Istanbul’s real estate crisis: Vacant skyscrapers and sky-high rents 

According to data from the Turkish Central Bank, real estate prices in Turkey’s largest city have increased by a staggering 189.9% from November 2021 to November 2022. What would have been considered an affordable home just two years ago is now well beyond the means of an average earner. Meanwhile, as average Turks struggle with skyrocketing housing prices, countless commercial units that make up the city’s skyline remain unoccupied.

Istanbul, the largest and most populous city in Turkey, is home to over 16 million people. However, like other metropolises, living in Istanbul comes at a steep price. As the most densely populated city in the country, Istanbulites find themselves at the forefront of the housing crisis. Finding a home for less than 10,000 TL in central districts has become increasingly challenging, especially as the Lira continues to depreciate and real estate buyers seek to safeguard their investments.

Şişli district is one of the most densely populated areas in central Istanbul. Located on the European side of the city, Şişli is considered a central and well-established area. Only a few years ago, this densely populated district offered modestly priced homes and was ideal for middle-income Turks. However, the situation is much different today.

A real estate agent in Şişli informed Medyascope that the unit pictured above is now on the market for 25,000 TL; 2.9 times greater than the current minimum wage. According to the agent, one of the reasons for such a high price is that the apartment comes furnished whereas a similar unfurnished apartment would fetch around 20,000 TL today, despite there being no elevator in the multi-storey building. When we asked how much a similar unit would cost two years ago, the agent estimated “7,000 TL”.

Medyascope inquired about another unit in the Kasımpaşa district with an asking price of 11,000 TL which only two years ago would have been 2,000 TL a month. But high prices don’t necessarily translate to a high market as another agent explains: “Our business is currently at zero point. Interest rates have been increased, and apartment sales have completely stopped. Currently, there is neither anyone looking nor inquiring. No one can afford to move.” 

According to real estate agents, there are two main reasons behind the rental crisis: 

Foreign nationals and the 25% increase limit. 

The real estate agents Medyascope spoke to emphasized that the increase in the number of foreign nationals has played a significant role in the rise of rents. They stated that foreign citizens who come from abroad and obtain residence permits take advantage of the depreciation of the Turkish lira and tip the scales of supply and demand. Another issue highlighted by the real estate agents is the 25% increase limit on rents. Last year, amidst the housing crisis, the government stipulated that residential rent increases cannot exceed 25% of the previous year’s rent as long as the tenant continues to reside in their current home. Thus in effect, people who would usually move for one reason or another, cannot do so, leading to a drop in the supply of homes.

Commercial real estate slump

It’s not only residential real estate that is experiencing a crisis in Istanbul. Hundreds of high-end commercial real estate remains vacant with no occupants in sight. The skyscrapers that shape Istanbul’s skyline are gradually turning into empty glass husks due to the economic crisis and the remote working trend. A rapidly increasing number of plazas are being vacated, at first due to the pandemic and then the economic crisis. With the increasing rents and dues, as well as the hybrid work system that has become the norm post-pandemic, the need for plazas and offices has decreased substantially. According to a report published by the real estate investment consultancy company Propin for the last quarter of 2019, 31.6% of Class A offices in the “Central Business District” (CBD) are vacant, while according to the “Istanbul Office Market” report covering the fourth quarter of 2022, 23.4% of commercial units are unoccupied. 

Mustafa Hakan Özelmacıklı, Real Estate Expert and Deputy Chairman of the Real Estate Consultants Association for All Entrepreneurs (TÜGEM), noted that certain areas in the commercial real estate market that remain vacant: 

“The construction of office blocks, banks, and a financial center in different central business areas such as Ümraniye and Dudullu in Istanbul, particularly as alternatives to the Maslak and Levent Line, has resulted in new supply in those regions. However, after the pandemic, the lack of a consistent demand has caused a high vacancy rate for offices in certain areas, contributing to the continued high vacancy rates.”

Özelmacıklı suggests that the increased adoption of remote work models during the pandemic has reduced the space requirements for technology-based companies. He also mentioned that the shared office model, known as virtual offices, could be a factor in the vacancy of skyscrapers. 

“In recent times, we have seen the emergence of various alternatives such as virtual offices and shared office models, providing numerous benefits. However, especially in Class A office blocks, expenses such as maintenance fees have shown a significant increase.”

The vacancy rate in Class A office buildings has decreased to 23.4%.

While last year the parliament hastily passed a law requiring all real-estate transactions to be conducted in Turkish Lira’s in an effort to combat the devaluation of the currency, the system isn’t working as intended. According to the “Istanbul Office Market” report published by Commercial real estate investment consultancy firm PROPIN, the number of property owners leveraging loopholes in the Turkish Lira Protection Law and renting out offices in dollars has increased. Those who rent their offices in Turkish Lira have consistently raised their rental prices. The average square meter rental price in Class A office buildings located in the Central Business District has reached $19.4, while the vacancy rate in Class A office buildings stands at 23.4%.

“We are seeing an increase in vacancy rates in office buildings.”

Özelmacıklı also mentioned that there are restrictions on leasing with dollars, but the 25% limitation applied to residential properties only: 

“There are some restrictions on renting in dollars, there is no specific limitation like the 25% cap for commercial space. Rent increase limit for commercial spaces are based on the twelve-month average of the Consumer Price Index (CPI), which stands at 65%. However, in terms of cost increases, it is not just the rent but also the significant impact of maintenance fees. Due to these factors, some companies have developed alternative working models, resulting in a demand for smaller spaces and an increase in vacancy rates.”

“The most challenging aspect for companies is shared facility expenses and the shift in working patterns. Companies prefer flexible working models. In this regard, I see the situation as somewhat risky for investors who are planning to invest in office spaces. The high increases in deposit interest rates and the exchange rate protection provided do not cover the amortization period for these rents.”

Oversupply

Nusret Suna, the Vice President of the Central Board of the Chamber of Civil Engineers (IMO), states that every city has an urban plan, but the existing plans are not being followed. According to Suna, any structure built without adhering to urban planning principles will cause problems in the future:

“In our country, especially in Istanbul, buildings that are constructed without following the existing urban plans and urban planning principles are causing difficulties. Along the Istanbul-Maslak line, enormous plazas were built one after the other. Similarly, high-rise buildings were constructed in the Kadıköy district, as well as in Beylikdüzü and Esenyurt areas. These were not part of a comprehensive plan; they were driven by profit motives. As a result, an oversupply of plazas were built. Whether there was a need for them or not was not a subject of debate.”

“If you build skyscrapers without any connection to economic realities, this is how it ends” 

Süleyman Solmaz, the Secretary of the Istanbul Professional Chambers Coordination (IMOK) and a member of the Istanbul Metropolitan Municipality Beyoğlu Municipality Council, believes that the reason for building skyscrapers is not driven by societal needs but by the desire for profit: 

“Why did Turkey, especially Istanbul, rapidly turn towards skyscrapers? Because in terms of construction investment and profitability, it is the most lucrative field among all commercial activities worldwide. A significant number of plazas and skyscrapers were built in Istanbul as profits were prioritized over planning and economic necessity.” 

Solmaz points out that the vacancy of buildings cannot be solely attributed to the pandemic, saying: 

“If you build skyscrapers without any connection to economic realities, this is how it ends. With the addition of economic crises and the pandemic, it has become even more evident. The reason we are discussing this more today is not the pandemic but the unplanned constructions resulting from economic crises.” “Glowing towers will become industrial waste” Solmaz believes that skyscrapers will eventually turn into industrial waste, and he mentions that building skyscrapers is easier than demolishing them. He emphasizes that the problem of empty plazas and skyscrapers cannot be solved in a short period of time. “The occupancy rates of skyscrapers will continue to be a problem in the future. With the advancement of technology, economic activities can undergo certain changes. Commercial activities that used to be obligatory in the office can now be conducted from homes using computers and mobile phones. This could have been foreseen. Those who built massive skyscrapers should have anticipated that technology would reach this point.”