Turkey’s Mall Owners Are Grappling With Currency Devaluation

Facing declining rental income as a result of upheaval in Turkey’s financial markets, shopping-center owner Corio Türkiye recently expanded a loyalty-card program so that it can track customer behavior and tailor promotions accordingly.

The program “enables us to better know our visitors and design customized campaigns for them,” said Cem Alfar, chief executive of the company, which is a unit of a Dutch real-estate investment trust.

Many retail landlords in emerging-market countries have become experts in marketing, pricing, leasing and even public relations when they have grappled with sharp currency devaluations or spikes in interest rates.

In Turkey, the devaluation of the lira has raised immediate problems because most retail rents are priced in euros or U.S. dollars. That has put landlords under pressure from tenants to cut rents, something some of them have done already.

Foreign investors who have flocked to Turkey’s retail sector could face a bumpy ride. For example, private-equity giant Blackstone Group BX +1.86% LP in October became the country’s largest owner of shopping centers by acquiring Multi Corp. MULI 0.00% , a Netherlands-based developer, for €500 million ($687 million).

If Turkey’s economy goes into a downturn, location could mean the difference between life and death for shopping centers, retail experts say. Blackstone may fare better than most because its approximately 678,000 square meters (2.2 million square feet) of retail space is considered among the country’s best. The portfolio includes Marmara Forum in Istanbul, which was awarded Best Large Shopping Center of 2012 by the International Council of Shopping Centers.

But other factors besides location will be important if past experience in other emerging markets is any guide. For example, during Argentina’s financial crisis between 1998 and 2002, some mall owners curried favor with the public by welcoming even people who had no intention to shop. “When they came out of the recession, shoppers were extremely loyal to the malls,” said Michael Kercheval, chief executive of the International Council of Shopping Centers.

Argentine retailers let shoppers buy on credit even if the item cost less than $5. Landlords, in turn, cut deals on rent with the stores. “It was: Let’s all work through this,” Mr. Kercheval said. “Even if they’re not paying rent, you want to keep the mall vibrant.”

Turkey, of course, has been a retail center for centuries. Istanbul’s over 500-year-old Grand Bazaar remains a commercial center as well as a popular tourist attraction.

But the country’s first real modern mall, Galleria Atakoy, didn’t open in Istanbul until 1988. Over the ensuing decade, the retail business evolved from a model of family-owned shops to more modern shopping centers.

Starting in about 2000, the retail sector picked up speed as Turkey’s per-capita income surged and the middle class swelled. The number of malls rose to 236 in 2008 from 106 in 2005. Between 2005 and 2013, Turkish shopping-center space increased by approximately 820,000 square meters a year, for an average annual increase of 20%, according to data from Cushman & Wakefield.

At the end of 2013, the total supply of retail space was 9.4 million square meters for 336 shopping centers. Furthermore, Turkey has the second-largest shopping-center pipeline in Europe after Russia. Between 2013 and 2014, over 1.5 millions square meters of gross leasable area were expected to be built, 57% of which is in Istanbul.

In Istanbul, prime shopping-center rents rose to $200 a square meter in the fourth quarter of 2013 from $80 a square meter in 2008, according to CBRE. But the latest crisis is hitting the market. Investors’ appetite for shopping centers has declined and some experts predict it won’t pick up until after the country’s presidential elections in August at the earliest. “It is not only a question of weak currency,” said Gustaf Colliander, a vice president at investment-management firm Cohen & Steers, Inc. “It is a question of political instability.”

Some investors, though, believe that the Turkish retail sector is going through a temporary freeze and still has plenty of room for growth. Turkey’s steady population growth rate—about 1.13% in 2013—and an average age under 30 are factors expected to lead to an increase in purchasing power and to positively affect retail demand. According to the Turkish Council of Shopping Centers Investors, annual sales are expected to have reached approximately €20 billion in 2013, up 15% from 2012.

Also, while retail supply might have significantly increased in the past few years, Turkey has an average of 122 square meters of shopping-center space per 1,000 inhabitants, about half the European average of 247 square meters per 1,000 inhabitants, according to data from Cushman & Wakefield.

“For short-term investors, it would be inappropriate economically speaking to exit [the Turkish market] now, said Lorenz Reibling, CEO at Germany- and U.S.-based real-estate investment adviser Taurus Holdings. Mr. Reibling said Investors with whom he works are more focused on long-term opportunity, and in general remain interested in Turkey above other emerging markets.

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About yavuzbaydar

Yavuz Baydar has been an award-winning Turkish journalist, whose professional activity spans nearly four decades. In December 2013, Baydar co-founded the independent media platform, P24, Punto24, to monitor the media sector of Turkey, as well as organizing surveys, and training workshops. Baydar wrote opinion columns, in Turkish, liberal daily Ozgur Dusunce and news site Haberdar, and in English, daily Today's Zaman, on domestic and foreign policy issues related to Turkey, and media matters, until all had to cease publications due to growing political oppression. Currently, he writes regular chronicles for Die Süddeutsche Zeitung, and opinion columns for the Arab Weekly, as well as analysis for Index on Censorship. Baydar blogs with the Huffington Post, sharing his his analysis and views on Turkish politics, the Middle East, Balkans, Europe, U.S-Turkish relations, human rights, free speech, press freedom, history, etc. His opinion articles appeared at the New York Times, the Guardian, El Pais, Svenska Dagbladet, and Al Jazeera English online. Turkey’s first news ombudsman, beginning at Milliyet daily in 1999, Baydar worked in the same role as reader representative until 2014. His work included reader complaints with content, and commentary on media ethics. Working in a tough professional climate had its costs: he was twice forced to leave his job, after his self-critical columns on journalistic flaws and fabricated news stories. Baydar worked as producer and news presenter in Swedish Radio &TV Corp. (SR) Stockholm, Sweden between 1979-1991; as correspondent for Scandinavia and Baltics for Turkish daily Cumhuriyet between 1980-1992, and the BBC World Service, in early 1990's. Returning to Turkey in 1994, he worked as reporter and ediytor for various outlets in print, as well as hosting debate porogrammes in public and private TV channels. Baydar studied informatics, cybernetics and, later, had his journalism ediucatiob in the University of Stockholm. Baydar served as president of the U.S. based International Organizaton of News Ombudsmen (ONO) in 2003. He was a Knight-Wallace Fellow at University of Michigan in 2004. Baydar was given the Special Award of the European Press Prize (EPP), for 'excellence in journalism', along with the Guardian and Der Spiegel in 2014. He won the Umbria Journalism Award in March 2014 and Caravella/Mare Nostrum Prize in 2015; both in Italy. Baydar completed an extensive research on self-censorship, corruption in media, and growing threats over journalism in Turkey as a Shorenstein Fellow at the Kennedy School of Government at Harvard.
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