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.