on point Turkish Real Estate Market in Rapid Transformation Turkey Real Estate Overview - January 2013 Real value in a changing world

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1 on point Real value in a changing world Turkey Real Estate Overview - January 2013 Turkish Real Estate Market in Rapid Transformation Turkey secured its first investment-grade credit rating by Fitch Ratings. Consumer price inflation decreased from 10.61% in January 2012 to 6.16% in December Due to the fact that Turkey is an earthquake zone, the government has started biggest urban regeneration project to demolish 6.5 million buildings. New projects in Istanbul such as the new airport, 3rd Bridge on the Bosphorus, the new city and Olympic Games for 2020 etc, are expected to change the future outlook of the city. The confidence of global investors in the Turkish retail market is led by the investment of Blackstone and GIC. Office occupier demand remains still strong during 2012 with an increasing number of multinational firms establishing offices in Istanbul. The Jones Lang LaSalle survey of European supply chain managers reveals Turkey at the top of markets expected to be the next emerging logistics location. Istanbul Hotel Market enjoys an increase the RevPar compared to the 2011.

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3 On Point Turkey Real Estate Overview January Economic Outlook GDP Growth The fiscal discipline and economic reform observed during the last decade have been the key drivers of sustainable economic growth in Turkey. Following Turkey s anticipated soft landing for an economic slowdown after the strong growth of 2010 and 2011 (9.0% and 8.5% respectively), the government revised growth forecasts for 2012 down from 4% (predicted at the beginning of the year) to 3.2% in the Medium Term Economic Programme (MTEP). GDP Growth (%) One of the major goals of the MTEP is to boost Turkey's welfare, raise economic growth to its potential level, increase employment, continue fighting inflation, control ever-rising current-account deficit (CAD) and increase domestic savings, thus strengthening macroeconomic and financial stability. In line with these goals, Turkey s inflation rate fell to its lowest in 11 months as a slowing economy outweighed the impact of government price increases on gas and electricity, and consumer price inflation decreased from 10.61% in January 2012 to 6.16% in December Lower than expected commodity prices coming out lower than expected constitutes the main reduction on consumer price inflation. CPI & PPI (%) Source: TurkStat The GDP growth came out as 1.6% in the third quarter of 2012, far below the market expectations of 2.6%, according to data released by the Turkish Statistical Institute (TurkStat). In line with the Turkish government, the IMF, World Bank and OECD predict growth for 2012 to be realised at around 3.0%. Despite the economic slowdown, the Turkish economy presented a stronger economic outlook compared to other European countries. Emerging Europe is expected to record a GDP growth of 2.0%, while the predictions for Euro Area and Advance Euro are looking more depressing, at -0.4% and -0.3% respectively. GDP Growth (%) * 2013* CPI (y-o-y) PPI (y-o-y) Source:TurkStat According to the Turkish Exporters Assembly (TIM) data, Turkey s exports are expected to surpass the year s annual target volume of USD 150 billion. The released figures for November show that the country shipped over USD 12.7 billion of goods overseas, a net increase of 20% over the same month in The annual export volume surpassed USD139 billion while year-on-year volume has already hit USD billion. Despite the on-going Eurozone debt crisis, the EU remains the primary buyer of Turkish goods, with Germany the biggest importer, worth USD 1.2 billion. Over the last couple of years Turkey s export markets have markedly diversified with the African, Middle Eastern and Central Asian buyers increasing their shares in the emerging country s exports. Reaching an export volume of USD 500 billion by 2023 is among the targets set for the centennial of the Republic. Advanced Europe Euro Area Emerging Europe Turkey Source: IMF, World Economic Outlook October 2012

4 4 On Point Turkey Real Estate Overview January 2013 Current Account Balance (Share of GDP) (%) Source:CBRT -6.5 Consumer Confidence The global economic uncertainty and economic slowdown in Turkey has led the index to move slightly downwards in the recent period. The index decreased to 75.8% in January 2013, down from 79.0% in January Consumer Confidence Index (%) The current-account deficit has shown some correction due to the Central Bank s measures and economic slowdown in The current-account deficit was recorded at USD 41 billion between January and October 2012, compared with USD 65 billion during the same period in This caused a downward revision in the current-account balance of GDP. According to the Medium Term Economic Programme, the current-account balance of GDP is projected at -7.3%, which was -10.0% in Current Account (USD billion) 2011 Jan-Oct 2012 Jan-Oct Current Account Deficit Foreign Trade Balance Total Goods Export Total Goods Import Source: CBRT After Fitch Ratings upgraded Turkey to investment grade, the country secured its first investment-grade credit rating. This resulted in record levels of stock index and bond prices and offered a substantial boost to the government, which has long coveted an elevation to investment grade. It is expected that this will be further strengthened by possible upgrading by the other two rating agencies Source: TurkStat Employment In line with the moderate growth performance, the unemployment rate showed an impressive performance in the first half of 2012, decreasing to 8.0% in June 2012 from 10.2% in January However, it rose to 9.1% as of October 2012 and the government predicts a full-year unemployment rate of 9.0%. Unemployment Rate (%) Source: TurkStat

5 On Point Turkey Real Estate Overview January Fiscal Policy The economic uncertainty in the Eurozone has made the government strengthen its fiscal discipline and monetary policy. Following strong growth in the past two years, government officials have introduced some measures for a slowdown in growth this year, such as curbing the domestic demand with limited loan growth. The Turkish Central Bank tends to control the current-account deficit and to bring inflation in line with year-end targets. In this respect, the government officials have increased the cost of loans on the banking system. Budget Deficit (%) 0.0 Debt to GDP, 2011 (%) Japan Greece Italy Irland USA Portugal UK France EU Germany Austria Spain Netherlands Poland Slovenia Turkey Source: Ministry of Economy, IMF As it has been seen on the graph above, Turkey had a low debt-to- GDP ratio compared to many European countries, Japan and US in In Europe, Greece had the highest debt-to-gdp ratio at 160% while the ratio is at 230 for Japan, at 120% for Italy, 106% for Portugal, 103% for US, 104% for Ireland and 68% for Spain. Source: TurkStat The IMF estimated the budget deficit for 2012 and 2013 respectively at 3.8% and 2.7% respectively. According to the Medium Term Economic Programme, the budget deficit is projected at 2.3% as of end 2012, increasing from 1.4% in The deficit is expected to be around 2% for the next three years. This indicates Turkey s overperformance compared to many European countries. Turkey recorded a government debt to GDP ratio of 39.4% based on the country's GDP in Historically, from 2000 until 2011, Turkey government debt to GDP ratio averaged 53.1% reaching an all-time high of 77.9% in December of 2001 and recorded low with 39.4% in December 2011.

6 6 On Point Turkey Real Estate Overview January 2013 Major Headlines from the Agenda Urban Regeneration in Turkey One of the outstanding topics on the agenda recently has been Urban Regeneration. Due to the fact that Turkey is an earthquake zone, Urban Regeneration is especially interpreted as the transformation of the regions under disaster risk, although its essential purpose is the rehabilitation of urban spaces that have decayed and collapsed due to fast urbanisation and the uncontrolled growth of cities under industrialisation. To incentivise Urban Regeneration, the interest on loans used by the citizens would be met half by the government and half by the contractor, and individuals willing to transform their residential units would be able to choose between the banks providing affordable loan interests and the contractors. The Ministry of Environment and Urban Planning estimates that approximately 6.5 million buildings will be demolished and rebuilt within a term of 20 years within the scope of Urban Regeneration, to be primarily initiated in 35 cities. With the Law in effect, governmental buildings have begun to be demolished and implication of many of the Urban Regeneration projects has also been accelerated. The institutions that will be charged with the new zoning process will also include the municipality and Mass Housing Administration under the leadership of the Ministry of Environment and Urban Planning. Location of Major Projects in Istanbul Istanbul Finance Centre The main objective of the Istanbul Finance Centre (IFM) is to make Istanbul primarily a regional and finally a global finance centre, as confirmed in the Official Gazette in May Its physical location has been designated, by decision of the Council of Ministers, as 1.7 million sq m within the district boundaries of Ataşehir and Ümraniye on the Asian side. Plans for the 3.2 million sq m development have been prepared by the Ministry of Environment and Urban Planning. The Banking Regulation and Supervision Agency (BRSA), Central Bank, Capital Market Board (CMB), Ziraat Bank, Vakıf Bank and Halk Bank and other private institutions are also expected to participate shortly in the recently accelerating construction activities. A metro line between Göztepe and Ümraniye will be built to facilitate connection to the finance centre, and this line will be connected to Marmaray and to major metro lines. Marmaray project is the most crucial infrastructure project in Istanbul, which connects the European side to the Asian side via a railway tunnel under the Bosphorus The necessary legal and tax regulations which are prerequisites for a finance centre are also being finalized along with the construction activities. Third Bridge on the Bosphorus The four-lane, two-way North Marmara Highway, with a length of 414 kilometres including side connection roads, will start from the TEM Highway junction at Kınalı locality, on the west of Istanbul, cross the Bosphorus between Garipçe and Poyrazköy via a suspension bridge of 1,275 metres, and end at Akyazı on the east. According to the information provided by the Ministry of Transportation, the proportion the privately owned sites along this axis is 16%; the rest of the route is composed of forest areas with 48%, 2B sites with 11%, treasury sites with 16%, and military areas with 11%. While the third bridge and the connection roads, with a length of 90 kilometres, will be tendered under the Build-Operate-Transfer model, the remaining highways of the North Marmara Project on the Asian and European side, with a length of 314 kilometres, will be constructed though public funding. In addition, the expropriation of the section covering the third bridge and the connection roads will be undertaken by the General Directorate of Highways. The Ankara-Istanbul High- Speed Train line will reach Istanbul Sultanbeyli from the north of Sapanca lake and one of the branches of this line, which will be divided from that point onwards, will be connected to the third bridge to be built over the Bosphorus and the other line to Marmaray. Thus there would be a high-speed train line in two directions on the third bridge, but it is not yet clear whether the planned railway will be on same level as the bridge or take the form of a suspended structure.

7 On Point Turkey Real Estate Overview January Reciprocity Law no.6302, publicly known as Reciprocity Law, amending the Title Deed Law and Cadastral Law, came into effect on 18 May 2012, but actual sales could only be started after the declaration of the list of the countries to which sales could be made, approved by the Council of Ministers in August. Based on the declarations made by the Ministry of Environment and Urban Planning, 7,433 properties with a total area of 3,616,557 sq m were acquired by 7,377 foreign individuals between the effective date of the law and the end of November. The new regulation had particularly a strong interest from the Arabic countries, including United Arab Emirates, Saudi Arabia, Kuwait, Qatar and Iraq. The cities most in demand have been Istanbul and Antalya. Istanbul New City Projects and the Third Airport The details of the new Istanbul project on the Asian and European side and the third airport, announced during the 2011 elections as one of the major projects of Prime Minister Tayyip Erdoğan, have started to become clear: The first step taken in that respect has been the authorisation of the Ministry of Environment and Urban Planning for the three project areas also covering the third airport. The third airport, likely to be constructed under the Build-Operate- Transfer model, is due to be integrated with the third bridge and North Marmara Highway. Additionally, the airport will be developed on a site covering 40,000 hectares, integrating with the new city and with the project known as Ecological New Istanbul, a sustainable and ecological city housing one million people and formed thanks to the rehabilitation of former mines and quarries. Two major universities and one research hospital will be built in the city, where the new advanced technology base will be constructed in connection with the airport. The city, which will be directly connected by the third bridge and highways, will also benefit from the high-speed train, and a cruise port will also be constructed. VAT in Residential Units Sales The issue of the VAT on sales of the residential units, which occupied the agenda for quite a long time and brought the new projects to a standstill due to uncertainty, has been resolved by the publication in the Official Gazette on 1 January of the decision of the Council of Ministers concerning the change in the VAT rates to be charged from the new residential units within the metropolitan municipalities. While the new application will be valid for the residential units receiving their building licence from 1 January 2013, the areas defined as reserve building areas and the risky areas within the scope of the Law on the Transformation of the Areas Under Disaster Risk dated 16 May 2012 and numbered 6306 have been excluded from the new regulation. The VAT rate of 18% would continue for the non-residential properties, as previously. The Law relates to the projects and residential units developed by the contractors and real estate companies. Health Campus Projects The Ministry of Health of the Republic of Turkey (MoH) has developed and been implementing a plan to expand and improve its medical education, training and service delivery by creating a new, modern and efficient public health infrastructure via Public Private Partnership (PPP) Program. The Ministry designed a PPP program which will be the best way to effectively realize the project of creating a modern and efficient health infrastructure in Turkey. The Ministry plans 34 health campus projects in 25 different Turkish cities with a grand total of investments over USD 16 billion, and has already started to invite tenders for some cities. It is expected that this project will bring a different experience to the Turkish commercial real estate market. Istanbul Candidate City for Olympic Games 2020 Istanbul has applied to host the 2020 Olympics, and the other two cities in competition are Madrid and Tokyo. The Olympic village of Istanbul will also be constructed as part of the new city project. The buildings, with an accommodation capacity of 25,000 as well as social utilisation areas, would also be used as a university and sports centre after the Olympics.

8 8 On Point Turkey Real Estate Overview January 2013 Retail Market Overview This section provides an overview of trends in the retail market as well as retailer demand, market rents and outlook. Retailer Demand and Trends The general trend among most retailers in 2012 was a more cautious approach to their expansion plans by demanding smaller-scale stores. The main reason for such a trend is the increasing importance of unit efficiency by minimising operational costs. Additionally, the fast emergence of e-commerce has been another factor for downsizing, especially regarding home decoration and electronics retailers. During 2012, retailer demand both for shopping centres and high street stores was strong. Major players in the retail market, such as LC Waikiki, Defacto, Joker, Koton and Mavi, continued with their aggressive expansion strategies. Teknosa and MediaMarkt are among the rapidly growing anchor brands. MediaMarkt announced plans to open fifteen more stores in 2013 to expand its market share in Turkey. While Darty and Electroworld are among the more prudent expanders, Carrefour reshaped its expansion strategy, demanding space as a supporting retail offer to office and residential developments. In line with the current strong retail market performance, the Turkish retail market has remained on the radar of international brands. The Spanish ready-to-wear brand Shana, the French ready-to-wear brand Promod and the American casual-wear brand Aeropostale are major examples of international brands that recently entered the market. Strong activity in children s retail continued with the aggressive expansion of Carter s and the entrance of Gymboree. This growth in children s retail is envisaged to continue with Hamley s toy store and the Disney Store seeking space to enter the Turkish market. As retailer demand for investing and expanding in Turkey remains strong, the appetite of international investors, particularly private equity funds, for Turkish brands has notably increased. Most recent examples of mergers and acquisitions in the market are the acquisition of a 51% share in Flormar by Yves Rocher and the partnership established between Penti and The Carlyle Group. It is observed that the revival in the food and beverage sector has also reflected in investment activity. Doğuş Group acquired a 74% share of Doors Group, 56% of Nusr-et, Kahve Dünyası and Mezzaluna and majority shares of NumNum were acquired by İşYatırım. Investment in Turkish brands is envisaged to continue in 2013, with a number of potential deals in the process of being completed. One incentive for international entrants and also expansion of national brands is the availability of quality retail spaces. Strong shopping centres at premium locations with professional management significantly increase the appetite of retailers. Recently opened Marmara Park and Aqua Florya, along with pipeline projects such as Zorlu Center, Akasya and Emaar Square, are strong examples for such attractive projects. While Istanbul remains the primary market of choice for retailer expansion and entrance into the market, a central location remains the most crucial factor affecting demand, especially in secondary cities. An optimum location in secondary cities can surpass a mediocre location in Istanbul. A strong location, a wide catchment population, reputable investors, well connected leasing agencies and an appropriate GLA are the main factors that improve demand, particularly in secondary cities. Demand from international food and beverage brands significantly increased in the last year, especially for Istanbul. Pf Chang s and Carluccio s were two of the important international restaurant chains that acquired space in Istanbul in 2012, in addition to the re-entrance of Paul Café under Azadea Group. Doors Group introduced Raika, a new high-end Turkish cuisine restaurant opened in The Marmara Hotel in Taksim Square, and Cookshop opened its new branch in Bebek. Meetings and negotiations continue with other food and beverage chains eager to enter the market, and we expect to see new international restaurant chains considering the market during Nişantaşı, İstanbul

9 On Point Turkey Real Estate Overview January Although the lack of available space on high streets remains a major challenge for retailers, the demand continues to accelerate, especially for Istanbul. The Nişantaşı Area attracts noteworthy demand from the food and beverage sector. Following the relocation of Mezzaluna to Mim Kemal Öke Street and the opening of Cookshop in the former location of Mezzaluna, La Brise also opened a restaurant on the Mim Kemal Öke Street in September Watson s has started operations in Rumeli Street with its new store. İstiklal Street continues to be the prime choice for flagship stores of high street brands. Mavi Jeans opened its third flagship store on İstiklal Street, while Mango HE was another recent important store opening. Additionally, many brands open more than one store on Bağdat Street due to the very strong retail demand. For instance, New Balance and Camper opened their second stores while Gratis continues operations with its fourth store on the Bağdat Street. Demand for high streets is affecting the rent levels which will be analysed thoroughly later in this section. Rental Outlook The prime rent for shopping centres has remained constant at EUR 80 per sq m/month since Q The increasing demand of retailers does not directly reflect on the prime rent due to the strengthening competition which stems from the increased supply and the rising sensitivity of retailers for efficiency. The shopping centre prime rent is projected to hover around EUR 80 per sq m/month without any significant increase during Prime Rent (EUR / sq m / month) Following the importance of location, innovation through new concepts remains a vital tool for competing in the rapidly developing market. A common innovation among retailers is to create new concepts in order to be up to date and to differentiate the brand from others. Inditex Group has put notable emphasis on innovation by new concepts. Nişantaşı Zara store was the first example of the New Version Zara with the new store concept. The renewal will continue in other Zara stores along with other brands of the group such as Bershka, Stradivarius and Pull and Bear. Sportive, another brand that focuses strongly on innovation, announced an upcoming new concept of larger stores. Additionally, Koçtaş opened its first Koçtaş Fix Store in Istanbul which is the new, smaller-scale concept of Koçtaş. Along with acquisitions and partnerships, the mother companies of some international brands which operate through franchises in Turkey acquired Turkish operations. Starting with Benetton, Sephora, Camper and Tommy Hilfiger, this trend continued with Swatch and Ralph Lauren s takeover of Turkish operations. G-Star, Nautica and Gant retail operations were recently passed over to Eren Holding, which also represents Lacoste and Burberry. The investor demand for national brands proves the growing importance of Turkish brands in the region through internationalisation. National brands such as LTB, Sarar, LCW and Defacto are some examples of the major Turkey-based retailers that continue expansion in the surrounding region, including the Middle East, North Africa, CIS and Eastern Europe Moreover, the prime rent on high streets rose notably because of the lack of available space and the constantly increasing demand. The prime rent, which was recorded at EUR 175 on İstiklal and Bağdat Streets since H1 2011, increased by EUR 25 during H and reached EUR 200 per sq m/ month. Meanwhile, the prime rent in Nişantaşı increased by EUR 20 during the same period, reaching EUR 190 per sq m/ month, slightly below Bağdat and İstiklal Streets. Retail Supply As at end 2012, the total shopping centre gross leasable area (GLA) in Turkey reached 8.6 million sq m in 337 centres, with an increase of 800,000 sq m in 27 shopping centres compared to end of these centres, which account for 44% of the total stock, are located in Istanbul. Shopping Centre Development: GLA & Unit 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 Pipeline stock (sq m) Existing stock (sq m) Unit

10 10 On Point Turkey Real Estate Overview January 2013 The 38,000 sq m AquaFlorya and the 100,000 sq m Marmara Park in Beylikdüzü were the major openings in Istanbul during H2 2012, following the opening of the 43,500 sq m Trump Towers in Mecidiyeköy and the 44,000 sq m Buyaka in Ümraniye during H Development Pipeline As of end 2012, the total pipeline shopping centre GLA, which is expected to be completed by the end of 2015, is 2.7 million sq m in 73 shopping centres. With the completion of the pipeline projects, the total shopping centre supply is projected to reach 11.2 million sq m in 410 shopping centres. Shopping Centre Breakdown: Unit & GLA İstanbul Rest of Turkey Total Active Under Construction* Total Unit GLA (sq m) 3.46 million 1.38 million 4.84 million Unit GLA (sq m) 5.12 million 1.28 million 6.40 millon Unit GLA (sq m) 8.58 million 2.66 million million Aqua Florya, İstanbul In other cities, the 40,000 sq m Sera Kütahya, the 27,000 sq m Tarsu in Mersin and the 18,000 sq m Magnesia in Manisa were among significant completions during the last six months. Shopping Centre Breakdown: Unit & GLA SC Type Unit Share GLA (sq m) Share Neighbourhood Center % 2,274, % Outlet Center % 1,692, % Power Center 1 0.3% 42, % Regional Center % 2,899, % Super Regional Center % 1,480, % Theme&Festival Center 4 1.2% 43, % Life Style Center % 155, % Total 337 8,588,360 With a share of almost 34%, regional centres continue to account for the highest stake in the total shopping centre stock. *Under Construction to be completed by end 2015 At 1.4 million sq m, the pipeline development in Istanbul is slightly greater than the rest of the Turkey, accounting for 52% of the stock currently under construction. Istanbul has a number of very strong and highly anticipated mixed-use projects on both the European and Asian sides of the city. The 66,000 sq m Zorlu Center, the 40,000 sq m Özdilek Centre in the CBD and the 110,000 sq m Vialand Entertainment Development in Eyüp are major pipeline projects on the European side, while the 86,500 sq m Akasya in Acıbadem and the 150,000 sq m Emaar Square projects stand out as important pipeline shopping centres on the Asian side. Major Pipeline Projects in Istanbul Shopping Centre Location GLA (sq m) Expected Opening Akasya Acıbadem 86, Mall of İstanbul İkitelli 148, Vialand* Eyüp 110, Zorlu Center* Zincirlikuyu 66, Özdilek* Levent 40, Emaar Square* Libadiye 150, Metropol İstanbul* Ataşehir 90, Vadi İstanbul* Ayazağa 75, Eroğlu Seyrantepe Seyrantepe 90, *Denotes Jones Lang LaSalle involvement

11 On Point Turkey Real Estate Overview January Outside Istanbul, the pipeline stock is also notably high in Ankara, Bursa, İzmir and Gaziantep. Major Pipeline Projects in the Rest of Turkey Shopping Centre City GLA (sq m) Expected Opening Erasta Antalya Antalya 37, Forum Gaziantep Gaziantehp 44, Kozzy Maraş* Kahramanmaraş 51, Kozzy Samsun* Samsun 63, Kozzy Urfa* Şanlıurfa 45, MarkAntalya Antalya 50, Next Level Ankara 42, Palladium Antakya Hatay 40, Taurus Ankara Ankara 50, Bornova Cadde* İzmir 50, *Denotes Jones Lang LaSalle involvement Rönesans Kozzy projects in Samsun, Kahramanmaraş and Şanlıurfa, with GLAs of 63,000 sq m, 51,000 sq m and 45,600 sq m respectively, are among the major expected openings outside the major cities. Other major pipeline projects include the 44,500 sq m Forum Gaziantep, the 40,000 sq m Palladium Antakya in Hatay and the 50,000 sq m Point Bornova in İzmir. Retail Density The retail density of Turkey increased notably during 2012, reaching 115 sq m per 1,000 inhabitants compared to 103 sq m as of end Istanbul, which surpassed Ankara in H1 2012, has the highest retail density with a GLA per 1,000 inhabitants of 254 sq m, slightly over Ankara, the retail density of which was recorded as 252 sq m at the end of Karabük, Bolu, Denizli and Bursa are among other cities which stand out with high retail densities. Retail Density (sq m per 1,000 inhabitants) End 2011 End 2012 End 2015 İstanbul Ankara Karabük Bolu Denizli Bursa Trabzon Muğla Kayseri Mersin Turkey The retail density of Turkey is projected to reach 142 sq m per 1,000 capita in In line with the national figures, the retail density of Istanbul is projected to increase significantly and reach 324 sq m, remaining the most dense city in Turkey. Ankara is envisaged to follow Istanbul, with a projected density of 263 sq m in Other than Istanbul and Ankara, Isparta, Bursa, Karabük and Kırıkkale are estimated to stand out with high retail densities due to the pipeline projects that are currently under construction and due to be completed by Investment Following the lack of acquisitions in Turkey by global investors since 2009, investor activity was most certainly back in The retail market, due to the availability of institutionally acceptable assets, remained the major target for investors. While demand was not limited to a single investor type or a specific geography, the private equity and sovereign wealth funds have taken the lead. The confidence of global investors in the Turkish market was underlined by Blackstone s purchase of a shopping centre portfolio from Redevco. Blackstone, one of the world s leading private equity funds, closed the transaction during Q with an estimated transaction volume of approximately EUR 220 million. The portfolio included the existing shopping centres in Ankara, Erzurum and Manisa. Blackstone continues its operations in Turkey with the former management team of Redevco under the name of Qubicon, with plans to expand its existing portfolio with new acquisitions and possibly development projects.

12 12 On Point Turkey Real Estate Overview January 2013 The positive signal from Blackstone was further supported by the announcement on 12 December 2012 of the acquisition of 50% of Istanbul Optimum Outlet by Government of Singapore Investment Corporation (GIC) a sovereign wealth fund at a reported asset value of EUR 180 million. The centre on the Asian side of Istanbul was developed and 100% owned by Renaissance Group, the recent leading retail developer in Turkey. We believe that the market is likely to witness further retail transactions in These transactions signal that the significant pricing gap between local vendors and global investors witnessed over the last few years has largely closed due to adjustments in expectations on both sides. Global investors who are keen to acquire a stake in the rapidly prospering market have become more generous in their yield offers, while the local vendors, all of which are institutional in these transactions, have expectations broadly in line with global pricing levels. These transactions were also evidence of global investor interest beyond Istanbul. We hold the view that the prime shopping centre yield remains at 7%, although increasing investor demand and the upgrade of Turkey s credit rating by Fitch s to investment grade may result in compression in yield levels in 2013, but we expect that this will be limited. Prime Shopping Centre Yield (%) % This increased liquidity in the Turkish market will provide transactional evidence and an important signpost to pricing, the absence of which has acted as one of the major limitations on transaction volumes during the last few years. The expected endorsement of Turkey s investment grade by an additional rating agency in 2013 will further boost foreign investment. We believe that the investment market will be dominated by the acquisition of existing assets rather than development projects, although the latter still has potential provided that it is a high-quality project in a strong location. In this regard, development projects endorsed by internationally recognised designers/developers are the most likely development schemes that will be seen in the market in the medium term. Also it is our view that increasing floor space density and competition in the market will lead to a great potential for redevelopment opportunities.

13 On Point Turkey Real Estate Overview January Office Market Overview In this section the Istanbul office market will be analysed in terms of demand, supply and latest trends. Istanbul Office Market Occupier demand for Istanbul remained strong in 2012, with an increasing number of multinational firms establishing offices in Istanbul and the tendency of many national companies towards institutionalisation. Occupier demand has been especially strong for Grade A office buildings with efficient design and infrastructure. Ümraniye stands out as the most established office sub-market on the Asian side, attracting strong occupier demand. The sub-market poses competition to the CBD, with its good transportation links, high quality, modern supply and lower office rents. Especially Buyaka, which has become operational in the recent months, and has attracted significant attention from well-known multinational companies. Demand for other sub-markets on the Asian side, such as Maltepe and Kozyatağı, remains limited due to comparably lower quality of the stock except for a limited number of prominent projects. Strong occupier demand for prime assets, combined with the limited available space in the existing prime stock, has led to a landlordfriendly climate in the CBD. This reflects on the prime rent level, lifting the rent level to EUR 35 per sq m/month from EUR 30. However, the completion of the pipeline stock towards the end of 2013, the advantage of the landlord over the occupiers is envisaged to weaken. Major Office Sub Markets Prime Rent (EUR / sq m / month) , In Non-CBD Europe, Kağıthane stands out as a fast-developing office sub-market. Offering high potential with its strong access to the CBD and strong existing and pipeline Grade A office stock with comparably lower rent levels than those in the CBD, Kağıthane is emerging as a preferred sub-district by both national and multinational firms. Due to the increasing land prices in prime locations with strong accessibility and the altered zonings due to the Urban Regeneration plan, local owner-occupiers in central areas are considering more feasible options such as sell and lease back opportunities or developing offices on a less costly land, closer to the periphery. Also, simply disposing of their existing owner-occupied office to relocate into a cheaper office as a lessee remains common.

14 14 On Point Turkey Real Estate Overview January 2013 The vacancy rate of the Grade A offices in Istanbul increased slightly compared to end-2011, rising from 9.1% to 9.4%, mainly because of the completion of a significant amount of new stock, the leasing process of which still continues. During 2012, the vacancy rate in Asia surpassed the Non-CBD Europe due to the recently completed office stock in Ümraniye, Göztepe and Maltepe, and also the high take-up activity in Güneşli and Kağıthane. The vacancy in the CBD increased from 4.0% to 4.5% during Despite the very strong demand for prime assets in CBD, there is also a significant amount of relatively old stock which is not preferred by occupiers looking for prime office spaces. Vacancy Rate (%), CBD Office Clock, Q Amsterdam, Paris CBD, Warsaw Helsinki, Lyon Oslo, Stockholm, Stuttgart Berlin, Cologne, Düsseldorf Copenhagen, Hamburg, Moscow Munich London City, London West End İstanbul, Luxembourg, St. Petersburg Manchester Rental Growth Slowing Rental Growth Accelerating Rents Falling Rents Bottoming Out IP, January 2013 Geneva Milan, Zürich Athens, Lisbon Budapest, Madrid, Rome Barcelona, Dublin Bucharest, Brussels, Edinburgh, Frankfurt, Kiev, Prague % Existing Supply and Development As of end-2012, the existing Grade A office stock in Istanbul is at 3.1 million sq m, with a realised increase of 215,000 sq m during The CBD takes up the major share in the stock, accounting for 38%, followed by the Asian side at 35%. Non-CBD Europe remains below the other two at 27%.Compared to the same period last year, it is observed that the share of the stock on the Asian side slightly increased from 32%, while the share of CBD decreased from 40%. The take-up volume in 2012 almost doubled compared to 2011, increasing from 137,000 sq m to 240,000 sq m as of end Interestingly 53% of the take-up was realised on the Asian side, with the majority of lease transactions taking place in the Ümraniye, Kadıköy and Ataşehir sub-markets, indicating once again the likelihood of the new Financial District being developed in this vicinity of Istanbul. Followed by the CBD, which accounted for 30% of the take-up volume, the Maslak and Mecidiyeköy-Esentepe sub-markets were outperforming in this part of the CBD. Lastly, Non-CBD Europe accounted for 17% of the realised take-up in 2012, with strong occupancy in Bakırköy and Kağıthane. Some of the finalised transactions include the 2,600 sq m office in Olive Plaza, Maslak, leased by Bank Audi, the 4,200 sq m office in Buyaka, Ümraniye leased by Henkel, the 17,000 sq m office in Buyaka, Ümraniye, leased by Anadolu Group, and the 1,700 sq m office space in Garden Office, Merter, leased by Metro. Major recent completions in 2012 included the 28,000 sq m NidaKule in Göztepe and the A, C and E blocks of Buyaka in Ümraniye, which in total feature circa 60,000 sq m office space. Existing Grade A Office Supply Europe Sub Market GLA (sq m) ( 000) CBD Non - CBD 1, Asia 1,089 Total 3,125 Approximately 1.4 million sq m of office stock is currently under construction in Istanbul and due to be completed by the end of The Pipeline development is almost equally balanced in the three markets, CBD, Non-CBD Europe and Asia, ranging between 400,000 to 500,000 sq m. Once the expected pipeline stock is completed, the total Grade A office space in Istanbul is estimated to reach 4.5 million sq m in 2015.

15 On Point Turkey Real Estate Overview January Pipeline Grade A Office Supply* Sub Market GLA (sq m) ( 000) Europe CBD 405 Non - CBD 486 Asia 500 Total 1,391 *To be completed by end 2015 Ataşehir on the Asian side, Kağıthane in the Non-CBD Europe and Levent in the CBD are the noteworthy sub-districts with significant pipeline office supply. The 8,500 sq m Key Plaza in Şişli, the 12,000 sq m Propa office tower in Zincirlikuyu, the 40,000 sq m Zorlu Levent project, the 55,000 sq m Kristal Kule and the 33,000 sq m River Plaza, the office component of the Özdilek mixed-use project in Levent, are the major expected pipeline projects which are expected to start operations by end Investment The office market has increasingly become an attractive sector for global investors/developers over the last few years and this demand continued in However, the dominant market practice of strata sale is a major barrier and disqualifies many assets which otherwise would offer interesting opportunities for global investors. We are aware that there is strong interest from investment funds, private equity investors and real estate companies for income-producing office investments; however, they are disappointed by the lack of opportunities. The majority of transactions in the last few years comprised either the acquisition of vacant buildings, owner-occupier transactions or completion of development projects and as such do not provide benchmark pricing evidence. However, we expect that the current development pipeline, particularly those developments being completed by credible Turkish developers, will increase the number of institutional quality investment opportunities in the market in the medium term, thereby establishing evidence for yield levels. Despite the lack of transactions in the market, based on potential interest and initial negotiations, the prime yield is estimated at 7%. The Kristal Kule office development, located in the prime Central Business District and currently under construction, has been marketed and is likely to be the pioneering evidence in this arena. However, the transaction will possibly be concluded by a local owner-occupier. The lack of suitable existing assets in which to invest is increasing the attractiveness of development opportunities to the global investment community and developers alike. We know that some investment funds have been looking into development projects via partnership with local developers. There have not been any successful conclusions yet; however, this could be an option in the future to overcome the current market restrictions. The establishment of the pre-lease practice in the market should also attract investment via forward purchases. In our experience the lack of this practice has caused a number of transactions involving investment funds to fail during due diligence. Key Plaza Şişli, İstanbul Due to both strong occupier and investor demand we believe the office investment market will gain pace and achieve a notable share in the investment market. However, it should be noted that should the practice of strata sale in the office market continue in the long term, the market is likely to remain largely uninstitutional.

16 16 On Point Turkey Real Estate Overview January 2013 Logistics Market Overview The Jones Lang LaSalle survey of European supply chain managers reveals that Turkey expected to be the top emerging logistics location. More than a quarter of all respondents have ranked the country in their top three emerging locations across EMEA (Europe, Middle East and Africa). LogisticsMarket Index (%) , June 2012 Poland and Romania follow while respondents attributed strong potential to the Eastern Europe and Africa regions as a whole. Respondents ranked geographic location (83%), economic growth (81%) and political stability (68%) as the three most required attributes for an emerging logistics location. Required Attributes of European Supply Chain Managers for an Emerging Location Geographic location Economic growth Political stability Investment in infrastructure Large labour pool Growing trade volumes Turkey offers all attributes required to become an emerging logistics market. The geographic location bridging Europe with Middle Eastern, Asian and African countries is ideal for an international logistics hub. As the economy is growing strongly, based on a stable political framework, there have been and are still significant investments in infrastructure. A large and young population base offers a huge labour pool which is increasingly well trained, domestic consumer spending is on the rise and foreign direct investment has picked up significantly over recent years. Required Property Features of European Supply Chain Managers - Quality of Space Key Criteria for Occupiers New build Modern (build over last 10 years), June 2012 Functional second-hand space Lower grade Another finding of the survey shows that more than 75% of respondents require new-build (33%) or modern (44%) floor space, highlighting the importance of efficiency. Only around 20% of respondents consider functional second-hand space suitable for their business. Lower-grade space is scarcely considered, highlighting the increasing obsolescence of older space. Based on this finding, it is expected that the trend of older units remaining vacant over the next few years will increase significantly. Potential consumer spending Foreign direct investment Large of growing population Cheep labour pool , June 2012 %

17 On Point Turkey Real Estate Overview January Required Property Features of European Supply Chain Managers - Category of Facility Distribution centre >30,000 sq m Distribution centre 10,000-30,000 sq m Distribution centre <10,000 sq m, June 2012 Cross-docking facility Multi-user facility Assumptions and Goals for 2023 Population Foreign Trade Volume Exports Imports Domestic Trade Volume GDP Global Economy Rank Logistics Sector Share of GDP Logistics Sector Annual Growth (y-o-y) Logistics Infrastructure LPI Rank 84.5 M 1.1. trillion $ 500 Bn $ 600 Bn $ 1.19 Bn $ 1.7 to 2.0 trillion $ 10 th 10-12% 10-15% 6x 10 th Source: The share of railway transportation would be increased to 15% while the share of seaway transportation will increase to 10% from a level of 2.66%. Investment value to improve transportation and logistics infrastructure by 2023 is anticipated as USD 212 billion in total, to be covered 60% by the public, 30% by public-private and 10% by private institutions. Domestic Freight Transportation by Modes 2023 Share by Transportmode Ton-km Domestic Freight Highways Railways Airlines Maritime Pipeline Source: Share ,6% 4,8% 0,4% 2,7% 11,5% Share ,0% 15,0% 1,0% 10,0% 14,0%

18 18 On Point Turkey Real Estate Overview January 2013 For example, the government has an aggressive investment programme to expand the express train and motorway networks and to improve connections between major cities based on the 2023 targets. For example, the North Marmara Motorway project will connect Adapazarı to Tekirdağ via Istanbul, also involving the construction of the third bridge in Istanbul. The Marmaray Project is also a hugely significant transportation infrastructure project which will actually connect the European rail networks to the Middle Eastern and Asian rail networks. The improvement in transportation infrastructure is also helping global companies to consider Turkey as a regional hub. Due to the expanding economy, growing population, increasing international trade volumes and wave of privatisations, the logistics companies have been increasing their presence in Istanbul, Ankara and other growing emerging regional logistics markets. Logistics Supply Gebze, Hadimkoy and Tuzla remain the preferred sub-markets in Istanbul due to the easy accessibility, improving infrastructure and high-quality logistics developments. The rapid growth of the retail sector is envisaged to positively affect the logistics market in the short to medium term. However, insufficient supply, high land prices and land availability remain the main factors limiting the development of new supply and the volume of take-up. Major Logistics Sub - markets in Istanbul Based on the Transportation and Communication Strategy 2023, the government supports new logistics areas such as Logistics Organised Industrial Zones, Logistics Free Trade Zones, Logistic Villages by TCDD and Logistics Centres by the Ministry of Customs and Trade via new regulations and incentives. In line with these new logistics area developments, it is expected that the quality of logistics facilities will improve and new supply will enter the market in the medium term. Rental Outlook It is particularly challenging to determine rental levels in the logistics market due to the scarcity of transactions. Whilst occupier demand showed some recovery in 2011, this was not fully reflected in takeup volumes and rental levels. Based on realised transactions and our market experience, prime rental levels have remained stable in 2011 thus far, at around EUR per sq m/month. It has recently become more common to quote rents in USD, due to currency fluctuations. Recent asking rents have been observed at USD 6 7, indicating prime rents at USD per sq m/month. Smaller and low-quality units usually range between USD per sq m/month. In terms of sub-markets, the unit rent levels on the European side, at USD 6 7 per sq m/month, are slightly higher than on the Asian side, at USD per sq m/month. However, considering the positive outlook, rental levels are forecast to increase slightly in the medium term. In the secondary logistics markets such as Izmir and Ankara, rental levels have stayed broadly stable during 2011, at EUR 3 per sq m/month. Prime Rent (EUR/sq m/month)

19 On Point Turkey Real Estate Overview January Investment Market Investor demand for logistics development has significantly increased, particularly during the last two years. This was supported by the Jones Lang LaSalle EMEA Logistics Occupier Survey published in May 2012, which concluded that Turkey stood out as the highest rated emerging logistics market, followed by Poland and Romania, on the back of strategic location, economic growth, increasing trade volumes and booming retail market. However, our experience with potential transactions suggests that development projects remain unfeasible at the current land prices and market rents. These factors make the developments only feasible via a revenue share system or joint venture with the land owner. In the medium to long term, supported by strong occupier demand for internationally recognised Grade A warehouse space, we believe that the rent levels will start an uptrend to make development projects feasible and the market gain momentum.

20 20 On Point Turkey Real Estate Overview January 2013 Hotel Market Overview Market conditions have continued to improve since the last quarter of 2011, especially in İstanbul luxury market, with positive implications on trading. Trading - General Istanbul Market % Visitors During the January-December period in 2012, international arrivals to Turkey increased slightly by 1.0%. This is mostly due to the decrease in arrivals to resort destinations particularly from Europe. Additionally Greece, Spain and Egypt have started to offer attractive packages to increase their tourism revenues % 60% 40% 20% 0% ADR ( ) Yield ( ) Occupancy International Visitors to Turkey Source: Hotel Benchmark Survey STR Global, data not consistent 35,000 30,000 25,000 20,000 15,000 10,000 Istanbul Quality Market Set, which is composed of five-star internationally branded hotels in European side city centre, also enjoyed a slight RevPar increase in Euro terms, with EUR185.0 during January-December period in , Trading - Istanbul Quality Market Source: Ministry of Culture and Tourism Although there is a slight decrease at international arrivals to Antalya compared to last year, the city still continues to be the backbone of the Turkish tourism by hosting 32.4% of the foreign arrivals. A slight decrease was also observed at international arrivals to Muğla during the January - December period. Trading - İstanbul 2012 results show that the ADR and the RevPar of the hotels in the city have continued to increase compared to 2011, by 0.6% and 4.0% respectively in Euro terms by reaching Euro ADR and Euro RevPar levels % % % 60% 40% % % ADR ( ) Yield ( ) Occupancy Source: Hotel Benchmark Survey STR Global, data not consistent Although in 2012 there were less congresses compared to last year, Istanbul continues to be a hub for MICE business. According to ICCA, in 2011, Istanbul climbed to 9th place from 17th in 2009 by hosting 113 international conferences and congresses. The city was active in January-December 2012 period as well by hosting large events including the AWID, Pharmaceutical Technology and European Human Society of Embryology. Summary Year-end foreign arrivals reached above 31.7 million with above USD18bn tourism receipt.

21 On Point Turkey Real Estate Overview January Development Pipeline In terms of number of rooms, İstanbul is still dominated by five-star hotels. However, as Turkey does not follow international standards, some of these hotels may be considered four-star by international investors. As of December 2012, more than 2,600 new rooms entered the market and approximately 6,000 more rooms are expected to be added by the end of The graded room supply of Istanbul exceeded 36,400 by the end of the year, and the room stock is expected to reach above 44,900 by the end of Below graph indicates the supply and development trend. Le Meridien, Etiler - İstanbul Supply & Development - December ,000 48,000 46,000 44,000 42,000 40,000 38,000 36,000 34,000 32,000 30,000 28,000 26,000 24,000 22,000 20, f 2013f 2014f Existing Source: Istanbul Culture and Tourism Bureau & Jones Lang LaSalle Hotels & Hospitality Group Developments Martı, İstanbul Investment Although transparency for Turkey increased, still a majority of the deals for hotel sales, especially for small hotels and resorts, are done behind closed doors; therefore there is not enough data to calculate the yields. The most notable openings in 2012 were 259-room Le Meridien İstanbul Etiler, 116-room Rixos Pera, 92-room Ramada Asia, 195- room Radisson Blu İstanbul Asia, 212-room Renaissance Bosphorus, 210-room Wyndham İstanbul Kalamış Marina, 270-room Martı İstanbul and 231-room DoubleTree by Hilton Avcılar. There are rumours that the seven lands of the Kayseri Municipality were sold at an auction at TL3.3M. Additionally Gazi Paşa Municipality sold a land plot in Antalya to TL11M for a hotel development. The sales that are rumored in 2012 are: Hotel Location Grade # of Rooms Adam & Eve Antalya Amara Beach Resort Antalya Tatlıses Paradise Muğla Apart 49 Villas Apart Hotel (50% of the shares Hotels & Hospitality Group

22 22 On Point Turkey Real Estate Overview January 2013 Conclusion and Outlook Despite the economic slowdown in 2012, the Turkish economy still presented a stronger economic outlook compared to the other European countries. In line with the MTEP s goals, Turkey s inflation rate fell to its lowest in 11 months and decreased from 10.61% in January 2012 to 6.16% in December The Fitch s upgrade of Turkey to investment grade is expected to be further strengthened by possible upgrading by the other two rating agencies. The real estate market shall continue to be busy with the discussions of major projects like Istanbul Finance Centre, urban regeneration, 3rd bridge and New City projects. The availability of quality retail spaces has been one of the main motives for international entrants and also for the expansion of national brands. Strong shopping centres at premium locations with professional management significantly increase the appetite of retailers. Due to the increasing importance given to the effort ratios, the general trend among most retailers in 2012 was a more cautious approach to their expansion plans by demanding smaller-scale stores. It is expected the office market to gain pace and achieve notable share in the investment market. The Jones Lang LaSalle survey of European supply chain managers reveals that Turkey expected to be the top emerging logistics location. The geographic location of Turkey bridging Europe with Middle Eastern, Asian and African countries is ideal for an international logistics hub. In line with the results of the Jones Lang LaSalle survey of European supply chain managers, the government s vision for 2023 is positioning Turkey as a Global Logistics Transfer Hub, integrating all types of transport, minimising costs by shifting to seaway, railroad and intermodal/combined transportation. Due to economic uncertainty in Europe and attractive packages of other resort destinations such as Spain and Greece the foreign arrivals to the country have slightly increase. Although arrivals to Istanbul have increased gradually, due to the new supply entered to the market, there is a slight increase in ADR and RevPar. In line with the recent shopping centre transactions, it is expected that the market is likely to witness further retail transactions in In the office market, strong occupier demand for prime assets, combined with the limited available space in the existing prime stock, has led to a landlord-friendly climate in the CBD.

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24 Real value ina changing world Jones Lang LaSalle Turkey İstanbul Yeşim Sok. No:2 Akatlar - İstanbul Tel : + 90 (212) Fax : + 90 (212) Avi Alkaş, MRICS, SCSM, SCMD, CLS Country Chairman Tel + 90 (212) avi.alkas@eu.jll.com İdil Hamzadi Associate Director, Capital Markets Tel + 90 (212) idil.hamzadi@eu.jll.com Gün Gökkaya Manager, Offices & Logistics Tel + 90 (212) gun.gokkaya@eu.jll.com Nilgün Dil - Erman Executive Committee Chair Tel + 90 (212) nilgun.dil-erman@eu.jll.com Elif İzgi Topbaş, MRICS, DipSCM Associate Director, Advisory Services Tel + 90 (212) elif.topbas@eu.jll.com Burçin Yıldıran Sezen Manager, Advisory Services Tel + 90 (212) burcin.sezen@eu.jll.com Defne Gezen Vice President, Hotels and Hospitality Group Tel + 90 (212) defne.gezen@eu.jll.com Turkey Real Estate Overview - January 2013 OnPoint reports from Jones Lang LaSalle include semi annual highlights of real estate activity, performance and specialised surveys and forecasts that uncover emerging trends. COPYRIGHT JONES LANG LASALLE IP, INC All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them. Printing information: paper, inks, printing process, recycle directive.