RETAIL SERVICES GLOBAL CITIES RETAIL GUIDE CUSHMAN & WAKEFIELD CUSHMAN & WAKEFIELD 2012/2013. Turkey

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1 RETAIL SERVICES GLOBAL CITIES RETAIL GUIDE 2012/2013

2 Overview Photo / Robi Olson, the bridge between East and West is fast becoming a regional power. Thus far, it has escaped the present European debt crisis with impressive growth. 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 into the globalized economy and a major recipient of foreign direct investment in the region. is now the 16th largest economy in the world and the 6th largest within the EU. One half of its population is under 30 years of age. In the first quarter of 2011, was the fastest growing in the world surpassing 11% GDP growth. Although this figure continued to decelerate throughout the year, the 2011 year-end figures still recorded an 8.3% growth level second only to China in the G20. Estimated GDP figures for are expected to average about 5%. Also contributing to retail sales is tourism. is 8th in the world as a vacation destination and last year tourism brought over $28 billion dollars to the economy. A recent report issued by Business Valuation Store ( Retail Report Q2 2012) predicts that s retail sales will increase by 12% by 2016, an average of 2.7% per annum. This is due to continued economic growth, expanding urban population, rising levels of disposable income and continued development of the retail infrastructure.

3 Economic Overview Photo / Osman Kalkavan economic summary ECONOMIC INDICATORS* F 2013F GDP growth Consumer spending Manufacturing production Investment Unemployment rate (%) Inflation TL/US$ (average) TL/ (end period) Interest rates 3-month (%) Interest rates 10-year (%) NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast Source: Oxford Economics Ltd. and Consensus Economics Inc economic breakdown Population million (2011) GDP US$775.3 billion (2011) Public sector balance -1.4% of GDP (2011) Parliament Head of State Prime Minister Election date Source: Oxford Economics Ltd The Justice and Development Party (AKP) Abdullah Gul Recep Tayyip Erdogan June 2015 (Parliamentary) 2014 (Presidential) retail sales growth: % change on previous year F 2013F Retail Volume 0.84% 0.90% 0.25% 2.05% 1.91% Retail Value 1.69% 2.51% 3.33% 2.60% 1.25%

4 Largest cities largest cities (2012) CITY POPULATION Istanbul 13.48m Ankara 4.76m Izmir 3.62m Bursa 2.36m Adana 1.86m Gaziantep 1.57m Konya 1.53m Kocaeli 1.50m Antalya 1.45m Mersin 1.30m Diyarbakir 1.13m Kayseri 1.09m Source: Türkstat

5 Retail Scene MAJOR DOMESTIC FOOD RETAILERS Migros, Macro, Marketim, BIM MAJOR INTERNATIONAL FOOD RETAILERS Carrefour, Tesco/Kipa, Metro, Real MAJOR DOMESTIC NON-FOOD RETAILERS Vakko, Boyner, Beymen, Koçtas, Mudo, Koton, YKM, Ipekyol, Kigili, Network, Mavi Jeans, LC Waikiki, Atalar, Desa, Park Bravo INTERNATIONAL RETAILERS IN TURKEY Harvey Nichols, Marks & Spencer, Debenhams, Ikea, H&M, C&A, Tommy Hilfiger, Ralph Lauren, Channel, Louis Vuitton, Tod s,, Armani, Versace, GAP, Levi s, Banana Republic, Swatch, Zara, Mango, Benneton, Mothercare, Foot Locker, Victoria Secret, The Body Shop, Watson s, Oleg Cassini, Tchibo, Nike, Yves Rocher, L Occitane, Lacoste, The Woo, English Home, Adidas, Calzedonia, MAC FOOD & BEVERAGE OPERATORS Paper Moon, Cipriani, Mezzaluna, McDonalds, Burger King, Pizza Hut, Kentucky Fried Chicken, Starbuck s, Caribou Coffee, Creameria Milano, Carl s Junior, Schlotzsky s Deli, Café Nero, Ben & Jerry s, Haagen Dazs TYPICAL HOURS MONDAY-FRIDAY SATURDAY SUNDAY

6 Retail Scene is one of Europe s and the Middle East s largest potential markets with a population of more than 74 million half of which are under 30 years of age. Its geographical location as a bridge between the East and West makes it a favored destination not only for business travel but leisure as well. The shopping centers are open 12 hours a day 7 days a week and most smaller retailers are also open 7 days a week although shorter hours. The month of June hosts a 20 day shopping festival in major cities which are gaining in popularity each year. is also promoting tax free shopping. Since it is not part of the EU, Europeans can take advantage of this as well. currently has 265 shopping centers covering a total of million sq.m and 82 new ones approved and under construction for opening in the years The shopping malls in are not only a source to buy goods they are also a source of entertainment thus the malls in good locations have a tremendous amount of foot traffic. Malls located in heavily populated and easy to get to areas will be the growth potential 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 (closed to car traffic). In Ankara, Tunalı- Hilmi is the most well known and busiest shopping street 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 other entertainment. The retail warehouse park concept has not really caught on in. Currently Metro Grossmarket dominates the industry and is expanding mainly in Istanbul. This concept will be slow to develop in as buying in bulk or large sizes does not lend itself to the size of Turkish homes and travel on public transportations. Also large stores are needed for this concept which makes it 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 grows. Compared to some other European countries, the cost of labor is still affordable so the DIY stores got off to a slow start. However, we now see both Turkish and International DIY stores becoming anchors in the new shopping malls sprouting up all over the country and IKEA was an instant success when they entered. does have factory outlet center malls but the meaning of the word outlet is not the same as in the European and American markets where you generally find old season and marked down merchandise. In, the 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. In the word outlet is used as a marketing tool to entice shoppers to come with the expectation of lower prices. However, many of the shops carry the same merchandise as in their stores not in an outlet mall. E-commerce is fairly new in but growing rapidly due to the high level of internet penetration, high levels of credit and debit card usage and rising levels of confidence in security. Also the cargo delivery system in is quite advanced. As it s still a relatively new mode of shopping it is still an evolving market. It is possible to enter the Turkish retail market direct; many also franchise and enter via concessions/shop-in-shops. There are no restrictions on foreign companies either buying or renting property in most parts of. It is generally believed that the Turkish lease structure is more orientated toward the tenant than the landlord. Maintenance, repair and insuring obligations are the responsibility of the tenant. If the rent is in Turkish Lira it can be increased yearly in accordance with Consumer Price Index (CPI). Although it is possible to occupy a new building as soon as you sign the lease, if you are moving into space that has been previously occupied, the time it takes to customize it will depend in many factors. Also, if you have a specific area in mind such as one of the three high streets or in the most popular shopping centers, it is more realistic to expect a long lead time to find appropriate space. Once the property becomes available you must be prepared to act very quickly or lose out to a competitor. On high streets key monies are the norm and are usually quite high. new entrants to the market Jimmy Choo Miu Miu Marc by Marc Jacobs Michael Kors Zilli Victoria Secret Bed and Bath Body Works FCUK Promod

7 Key Features of Lease Structure KEY FEATURES OF LEASE STRUCTURE Lease Terms Rental Payment Rent Review Service Charges, Repairs and Insurance Property Taxes and other costs Disposal of a Lease Valuation Methods Retail 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$/ amount is usually paid in Turkish Lira at the payment date. Rental payments in Turkish Lira have started to become more commonplace mainly on high streets. There are no restrictions on break options. For leases between 3 and 5 years break options are provided after the first year or third year on a 5 year lease. 3 to 6 months notice should be provided. If the tenant wishes to vacate the premises prior to a break legal proceedings can be extensive. In the event of the sale of a property, the new landlord has the right to break existing leases provided adequate notice is given, unless the lease is registered with the title deeds (which requires landlord consent and incurs a charge to the tenant). There is no security of tenure outside the lease term. The lease agreement can only be terminated by the tenant. Exceptions along to the Decree Law 6570 concerning the rentals of immovable, which allows the landlord to vacate the premises are: 1) The landlord can ask the tenant to vacate the premises if it is to be occupied by a first degree family member. 2) If the tenant have signed a moving out notice. 3) In case that the premise where sold; if there is a need of the new landlord or his first degree family members to occupy the premise for residential or trade purposes. 4) If the tenant did not pay the required rents after two formal notices. 5) If there is any kind of treatment of the tenant against the contract and the law. Rents are paid typically monthly. There will be a base rent supplemented by a turnover percentage, which can vary by sector. A deposit of average 3 months rent is general. In most circumstances, the deposit can be exchanged for a bank guarantee for the duration of the contract. Key money may be paid for the best high street retail space where there is no fixed market rate. CPI for USD or for contracts in US$/ 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. The service charge is on average 15% of the gross rent in good working SC s. 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. 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. Assignment/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. There is no zoning of areas within a retail unit. Measuring practice is gross internal basis including common areas, fire staircase, elevators, and rest rooms. Legislation Financial Leasing Act numbered 3226 (1985).

8 JOHN STRACHAN Global - EMEA Ph: Portman Square London, England W1A 3BG john.strachan@eur.cushwake.com MATT WINN Americas Ph: Ivan Allen Jr. Boulevard, Suite 700 Atlanta, GA matt.winn@cushwake.com SANJAY VERMA Asia Pacific Ph: /F The Headquarter Building 168 Xizang Zhong Lu Shanghai, China PRCi sanjay.verma@ap.cushwake.com No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals Cushman & Wakefield, Inc. All rights reserved.