Quotes of the Day

On weekends, the line at Istanbul's Mangerie, a hip rooftop restaurant with views over the Bosporus Strait, stretches three stories down the stairs toward the street. On a recent Sunday, Defne Kocabiyikoglu, 28, a design consultant, and her boyfriend, Baran Baran, 30, a motion-graphics animator, were settling into a Turkish brunch of kasar cheese and sesame-sprinkled simit pastries and expounding on the fashion constraints of the city. While Kocabiyikoglu can get any clothes she wants—favoring fashion-forward labels like Roksanda Ilincic and Tina Kalivas, which she buys online and mixes with local finds, she points to her Chanel ballerina pumps and adds wistfully, "I'd love to wear higher heels, but you just can't. Have you seen the state of the sidewalks?"

Of course there's a lot more to look at than your feet in this ancient city, although the poorly maintained sidewalks and snarled traffic do explain why freewheeling Istanbullus—as locals here are known—prefer to get around by boat when they can. Newly reinvigorated by a burgeoning young population of trendy, extravagant professionals like Kocabiyikoglu, Istanbul is suddenly the focus of luxury-goods purveyors looking to expand in what up to now has been a small market. Fendi has three retail doors with a fourth on the slate, Louis Vuitton is expanding its small store on the Asian side of the Bosporus next year, while Dolce & Gabbana, Dior and Prada are all actively looking for appropriate sites on the European side.

For those with a taste for history, it should be no surprise that a young style maven like Kocabiyikoglu—who surfs style.com daily and currently has her heart set on a Christopher Kane minidress—is open to fashion forces from the wider world. After all, the city once known as Constantinople has been on trade routes since Byzantium. But Istanbul has experienced years of economic uncertainty, including Turkey's financial collapse in 2001, which analysts equate in severity to the U.S.'s Wall Street Crash of 1929. Fortunately, by 2005, inflation was brought into line and the Turkish currency—the lira—was revalued, offering a new stability.

"This is a market where (the customer) doesn't want what her girlfriend has; she wants something different," says Fendi ceo Michael Burke, who became intrigued by the Istanbullu consumer when he clocked Fendi's wholesale demand rising over $1.28 million. "The definition of luxury here is individuality, as opposed to the more Eastern approach which is, 'I'm buying to belong.' In the West, you are buying to be different. In that sense, Istanbul is Western—although of course, it's also the gateway to the East."

East meets West here in a multicultural, multifaith yet secular democracy dating from 1923, when Ataturk, one of the world's most influential political figures of the 20th century, proclaimed a republic after almost 500 years of rule by the Ottoman Empire. And although Istanbul is home to synagogues and churches and is also the capital of the Greek Orthodox world, the city remains predominantly Islamic. On the one hand, it is so liberal that during Ramadan fasting is considered a private choice and lunchtime joints are packed. On the other, the sight of women in head scarves, which had all but disappeared, has become increasingly familiar again, in large part due to massive migrations from the more traditional Eastern side of the country, which stretches to the borders of Iran, Iraq and Syria. Istanbul is now a huge city: no accurate census is available, but the population may be as high as 18 million, making it bigger than any city in the U.S. and with a geographical spread larger than that of Los Angeles.

When Fendi's Burke caught a plane to Istanbul last June just to take in the scene, he started in Nisantasi—known as the Beverly Hills of the city—checking out the fashion group Beymen's premier store. Most of the Fendi bags were sold out or back-ordered on waiting lists. Next, he headed to Kanyon, an architecturally splendid new development comprising living, working and shopping areas with sweeping, cantilevered elevations, broad thoroughfares and intriguing side streets.

"I was absolutely taken aback. I would have expected it in America or Hong Kong, not Istanbul," Burke says. "We don't have anything like it in London, Paris or Milan." Yet it is fitting that what is bound to become the prototype for a new era of shopping malls should be in the city that invented the concept. After all, the Grand Bazaar, the world's first covered market, has been trading since before Columbus landed in the Americas and contains some 4,000 shops, banks, cafés, a police station and a post office.

Kanyon's anchor store is the just-opened Harvey Nichols—the 10th branch of the London landmark—where Fendi's in-store boutique sits alongside those of Balenciaga, Luella, Sergio Rossi, Marc Jacobs and Ralph Lauren. What's striking is how attractive the store is, with hand-blown glass orbs suspended above the cosmetics counters, walls of black tiles studded with Swarovski crystals and floors of glittering mosaics. Fine Turkish workmanship is also evident in the personal-shopping suites, which include opulent sitting rooms, changing rooms and even shower rooms where customers can buy, bathe and have their makeup done before heading out for the night.

"I have to admit I was expecting a mystical city where my fiancé might have to cover up," says Brian Handley, the general manager of Harvey Nichols, who moved to Istanbul from Britain five months ago. "but the nightlife is incredible, and there's such a desire for fashion. They really push the boundaries and know all the Western brands. There's so much wealth, yet this is seriously undersaturated as a market."

Hussein Chalayan, a Londoner of Turkish-Cypriot descent with strong cultural ties to Istanbul, often finds assumptions about the city to be wide of the mark. "It's the New York not only of Turkey but of the region," he says. "Being next to water is liberating and makes it liberal—gay and lesbian scene and all. It's a cultural soup where one minute you could feel like you are in Paris, the next Cairo, then Moscow."

Originally from the capital city of Ankara, Kocabiyikoglu and her boyfriend had been living in London but chose to return to Turkey because, she says, "I felt it was pointless to be Turkish if I was going to miss out on Istanbul again becoming a city of the world. Many things are beginning here, whereas in London it is all very developed." Her dream is to open a fashion boutique with her sister Basak, who is currently an assistant buyer at the London specialty store Browns.

Fashion—in the form of one of Turkey's oldest brands—is what lured Demet Muftuoglu, 36, back to her hometown. Muftuoglu, who wears curvy Zac Posen dresses and Christian Louboutin heels, was living in New York City when she was offered the art director position at Vakko—loosely Turkey's equivalent of Burberry. She brought New York with her, in the form of seasonal collections for Vakko by Zac Posen. "I think we have even more fun than in New York because of the Bosporus. It gives us such energy," she says.

Ozdem Gursel, 35, a partner in Tabanlioglu, a local architectual firm that collaborated on the development of Kanyon, says her firm's workload has soared to include a number of loft-style living spaces as Turkey heads toward a Western mortgage system. (In the past, economic instability meant the only people who could buy homes were those with up-front cash.) "We have an expression here which means 'Work like a donkey, live like a person,'" says Gursel. "Turks are like the Spanish; we eat late, we stay up late and we start early the next day. But we don't have their tradition of siesta. We keep going."

There is no shortage of places to go. Entertainment entrepreneurs Levent Buyukugur and Berk Eksioglu, of the Doors Group, compare themselves to the Costes brothers in Paris and are the pioneers behind a swanky all-day diner, a kitchenette, a host of restaurants and the outdoor nightclub and sushi bar Vogue, which has spectacular water views and is named after the one fashion glossy that isn't yet in the Turkish market ("They want to come, but we have the name," says Buyukugur). The pair recently entered into the hotel market with Ajia, a bijoux boutique hotel on the Asian side, to which the speediest access is by boat.

"Istanbul is definitely undersold," says Ozlem Onal, 37, whose family business is hotels and who has worked as the night manager at the Mercer in New York City. "American bankers are coming here. They see all the ingredients: the clubs are full every night, we have a lot of stamina, we're anxious to pack in the world of fashion, technology, entertainment, movies. First-time visitors can't imagine how European we are, although I go to Asia every day. My gym is in Asia, so I take the boat."

Foreign investors are looking for "sexy deals," according to Muzaffer Yildirim, co-founder of a deluxe movie chain, Mars Entertainment Group, in which U.S. private international investment firm Colony Capital recently acquired a sizable stake. "It's very recent that direct investment came into Turkey," explains Markus Lehto, the managing director of Kanyon, who is well qualified to comment, given that he was formerly an investment banker in New York. "It was less than $1 billion two years ago and will be $15 billion this year and probably up to $25 billion next year."

Lehto recalls how aghast associates were eight years ago on hearing he was moving "to a Third World country. But there's been a huge surge forward in terms of modernization. People who never had a landline telephone have gone straight to cell phones; their first TVs are plasma screens. Things here are changing very fast and Istanbul is the locomotive pulling the rest of Turkey forward." (Turkey is also in long-term negotiations to join the European Union.)

There's energy in the arts too. The elegant Oya Eczacibasi (a member of one of the premier industrial families, equivalent to New York's Rockefellers in the 19th century) is the chairwoman of Istanbul Modern, which opened in 2004. Eczacibasi, who campaigned tirelessly for a museum of modern art, says it's important to emphasize that culture here did not stop at manuscripts and carpets. "We were very proud of our Ottoman past. Now we can be proud of our present and our future," she says.

Still, the Ottomans are certainly back in style. There's the funky T shirt label, Ottoman Empire, which features groovy graphics of sultans and taglines like the empire strikes back. The latest hotel, Les Ottomans, looks as if it has been there since the days of the empire but is in fact a new building with interiors by designer Zeynep Fadillioglu, a striking 51-year-old who wears Rick Owens clothes and is responsible for the look of some of the city's smartest restaurants and bars.

Fadillioglu, who grew up on the water, is first cousin to fashion designer Rifat Ozbek. Now the designer for Pollini in Milan, Ozbek is thrilled that his hometown is back on the style map. "I love that it is once again one of the world's great cosmopolitan cities," he says, "and with such a young energy and so many incredible places to go."

The latest project for his cousin is not another bar, however, but a mosque that is being privately funded. "Yes, people are surprised that a woman has been chosen, because some think that Islam is all about male power," says Fadillioglu, who aligns herself with the liberal side of the faith. "There is nothing about covering in the book," she explains, when quizzed about why many Muslim women here do not cover up and are passionate in their freedom not to do so, while other women, including the Prime Minister's wife, are equally insistent on wearing a head scarf.

Merve Yesilada, 22, who is working on a soon-to-open gallery and design store, Haaz, with interiors by Sami Hayek (brother of Hollywood's Salma) was having breakfast at the laid-back Assk café, right on the waterfront, with her friend Lerna Tutunciyan, 29, who works as a production assistant. Talk turned to head scarves, a particularly thorny issue given Turkish history. (While the traditional male Islamic headgear, the fez, was banned by law in 1925, the head scarf had simply fallen out of use.) Yesilada, who loves to mix Marc Jacobs and Gucci with TopShop pieces, thinks that head scarves should be tolerated. "After all, I wear hats. But I get concerned when I see someone veiled in black," she adds. "That's just not what this country is."

Erdem Moralioglu, a Canadian of Turkish descent whose Erdem label is sold at Harrods in London and Barneys New York, says the thing one always has to keep in mind about Istanbul is that for everything you think you've learned, you'll find the opposite to be true. "It's about the dichotomy of contrast, old and new, cosmopolitan and yet so ancient. I remember as a boy getting lost in the bazaar and then stumbling into a McDonald's."

• MARION HUME