As the impact of the pandemic subsided, the decision of most companies to return to the conventional working system has significantly increased the demand for offices. During the pandemic, new Class A buildings, which were built with advanced technology and meet clean air standards, came to the fore. This has increased the interest of tenants in old buildings in such new office buildings with Class A features.
On the other hand, due to the earthquakes in our country, tenants in older buildings have increased their interest in new and earthquake-resistant office buildings. It should not be overlooked that new foreign companies entering the Turkish market and growing companies continue to create new demand.
The basic economic principle of supply and demand is now reflected in office rents. 2022 was the year the market moved from being tenant-friendly back to balance, and it would be fair to describe 2023 as landlord-friendly. Last year the vacancy rate in Class A office buildings fell to its lowest level and rents kept rising. In Istanbul's Central Business District (CBD, Levent and Maslak) the vacancy rate was 18% in the third quarter of 2021. In the third quarter of 2022 it was 12.4%, and in the third quarter of 2023 it was 11.1%. By the end of 2023 vacancy had fallen to 10%. We expect it to drop to around 7% by the end of this year, which will create a serious supply shortage. In that case rents will move sharply upwards.
As of the third quarter of 2023, the highest rent level realized in the CBD region was 38 USD/m²/month +KDV in USD terms and 850 TL in TL terms. By the end of 2023, rental prices increased to 38-40 USD/m²/month +VAT in USD and 1,000 - 1,100 TL/m²/month +VAT in TL.
So what can we expect in 2024?
In 2024, we anticipate that vacancy rates will continue to decline and rents will continue to increase due to this decline and limited supply. We think that we will close this year with 45 USD/m² and 47 USD/m² levels may be seen in 2025.
It is worth underlining that with the Istanbul International Finance Center (IFC) entering the market in mid-2023, the supply of Class A offices has reached 7.4 million square meters. IFC has approximately 1.3 million square meters of office supply, of which 550 thousand square meters will be offered to the market for rent, excluding government institutions. It should not be forgotten that the Istanbul International Finance Center is in demand not only from the domestic market but also from companies abroad.
It will emerge as the most important office project in Turkey for 2024 and beyond, especially in order to meet the office needs of companies coming from abroad and our resident companies. All these data show us that the "Zoom era", which played a leading role in keeping business uninterrupted during the pandemic, is starting to be left behind.
