by 4.8% in Q1 2016, mainly driven by household consumption and government spending. The Ministry of Development’s 2016–18 Medium Term Programme (MTP) projects that the growth rate will be maintained at 4.5% for 2016, while the IMF and World Bank projections indicate growth rates at 3.8% and 3.5% respectively.

1

GDP Growth Comparison 6% 5% 4% 3% 2% 1% 0% 2015

2016*

2017*

2018*

2019*

*Forecast

G7 Economies

Source: IMF, World Economic Outlook Report, April 2016

Emerging Market and Developing Economies

Euro Area Emerging and Developing Europe Turkey

FX Rates

TRY presented a more stabilized condition for the first half of 2016, especially compared to the previous two years. Only the change of prime minister in May overbalanced TRY to a degree against both the euro (EUR) and US dollar (USD). Security issues and political concerns, along with a fragile investment tendency towards emerging markets, may pose a problem for the future of TRY’s stability.

TRY 3.60 TRY 3.40

EUR/TRY

TRY 3.20 TRY 3.00

USD/TRY

TRY 2.80 TRY 2.60 TRY 2.40

Jun-16

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

TRY 2.00

Jun-15

TRY 2.20

Source: CBRT

16 % 14 % 12 % 10 % 8%

7.6 % CPI (YoY)

6% 4%

3.4 % PPI (YoY) Jun-16

Feb-16

Oct-15

Jun-15

Feb-15

Oct-14

Jun-14

Feb-14

Oct-13

Jun-13

0%

Feb-13

2% Oct-12

A decrease in food prices was powered by an increase in food supply in the domestic market due to the Russian ban on Turkish imports, a price cap on meat prices and good weather conditions. Inflation was on the decline due to falling food prices and a relatively stronger TRY in H1 2016. A weaker TRY, rising oil prices and domestic-consumption-oriented economic policies may lead to an upward trend in the inflation rate.

Jun-12

Inflation

Source: TurkStat

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Consumer Confidence

The consumer confidence index indicates the consumer’s expectations for the overall economic outlook, household finances and unemployment rates for the next twelve months.

Consumer Confidence Index 90 85 80 75 70 65 60

Jun- 16

May- 16

Apr- 16

Mar- 16

Feb- 16

Jan- 16

Dec- 15

Nov- 15

Oct- 15

Sep-15

Aug-15

July-15

Jun- 15

Apr- 15

Mar- 15

Feb- 15

Jan- 15

50

May- 15

55

Source: TurkStat

Investment Market

The investment market remained limited in H1 2016 due to a stagnant local economy as well as incidents hitting the tourism market in particular. On the other hand, the establishment of the new government gave positive signals to the market. Additionally, the new government’s improving foreign relations with Israel and Russia had a positive impact on the market mood, with the expectation of a revival of Russian tourism and an indirect impact on the current account. The only significant transaction that was completed during H1 2016 was the acquisition of Starcity Outlet Center. The 45,000 sq m outlet centre, which was owned by two major conglomerates, Yıldız Holding and Boyner Holding, was purchased by the Gençoğlu family. The transaction was realized in the form of an SPV deal, where Yıldız Holding owned 60% of the shares and Boyner Holding owned the rest. The disposal of Starcity is not a pure indicator of the prime retail yield and despite the fact that it is not backed by any transaction we believe the prime yield is in the range of 7.5–8%. The prime yield for secondary cities is in the range of 8.5–9%.

There was no significant transaction in the office market during H1 but the prime yield for fully occupied Grade A buildings in the CBD is estimated to be in the range of 7.25–7.5%. Due to difficulties in the tourism market, the hotel market is in general performing poorly, and we know that there are hotels available for sale both in terms of hotel resorts in Antalya and business hotels in Istanbul. However, buyers are looking for serious discounts and there is no completed deal in the hospitality market. We have also seen an increasing appetite among Turkish investors to invest abroad, particularly the core markets in Europe and the States, to diversify their portfolios. This is both in terms of the acquisition of income-generating assets, dominantly hotels, but also development opportunities. Dogus Group, being one of those investors, recently acquired a five-star trophy hotel in Madrid for EUR 180 million.

3

Retail Market Overview

Political and economic instability: Number of shopping-centre visitors However: Shopping centre turnovers The Regulation on Shopping Centres, which came into force upon its publication on 26th February, introduced legal grounds and certain obligations for the organized retail market.

Spending per visitor

General administrative expenses, which are mainly composed of energy and labour costs, have shown an increase of 3–4% due to a rise in the minimum wage

Market Notes

Sectoral Trends • Retailers in the F&B, personal care and cosmetics sectors have stayed resilient to cyclical economic issues thanks to impulse-buying. • Rightsizing continued to be one of the major trends in the market, particularly for hypermarkets, electronics and DIY (Do-It-Yourself) markets, in order to obtain maximized sales density per sq m. • Female participation in the labour force plays a significant role in the performance of shopping centres. Working and self-employed women mostly opt for shopping centres with an advanced brand mix so as to satisfy all their needs, such as personal care, grocery shopping and F&B, in a limited time.

Market Trends • The consumer group, which frequently follows the latest trends and discount campaigns, has become prominent in the market. • Companies offering quality products ataffordable prices have benefitted from impulse-buying, which is generally seen more during economic recession periods. • Consumers are favouring basic but trendy products, which appeal to all socioeconomic classes thanks to well-positioned marketing strategies.

• The retail market has witnessed the market penetration of some widely known brands, including Mexx, Under Armour, Kiko Milano, Urban Decay and NYX, via acquisition or partnership agreement by local retailers.

4

Retail Supply

Retail Density

Shopping Centre Development: GLA & Unit

Retail Density (sq m per 1,000 inhabitants )

Active Istanbul

UNIT GLA (sq m)

Under Construcation*

146 5,739,774

35 1,612,829

111 4,126,945

Total

Q2 2015

Q2 2016

End 2019

Ankara

271

282

327

Istanbul

265

282

359

Bursa

179

175

248

138

162

220

38 1,484,659

11 405,212

49 1,889,871

Antalya Izmir

100

124

141

Rest of Turkey

225 5,525,892

33 1,169,273

258 6,695,165

Turkey

132

141

171

Total

374 11,137,496

79 3,187,314

453 14,324,810

Ankara

Source: JLL

*To be completed by end-2019 Source: JLL

H2 2016 Outlook

For the rest of 2016, the retail market is expected to become more active than the first half of 2016, due to:

Rental Outlook Prime Rent (EUR / sq m / month) € 95 € 90

€ 90

€ 85

• The expiry of both existing and new investors’ wait-and-see attitudes towards business expansion • Religious holidays, the back-to-school period and new year campaigns

€ 80 RETAIL MARKET SHOPPING CENTERS

H2 2016 OUTLOOK

Q2 2016

Q4 2015

Q2 2015

Q4 2014

Q2 2014

Q4 2013

Q2 2013

Q4 2012

Q2 2012

Q4 2011

Q2 2011

Q4 2010

Q2 2010

Q4 2009

Q2 2009

Q4 2008

€ 70

Q2 2008

€ 75

Source: JLL

Retailer Demand

Prime Rent

Supply

Retail Density

Source: JLL

5

High Streets

Urban transformation projects and the renovation of outdated buildings are expected to be a remedy for the limited available supply on high streets – particularly Bağdat Street and Nişantaşı – by meeting the retailer’s modern needs better in the medium and long term.

STREET

Mass urban transformation process - Noise & visual pollution Bağdat Street

- Expected modern stock from 18 to 24 months 25 - 30% decrease in rent level

Direct impact of tourism crisis; most touristic street in Istanbul Inconvenience for urban transformation due to many historical buildings. İstiklal Street

Narmanlı Han; currently the most important renewal project Youth - oriented brands; recently most active sector in terms of leasing transactions

Rumeli Street - High football - Middle income visitor profile

Decreasing rental costs Nişantaşı

Sub-leasing of unproductive or vacant areas

Consolidation of a retailer’s different brands under a single roof

- Supply shortage for the near future High vacancy rate

The F&B, cosmetics and toy sectors have remained strong due to the continuous demand of end-users, whilst ready wear and footwear have been deeply affected by macroeconomic and financial conditions. Three alternative methods to increase efficiency per sq m and decrease operational costs of retailers on streets:

COMMENTS

Teşvikiye - Stores with higher GLA - The major issue: The combination of right GLA in the right place with optimal rent Abdi İpekçi Street High asking rent by landlords A couple of ongoing transformation projects

Secondart Streets

High rent level High vacancy rate

Source: JLL

Retailers relying on turnover in TRY and paying rent in USD are faced with a hard-to-resist cost burden due to TRY’s depreciation against USD over the last three years. For this reason, rent levels in each high street have shown a sharp decrease during H1 2016.

6

Office Market Overview

Istanbul Office Sub-Markets SARIYER

ŞİŞLİ

rant pe Seyrantepe

SULTANGAZİ

TEM ESENLER

BEYKOZ

KUZEY MAR. OTO YOLU

K Ka ıthane

G.O.P

Kavacık

Levent Be ikta

Ba ak ehir Basın Express KÜÇÜKÇEKMECE

E5

Ba cılar

Beyo lu

GÜNGÖREN FATİH

Airport Area

NBURNU ZEYTİNBURNU

Ümraniye

Üsküdar Altunizade E5

BAHÇELİEVLER

BAKIRKÖY

ÇEKMEKÖY

TEM

Zincirlikuyu i li Mecidiyeköy

B.PAŞA

AVCILAR

Maslak

Göztepe KADIKÖY

SANCAKTEPE

Ata ehir Kozyata ı

SULTANBEYLİ

Maltepe

Kartal Pendik

CBD Non - CBD Europe Asia

1 ADALAR

Tuzla- Kurtköy

Source: JLL

Market Notes The completed relocation processes of many institutional occupiers to new buildings over the last two years.

Two major factors have shaped the rent levels in leasing transactions throughout H1 2016: • Vacancy rate:

In the first half of 2016, the Istanbul office market has witnessed its sharpest shrink in demand since the 2008 global financial crisis, due to: A wait-and-see policy in occupiers’ expansion or relocation plans due to current market conditions.

- Aggressive rent strategies by the landlords of office buildings which have high occupancy rates. - Discount and incentive policies by the landlords of newly opened buildings. • Contract type - A rent-free period and stepped rent practice in new contracts. - Higher rental costs for occupiers in renewals of contracts compared to new contracts in this period.

The downturn in global companies’ investments to Turkey since 2015.

7

Take-up

Prime Rent (USD / sq m / month) $ 50 $ 45 $ 43

$ 40

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Q2 2014

Q1 2014

Q4 2013

Q3 2013

Q2 2013

Q1 2013

Q4 2012

Q3 2012

Q2 2012

Q1 2012

$ 35

Source: JLL

Occupier demand for the Central Business District (CBD), Ataşehir and Ümraniye remained strong during H1 2016. 65% of the recent demand was concentrated on locations in the vicinity of public transportation – the metro route, in particular – the city centre and bridges on the Bosphorus; The rest of the occupiers primarily demanded office buildings in mixed-use projects – including shopping centres – or in the vicinity of shopping centres to take advantage of retail areas, restaurants, cultural amenities and sports clubs.

Ataşehir on the Asian Side and Maslak in the CBD have become prominent in terms of take-up transactions during H1 2016. Compared to the same period in 2015, take-up volume in the CBD has shown an increase due to significant transactions above 1,000 sq m in H1 2016. Despite a limited number of transactions in Non-CBD Europe, the GLA volume of transactions reached the level of 30,000 sq m due to Turkish Airlines 20,000 sq m lease in Güneşli. Ataşehir continued to be the prominent and most-demanded district of the Asia sub-market throughout the first half of 2016. Even if Ümraniye region reached a significant take-up level in terms of transaction count, occupier demand in the region was concentrated on office spaces with GLA below 1,000 sq m.

Take-up Volume (sq m) 120,000 100,00 80,000 60,000 40,000 20,000 0

Vacancy Vacancy Rate (%), CBD

CBD

18 % 16 %

15.2 %

14 % 12 %

Source: JLL

Non CBD Europe

Asia

Total

H1 2015 H1 2016

10 % 8% 6% 4% 2% Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

0%

Source: JLL

8

Major Leasing Transactions during H1 2016

H2 2016 Outlook OCCUPIER THY Teknosa Yargıcı Abank Nielsen GE Arvato Alarko Taahhüt Külünkoğlu Organizasyon JLL I.E. Uluagay - Menarini

LOCATION

GLA (sq m)

Güneşli Ataşehir Dolapdere Ataşehir Kozyatağı Seyrantepe Şişli Beşiktaş Kavacık Maslak Maslak

20,000 6,200 4,500 4,100 3,700 3,500 3,200 3,000 2,700 2,600 2,500

• Increasing office stock will continue to drive the transformation of the market from landlord-friendly to tenant-friendly in H2 2016. Therefore, the below incentives can be monitored as additional demands of stronger tenants. - Currency hedging - Discount on rent level - Rent-free period up to 5 months - Flexible deposit - Fitted-out or partially fitted-out office delivery (for new contracts)

Transactions with GLA higher than 2,000 sq m are included in the list. Source: JLL

• Considerable demand for horizontal offices – with a floor size of 3,000 to 4,000 sq m – is expected to remain strong through broader podium floors in newly opened and pipeline office buildings.

Istanbul Office Property Clock, H1 2016 Kozyatağı - İçerenköy Küçükyalı - Maltape Etiler - Levent Şişli- Z.kuyu- Beşiktaş Kavacık- Kartal- Kağthane Maslak Ümraniye

Rental Growth Slowing

Rents Falling

Rental Growth Accelerating

Rents Bottoming Out

• Along with the ‘serviced office’ concept, co-working offices, whose demand has been driven by the growth of mobile technologies as well as the changing nature of work, will continue to demonstrate progress by offering a flexible and collaborative workplace solution for freelancers, entrepreneurs and professionals from diverse sectors.

Source: JLL

OFFICE MARKET

H2 2016 OUTLOOK

Existing Supply and Development Market EUROPE

ASIA

TOTAL

Take-up

95

UNIT

2,094,229 sq m

282 UNIT 6,977,563 sq m

129

GLA

CBD

UNIT

3,065,374 sq m GLA

88

Vacancy Rates

GLA

UNIT

1,794,333 sq m

H1 2016

GLA

111 58

UNIT

1,817,960 sq m

GLA

Non CBD

UNIT

247

UNIT

1,507,852 sq m

H1 2016

Supply

4,486,895 sq m

H1 2016

GLA

48

UNIT

Prime Rent

1,184,710 sq m

H1 2016

GLA

Source: JLL, Q2 2016

As of H1 2016, existing Grade A office stock in Istanbul showed an increase of 387,600 sq m compared to the same period in 2015.

Source: JLL

9

Logistics Market Overview

Logistics Sub-Markets The primary logistics market is located in Turkey’s Marmara region, which includes the Istanbul and Kocaeli provinces. Hadımköy and Esenyurt on the European side, Tuzla on the Asian side in Istanbul, and Gebze, Çayırova and Dilovası in Kocaeli remained the major logistics sub-markets of the Marmara region.

Source: JLL

Market Notes

Economic and political issues continued to shape the logistics market and industry investments throughout the first half of 2016. While warehouse leasing and sale transaction volume remained at a low level, the market witnessed transactions that were mainly originated from demand in 2015. The decrease in transaction volume was also directly behind the decision of most of the logistics companies to utilize vacant areas in their existing warehouses to meet additional needs. On the other hand, a significant vacancy rate level in logistics companies’ warehouses resulted from a decline in production volume and a ‘low inventory’ strategy designed to protect against the negative effect of economic recession and regional issues. On the investment side, investors mainly took their stances according to the dynamics of their sectors over the last six months.

• Wait-and-see policies due to local zoning uncertainty, a land-price bubble and macroeconomic issues. As well as a consolidation period among logistics companies, there has been a proliferation of second-wave consolidation, which indicates a holding’s integration of its companies’ supply chain processes in a single warehouse in order to optimize the performance of all distribution networks. In recent times, occupier demand has been concentrated on two warehouse types, including 500–3,000 sq m city-centre distribution warehouses and 30,000–50,000 sq m warehouses for the consolidation trend in core logistics locations. The Logistics Performance Index (LPI), which is published biennially by the World Bank and measures the on-the-ground efficiency of trade supply chains, reports that Turkey’s ranking has fallen from position 30 with a score of 3.50 in 2014 to position 34 with a score of 3.42 in 2016.

• Steady investment strategies by companies in some sectors that hold wide a customer base, such as FMCG.

10

Major Leasing Transactions (sq m)

Prime Rent (USD / sq m / month) $ 7.2 $ 7.0

$7

$ 6.8 $ 6.6

CITY

DISTRICT

LEASED AREA (sq m)

Logistics

Kocaeli

Gebze

110,000

Gratis

Cosmetics

Istanbul

Tuzla

33,700

Zara

Retail

Istanbul

Esenyurt

20,000

BIM

Retail

Istanbul

Tuzla

15,000

ÇEKOK

Food

Istanbul

Tuzla

15,000

Manufacturing

Kocaeli

Çayırova

12,000

Çağrı Marketler

Retail

Istanbul

Arnavutköy

11,500

Maxlines Lojistik

Logistics

Kocaeli

Çayırova

11,000

Aybir Lojistik

Logistics

Kocaeli

Çayırova

11,000

DHL

Logistics

Kocaeli

Çayırova

11,000

Doğruer Lojistik

Logistics

Istanbul

Tuzla

10,100

OCCUPIER

Ceva Lojistik

$ 6.4 $ 6.2

Q2 2016

Q4 2015

Q2 2015

Q4 2014

Q2 2014

Q4 2013

Q2 2013

Q4 2012

Q2 2012

Q4 2011

Q2 2011

Q4 2010

Q2 2010

Q4 2009

$ 6.0

Source: JLL, Q2 2016

Türk Traktör

SECTOR

Source: JLL, Q2 2016

Take-up During H1 2016, 316,200 sq m of logistics leasing transactions were realized, a considerable decrease (16%) compared to the same period in 2015. Take-up Volume (sq m)

Supply (sq m) 1.000.000 800.000 600.000 400.000 200.000 0 2012

2013

2014

2015

H1 2016

Source: JLL, Q2 2016

4,000,000 3,000,000 2,000,000 1,000,000 0 Europe

Asia Istanbul

The most active industries in terms of leasing transactions were logistics companies with 50%, retail with 15%, and cosmetics companies with a 6% GLA share.

*To be completed by end-2018 Source: JLL, Q2 2016

Kocaeli

Existing Stock Under Construction* Planned

11

Regional Distribution of Vacancy 3.4%

2.4%

• City-centre distribution points are expected to be among the predominant demands of the logistics market in the medium term, due to:

%4.2

Istanbul Europe Istanbul Asia Kocaeli Occupied Area

90.0%

Source: JLL, Q2 2016

H2 2016 Outlook • In the medium term, the downturn in occupier demand is expected to reveal a more solid logistics market with institutionalization and high-quality supply standards by probable mergers and acquisitions. • ‘Built-to-suit’ projects – developed according to a tenant’s exact specifications – will continue to be observed as a general market practice rather than speculative warehouse development, which remained stable during H1 2016.

LOGISTICS MARKET

- The expectation among end-users of same-day delivery and private service - Newly emerged alternative delivery options stemming from technological advancements such as 3D printing, robotics, autonomous vehicles and drones - The high population density of Istanbul - Problematic traffic in Istanbul. • A number of cities such as Manisa, Eskişehir and Adana, which take significant advantage of the land price and labour cost, could come forward as secondary logistics centres, if the below requirements are met in the medium term. - An acceleration of economic activity - A significant price advantage compared to the Greater Istanbul Area -Their designation as sub-distribution centres of companies setting up distribution networks across Turkey

H2 2016 OUTLOOK

Demand

Supply

Land Values

Prime Rent

Take-up Transactions

Vacancy (Grade A Supply) Source: JLL

12

Hotel Market Overview

Market Notes

The tourism and hotel market in Istanbul experienced a sharp downturn in 2016 H1. The decline in key performance metrics is mainly a result of an unstable geopolitical situation, which has been exemplified by series of terrorist attacks. However, Istanbul strengthened its position in the ICCA’s Top 10, being ranked 8th with 148 congresses: a 14% increase compared to 2014. Turkey has been ranked 18th, with 211 congresses, representing an 11% increase compared to 2014. Istanbul’s gateway position is boosted by the continued success of the Turkish national flag carrier. Turkish Airlines was named ‘Europe’s Best Airline’ for the sixth consecutive year in the 2016 Skytrax World Airlines Awards. The airline currently flies to 290 destinations in 116 countries.

Airport arrivals have increased consistently over the past decade. In 2016 YTD June, total passenger arrivals in Istanbul via Atatürk International Airport and Sabiha Gökçen Airport increased by 3.9% compared to the same period in 2015, with total passengers reaching up to 43.1 million.

Passenger Arrivals: Istanbul Sabiha Gökçen and Atatürk Airports 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Passenger (000's)

2010

2011

Source: General Directorate of State Airports Authority

Tourism

The number of international visitors has decreased to 4.4 million, a 21.8% decrease in 2016 YTD June, compared with the same period in 2015.

Number of International Visitors to Istanbul

Number of Foreign Visitor (000s)

Demand

2012

2013

2014

2015

2015 YTD June

2016 YTD June

Sabiha Gökçen Airport Atatürk Airport

Performance

Hotel operating performance in Istanbul has been volatile and has shown a strong correlation to geopolitical events. In 2016 YTD June, while occupancy levels decreased by 25.9% to 49.2%, Average Daily Rate (ADR) dropped by 19.4% to EUR 97.9 and resulted in a 40.3% decrease on the Revenue per Available Room (RevPAR) to EUR 48.2, compared with the same period in 2015.

Supply

14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

2010

2011

2012

Source: Ministry of Culture and Tourism

2013

2014

2015

2015 YTD June

2016 YTD June

Istanbul has 512 graded hotels with over 50,000 rooms. The market is traditionally dominated by the upscale and upper-upscale hotel segments. Five-star hotels hold a market share in excess of 45.2%. The rapid growth in hotel supply in Istanbul has added further rooms; if all pipeline and hotel projects are completed, the total room supply in Istanbul is expected to increase by 15% by the end of 2017.

13

Investment

H2 2016 Outlook

While we did not see any notable hotel transactions in the first half of 2016, Istanbul will remain attractive for international opportunistic investors who are eager to take on investment projects and benefit from the significant tourism and lodging-industry opportunities in the market.

Hotel performance is expected to slow further during the second half of 2016 and it will take a significant amount of time to recover. However, the market is likely to remain resilient in the mid-term, boosted by the expected stabilization of the current geopolitical issues as well as ending of Russian tourism ban on Turkey.

RECENT OPENINGS

PIPELINE

Radisson Blu Hotel Istanbul Ataköy 133 rooms, January 2016

Hampton by Hilton Istanbul Sabiha Gokcen Airport 148 rooms, August 2016

Pullman Istanbul Airport and Convention Center 402 rooms, April 2016

Radisson Blu Residence Istanbul Batışehir 171 rooms, September 2016

Doubletree by Hilton Istanbul Sirkeci 113 rooms, May 2016

The Viceroy Princess Islands Istanbul 77 rooms, Q3 2016

Clarion Hotel Golden Horn 185 rooms, May 2016

Fairmont Quasar Istanbul 207 rooms, Q4 2016

Quick Facts

21.8%

3.9%

4.4 MILLION

INTERNATIONAL ARRIVALS

43.1 MILLION

PASSANGERS AT IST & SAW

25.9%

49.2%

19.4% EUR 97.9

AVERAGE RATE

OCCUPANCY

EUR 48.2 40.3% RevPAR

% change over 2015-2016

14

Contacts JLL Turkey Maslak Link Plaza, Ayazağa Mah. Eski Büyükdere Cad. No: 3/5 34398 Maslak - İstanbul, Türkiye Tel: +90 (212) 350 0800 Faks: +90 (212) 350 0806

Country Management Avi Alkaş, MRICS, CSM, CLS, CRX Country Chairman +90 (212) 350 0710 [email protected]

Volkan Müller COO, CFO Board Member +90 (212) 350 0857 [email protected]

Aydın Yurdum Regional Director Board Member +90 (212) 350 0800 [email protected]

Dora Şahintürk Regional Director Board Member +90 (212) 350 0740 [email protected]

Tarkan Ander Regional Director Board Member +90 (212) 350 0850 [email protected]

Yavuz Can Parlar Senior Analyst Advisory Services +90 (212) 350 0808 [email protected]

Serhat Çetin Analyst Advisory Services +90 (212) 350 08 16 [email protected]

Authors Burçin Yıldıran Sezen, MRICS Associate Director Advisory Services +90 (212) 350 0823 [email protected]

www.jll.com.tr

JLL Türkiye

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