Turkey: Gateway to the East

With all the turmoil in the eurozone, not to mention our own well-documented economic problems, it is easy to forget that not all countries have been struck down by the global financial pandemic. With one foot in Europe and the other in Asia, Turkey recovered quickly from the 2008 crash and has been doing pretty well for itself over the last three years.

While Turkey took a hit like everywhere else, its return to growth has been remarkable, achieving GDP growth of 9% and 8.5% in 2010 and 2011 respectively. Turkish GDP in 2011 stood at £514, according to the World Bank. The Turkish government, the International Monetary Fund, the World Bank and the Organisation for Economic Cooperation and Development all predict that Turkey’s growth rate in 2012 will come out at around 3%: hardly frenetic, but sufficient to elicit envious glances from most European states, including Turkey’s western neighbour Greece.

It is therefore fitting that real estate opportunities in Turkey are to be placed in the limelight at the Mipim property exhibition in Cannes this week, where it has been declared the “country of honour”. Turkey’s deputy prime minister Ali Babacan and the mayor of Istanbul Kadir Topbaş are both due to attend and make the case for investment in the country’s real estate and infrastructure.

The UK’s politicians have taken note of the country’s promise and are keen to emphasise the opportunities that exist in Turkey for the UK construction industry. “Turkey is a country full of opportunities. It is Europe’s seventh largest economy and is one of the world’s largest markets,” says UK trade minister Lord Green. “There are many high value Turkish projects for the UK and Turkey to collaborate on.” The question, however, is just how accessible is the Turkish market for UK firms?

What work is out there

There is no doubt that the pipeline of developments coming forward is attractive. Turkey’s politicians will have a lot to talk about on the Riviera, with a series of development projects and programmes to promote. Perhaps most ambitiously, in response to the 2011 Van earthquake, when swaths of poorly constructed houses simply disappeared, the Turkish government announced a massive programme of regeneration in its main cities.

The Ministry of Environment and Urban Planning estimates that within 20 years, 6.5 million homes will have been demolished and rebuilt, using a mixture of public and private funding mechanisms.

Then there is the ambition to turn Istanbul into a global financial hub, with plans for the 3.2 million m², £1.7bn Istanbul Finance Centre in the Asian part of the capital, and the plan for a third bridge over the Bosphorus, the cost of which is also estimated at £1.7bn. Add to that a significant public private partnership (PPP) programme aimed at modernising the country’s health infrastructure and the possibility of Istanbul hosting the 2020 Olympic Games (the International Olympic Committee is expected to make its decision on 7 September this year) and Turkey has a significant development pipeline. So, how can UK firms get a piece of the action?

Stiff competition

While opportunities undoubtedly exist for UK firms, contractors will face significant obstacles if they are to secure contracts. Non-domestic main contractors in particular are unlikely to find a great deal of work in Turkey. The problem is that the Turks themselves are notably active in the building trade. “Turkey is absolutely jam packed with fantastic contracting organisations capable of delivering projects of a scale that we seldom see in the UK,” says Phil Hynard, a director at consultancy Davis Langdon . “They work all over the world.”

Peter Vaughan, director at architecture firm Broadway Malyan agrees. “I think that some of » » the world’s best contractors are Turkish,” he says. “To be simplistic about it, these guys seriously know how to make buildings. It would be a challenge for a major UK contractor to go to Turkey and start excavating and piling. They have a genuine expertise about that.”

Indeed, where non-domestic contractors have entered the market it has largely been through acquisition. For instance, in 2011, Soletanche Freyssinet, a subsidiary of French firm Vinci Construction, took a majority stake in Zetas in Turkey. According to a company spokeswoman, the acquisition gave Vinci immediate access not just to Turkey but other countries in which Zetas operated, including the United Arab Emirates, Saudi Arabia, Lebanon and Qatar, as well as the central Asian states of Azerbaijan, Turkmenistan and Kazakhstan.

However, none of this means that other parts of the supply chain can’t win work in Turkey. UK Trade and Investment (UKTI) is instead concentrating on introducing specialist contractors, consultants and architects to Turkish contractors and civic leaders. Just this week, UKTI’s East Midlands branch led a mission to Turkey focused on the rail and construction industries.

“We’re working on the basis that we’d like the firms to become part of the supply chain, to work with existing Turkish companies,” says Christine Johnson, an international trade advisor at UKTI East Midlands, adding that work with Turkish contractors can also open doors to other markets. “One reason for the mission is the contacts that those Turkish contractors have in the Middle East and North Africa,” she says. “It’s not just about Turkish contractors delivering in Turkey, it’s about them delivering in other markets as well.”

That means there are opportunities for consultants, as the likes of Aecom have already realised: back in 1997 it acquired local firm Ensr, and this was followed, in 2006, by the purchase of Savant, a UK firm with an established presence in Turkey. Aecom now has offices in Istanbul and Ankara and the business has a turnover of about £2.6m.

Who you know

An issue facing firms looking to secure work in Turkey is that public and private sectors alike understandably tend to award contracts to firms whose work they know well, which usually means Turkish firms. “In Turkey, like in a lot of central Asian countries, business is based on relationships, as opposed to purely on technical ability,” says David Whitehouse, regional managing director at Aecom. This also means that maintaining a presence in the country and building relationships is hugely important. “You need presence,” says Terry Davenport, director at architect BDP. “You can’t just bob in and out and pick up the odd project. You have to remain committed and maintain your contacts.”

But if foreign firms can demonstrate that they offer something over and above that which is available domestically, they can win work. “The Turkish public sector obviously prefers it if Turkish firms receive that investment internally, but they are open to foreign firms that can add the expertise that local firms can’t,” says Whitehouse. “So what you find is that there are a lot of joint ventures or consortium arrangements where you’ve got a Turkish lead contractor but they’re teaming up.” For example, Aecom and Scott Wilson formed a joint venture and in 2010 won a project management role on the construction of a suspension bridge across Izmit Bay in Turkey, which it is estimated will cost £694m . “One of the reasons that we’re involved in the bridge is because Turkey hasn’t built many of its own suspension bridges - it doesn’t have that expertise,” says Whitehouse.

And the attitude to foreign companies is changing, driven largely by Turkey’s desire to attract overseas investment into its real estate and infrastructure markets. This desire is obviously demonstrated by Turkey’s enhanced presence at Mipim this year, but more tangibly the Turkish government last year legislated to make it easier for foreign investors to buy up real estate assets. While the move hasn’t led to a flood of foreign money pouring into the country, there has been an increase in investment, notably from Gulf states, China and Singapore.

That has implications for international firms, particularly architects, looking to secure work in Turkey, as international investors tend to want to work with firms with an international reputation. “Local investors may have limited open tenders or closed tenders or just negotiate deals with who they think can deliver the job,” says Whitehouse. “But what you find often is that in the private sector, international investors will hold open tenders.” Hynard adds: “Turkey has been quite an inwardly facing country.

I think that there is a realisation now that they need to open up their markets because international investors want to see some names that they recognise.”
Open tenders and design competitions have certainly allowed some UK architects to enter the Turkish market. “We started on some fairly humble competitions for retail projects where our then clients were looking for international ideas,” says Broadway Malyan’s Vaughan. “We did a lot of concept work which generated projects and were then delivered by local teams. Then we expanded beyond that and began to win bigger projects.” Examples include the KoruFlorya shopping centre in Istanbul and a mixed use scheme for developer Eroğlu Property in Seyrantepe. The practice now has an office with eight people in Istanbul.

Piggy-backing into the Turkish market can also prove fruitful. For instance, architecture firm BDP currently has several projects in Turkey, which it was able to secure at least partly as a result of its role on the Forum Istanbul shopping centre project by the firm’s existing client Multi Developments. BDP director Terry Davenport says: “It was a major scheme via a major European developer. It was well received and was a big opening statement that we were able to run with and came about as a result of existing contacts.”

Identifying how a firm can differentiate itself from its Turkish competitors is only part of the battle, of course. UK firms need to be competitive in terms of cost as they are competing with companies from other European countries. “It’s a very competitive market and that level of competition has increased dramatically since we first established ourselves over there,” says BDP’s Davenport. “Many European practices are focusing on Turkey because of its relative strength. Spanish and Portuguese practices are the obvious examples. So it’s a congested market, but one where British design skills are recognised and appreciated.”

So, while there are significant barriers to entry into the Turkish market, the dearth of opportunities closer to home may make it an option worth exploring. There is, after all, a major pipeline of work which, if Turkey were to be successful in securing the 2020 Olympic Games, will grow substantially. Those firms with established contacts in the market that are lean enough to compete could well reap the benefits.