Especially after the pandemic, the expansionary monetary policy implemented after the pandemic and the low-interest loans and easy access to credit maintained and even increased the mobility in the market. As in many sectors, prices have risen significantly in the real estate sector. In addition to residential real estate, the commercial real estate sector has also experienced the same increase, and rents have seen and exceeded pre-pandemic levels, especially in the office sector due to the tightening in supply we have recently experienced.
In the second half of 2023, as the Central Bank made disinflation its main objective and adopted a tight monetary policy, loan rates rose and access to credit became more difficult, leading to stagnant prices. While the interest rate hike significantly supported disinflation, it can also be expected to slow down growth. At the same time, the stable movement in exchange rates as a result of these decisions supports the confidence environment.
While foreign investors follow many market dynamics, one of the issues they pay the most attention to is the formation of a predictable market and whether decisions are taken in line with market dynamics. As of the second half of 2023, the transition to a tight monetary policy, policies supporting the transition from negative to positive interest rates, and the support and implementation of the decisions taken have led to a positive change in the perception of foreign investors. Although foreign investors were initially hesitant, they gradually started to invest small amounts in both the stock market and bonds.
If the current decisions continue, we can expect a noticeable decline in inflation in the next quarter and especially in the last quarter of the year. In tandem with the slowdown in economic activity, growth may also slow down. The important point here is that with the implementation of the decisions taken, positive results in terms of inflation, positive real interest rates and the strengthening of the TL will support foreign investors' appetite for investment in Turkey.
The positive real return on the Turkish lira and the inflow of FX investment into Turkey, driven by foreign investors in the stock and bond markets, will support disinflation.
Inflation is expected to peak in the third quarter. Afterwards, even if it comes down due to the base effect, no change is expected in the policy rate. Thus, foreigners may position in TL assets in the months when real yields will make some sense.
It is precisely here, in the period of disinflation and increased foreign interest, that we may experience a jump in the growth rate starting from the last quarter of the year and 2025 with the base effect. We have seen this many times in the past; these markets have supported foreign direct investment. In addition to the money market and the stock market, foreign direct investment will support the market positively.
At this stage, our expectation is that investments will shift from the securities market to the real estate market.
As of the end of 2023, the primary rate of return in the office sector was %8.25. In the first half of 2024, we expect it to fall to %7.5 - 7.75 and reach %7 levels towards the end of the year. This means the following: Office buildings have appreciated as a product and rental yields have exceeded real market yields.
At the end of last year, primary office rents were realized at 40 USD/m²/month +VAT and are expected to be 45 - 47 USD/m²/month +VAT by the end of the year. Another factor supporting this is the shortage of Class A office supply in the office sector. We see the most tangible results of the supply-demand relationship. Constant demand but limited supply has led to significant property appreciation and price increases.
As a result of the market we have followed up to this point, we can expect foreign investors to act with greater investment appetite in larger amounts with the continuation of the CBRT's policies with determination, the expectation that Turkey will be removed from the gray list in June 2024 and the increase in the credit rating.
The positive returns we see here, the acceleration of economic activity with the arrival of foreign investors, and indirectly the increase in company profitability will also positively affect the office sector. As a result of these effects, we can expect new office investments.