Investigating Istanbul Office Development Cycle

The role of the economic growth in influencing office rents and space demand has been analyzed in various studies, especially in the US and UK office markets. The equilibrium conditions between demand and supply is investigated and theoretical models, which help to explain some observed characteristics of the office-development cycle, is suggested in these studies. Following the 2001 economic crisis, office rents decreased sharply and vacancy rates increased in _stanbul office market. Office market has started to recover since 2004, and the rental level increased steadily and reached the level before 2001, in line with the economic growth. Especially second half of the 2007, average office rent has increased with approximately 50% growth rate. On the other hand, the office supply grew only 2% in the last year. Although vacancy rates decreased dramatically (almost zero in the CBD), there is still lack in new office construction. It is observed that the speed of office construction movement responses to changes in market fundamentals is behind to meet new office space demand. The aim of this paper is to investigate the underlying mechanisms of the development cycle in Istanbul office market. For this purpose, relationship between office space demand, new supply and rental movements is analyzed. The effect of economic growth on the office sector and the distinct behaviour of the office market during the last ten years are also examined.