The Need for Secure Offices Has Increased the Demand for Offices! Vacancy rates are at rock bottom!

Summary of the Istanbul Office Market Data for Q4 2023

The summary data for the Istanbul Office Market in the fourth quarter of 2023 is presented below.

In the Central Business District (CBD), the vacancy rate for Class A office buildings was 13.2%, while the vacancy rate for Class B office buildings was 9.2%. The average rent in the CBD was determined to be $24.7 per m² per month for Class A office buildings and $10.1 per m² per month for Class B office buildings.

Outside the CBD in Europe, the vacancy rate for Class A office buildings stood at 10.5%, with an average rent of $12.3 per m² per month.

In Asia outside the CBD, the vacancy rate for Class A office buildings was recorded at 10.6%, with an average rent of $18.1 per m² per month.

During the fourth quarter of 2023, the highest rental price was demanded in Levent, located in the CBD, at $45 per m² per month.

The Istanbul Office Market witnessed significant changes in 2023, demonstrating once again that market dynamics can be influenced not only by economic conditions but also by natural disasters. After the earthquakes centered in Kahramanmaraş, concerns about safety and the demand for earthquake-resistant offices played a crucial role in shaping the market.

In an inflationary environment and with rising rental costs, although many sectors were adversely affected in the Istanbul Office Market, the intensity of tenant searches for office spaces drew attention. Businesses increased their demand for modern, secure office spaces that could ensure business continuity.

Due to rising foreign exchange rates and inflationary market conditions, it was observed that more office buildings in the Istanbul Office Market had their listing prices expressed in US Dollars. As a result of increased demand and the lack of new office stock being added to the market, rental prices continued to rise in 2023. By the end of the year, the average rent for Class A office buildings in the CBD increased by 19%, reaching $24.7 per m² per month in the fourth quarter.

The vacancy rates in 2023 predominantly decreased in the last two quarters of the year. The vacancy rate for Class A office buildings in the CBD was recorded at 15.4% in the second half of the year, marking the lowest level in the past decade. Additionally, the vacancy rate outside the CBD in Asia halved over the past five years, which was a noteworthy development.

As a result of the demand for office spaces in Istanbul, approximately 279,000 m² of leasing and corporate acquisition transactions were completed throughout 2023. The transaction volume for Class A office buildings in the CBD, which continued to attract user interest for various reasons, including ease of access, was recorded at 83,000 m² this year. The new office stock in Emerging Office Areas continued to meet user needs, with Kağıthane remaining on users' radars, similar to previous years. It was noted that three of the five largest transactions in 2023 took place in Kağıthane.

Leasing and corporate acquisition transactions in 2023 primarily occurred in small and medium-sized office spaces. The largest office leasing transaction completed in the market was 22,000 m². However, it was notable that one in four transactions in the market in 2023 took place outside the CBD in Asia. During this period, the corporate acquisition of approximately 11,000 m² of office space in Ümraniye 19 was the largest transaction in volume, with PROPIN acting as the exclusive brokerage service for this deal.

The office stock in Istanbul partially increased in 2023, mainly originating from West Ataşehir. This growth resulted in an increase of approximately 435,000 m² in the stock graphs.

A contraction in new office supply was observed in the Istanbul Office Market. Factors such as harsh economic conditions, difficulties in accessing financing, rising foreign exchange rates, and increasing construction costs posed barriers to office developers in creating new office spaces. This situation has directed investors towards residential and related real estate projects where they can implement a build-and-sell model.

Based on the data shared about new office projects and our studies regarding future stock, we expect the Istanbul Office Market to reach a size of 7.4 million m² by the end of 2027. However, due to the upcoming local elections in 2024 and the current market conditions, plans regarding the size and timing of new office spaces may vary.

During this period, the high demand in the office market and the limited increase in stock have positioned landlords favorably. Responding to business expectations, being sensitive to environmental factors, and providing modern office spaces are crucial competitive elements within the market. We anticipate that this dynamic environment will encourage market players to focus not only on economic factors but also on social and environmental changes.