International investors eye Turkish retail sector with suspicion
Avi Alkas, Turkey’s chief executive at international real estate consultancy JLL, believes the retail sector’s current position in Turkey is difficult. Alkas said foreigners view Turkey as a discredited nation, saying, “I can say that we are seen as [a country that is] heading for the unknown.”
Alkas told DUNYA Executive that although the retail sector has grown through foreign investment in recent years such investments were based on a level of trust that is now waning. “Investors thought that when they invested here, they would be less affected by the exchange rate risk,” he said. “There were real contracts, not fake contracts. One is buying credit loans with foreign currency and then investing it, then when you say ‘let’s convert the rent into TRY’ it means you suddenly take the security off the investment.
“At the moment, there is no project to create a new equilibrium between tenant and proprietor to create sector balances. The goal is to keep the tenant alive. The emptiness in the shopping malls are infectious – if it starts growing it will spread.”
Foreign investors seek trust
Alkas believes foreign investors have reached a “wait and see” mode. “We should not peddle pessimism but the foreign investor wants trust. He wants to make sure that another new project will not be allowed next to his one shortly after his investment starts. He wants to rely on the legislation concerning construction. He wants the rules not to change when everything is already on course. We all have to work to attract foreign interest,” he said.
“We were going to bring MIPIM, the world’s leading property market, to Turkey, but unfortunately we couldn’t. We still wanted to sign a nationally participatory meeting to show it can be done. The Ministry of Environment and Urbanization supports it. We will bring industry stakeholders together for two days at this event where we will lead the way.”
Alkas believes the current Turkey-US tension will only reflect negatively on the sector. “It will never reflect positively. Right now, Turkey does not need crises. It needs to change its perception abroad as soon as possible,” he said. “The sector attracted serious foreign capital in a period of time. At first the courageous Dutch came, then the German funds arrived. We couldn’t attract Americans much.”
Many opportunities lie ahead
Alkas said there are opportunities ahead, stating that one of them is to open public land for use and the transformation projects for modern urbanization. “New house, new furniture, new home electronics, new curtains; they all mean a change in lifestyle. Besides, there are amazing opportunities with our neighbors. The Balkans are waiting for us. We have started doing business in the Middle East. The textile sector has gone into a ‘use and throw’ period. The logistics sectors prospects are increasing. There is an incredible advantage regarding Africa waiting to be taken by Turkey.” In addition, he notes that Turkish Airlines carries a great advantage, as well as logistics links and customs gate links being important for when Turkey starts selling goods in branded stores abroad.
Asked whether Turkey could rent in a different way to foreign brands compared with local brands, Alkas said: “This is highly important in Turkey. On account of the share of turnover, the rent from foreign brands is actually higher. If you buy 6% from a foreign brand, it is perhaps lower than the domestic brands, but the rent charged is higher.
“We are trying to make the necessary adjustments in order to make the tenant and the investor win. The sector must continue on its own internal balance without external intervention. There is a saying that ‘there cannot be as great inequality as equal treatment of the unequal.’ The sector is confused in this regard. Of course, renting over the currency is challenging the retailer. But none of the investors made their investments by foreseeing that foreign exchange would reach this level and must hedge themselves. The only solution to this problem is to strengthen our currency.”
Alkas said China represents another huge opportunity in the present climate. “China wanted to get advisory services from us and us to suggest a Turkish brand. We are now trying to bring the Chinese here and interest them as investors in Turkey,” he said. “We entered a turnaround in Turkey, where it became an opportunity to buy a shopping mall. Because investment appetite is declining now, there are bargain opportunities in the periods when mutual funds want to sell out with fear of depreciation. The Central Bank of China is greatly supportive. This is a hugely important door to jump into the African market that China is interested in.
He added that projections of 50 million Chinese tourists are being made, but wonders if Turkey is preparing thoroughly enough for that. “There are few places where Chinese tourists can eat. The Beymen Zorlu woke up, took on two Chinese-speaking staff. But our taxi drivers do not speak foreign languages. Another opportunity is Africa. The African market presents a serious opportunity but here we should not make the same mistakes as we did in Laleli. We need a campaign here. Today, the tourist who comes to my country and makes shopping from my trademark will make shopping more easily from the store of my country brand in his country tomorrow.”
In a broader perspective, JLL built three shopping malls in Erbil in Iraq, which it is still managing. “We have gained good money there and we are working on a project in Kirkuk these days,” he said.”But the area is in trouble. We have our men there but we cannot go there. The region has to stabilize in the end. I believe there are great opportunities for Turkish companies in nearby markets.
On a personal level, Alkas said if he retires from the industry, his pet project would be the Grand Bazaar, which he loves so much he would volunteer to work there. “Such an asset has the potential to be the center of the world. In Milan they present the Duomo as the oldest shopping mall in the world, we still can’t polish the Grand Bazaar as much as we need, and we can’t shout loud that it is one of the most beautiful places in the world. Why? Because we sell fake goods, which are indistinguishable from counterfeit goods.”