Retail Market in Georgia PREPARED FOR: 2017 CONTENT
Executive Summary 3
Country Profile 4
Business Environment 5
Economic Outlook 6
Tourism Overview 8
Retail Trade 13
Tbilisi Retail Market Overview 14
Batumi Retail Market Overview 21
Kutaisi Retail Market Overview 26
Conclusions and Outlook 32
Appendix 1 - Real Estate Registration and Construction Permit 33
Appendix 2 - Primary Information Sources, Data Used for the Study, Definitions and Assumptions 36
Disclaimer 38
Colliers Georgia at a Glance 39
Colliers Global Stats at a Glance 40
2 Colliers International Georgia EXECUTIVE SUMMARY
Retail floorspace supply accelerates and Tbilisi remains Georgia’s primary contributor In 2017, the total volume of retail floorspace in Tbilisi, Batumi, and Kutaisi amounted to 1.42 million sq m, reflecting a 12% increase when compared to 2016. The largest portion (79%) is found in the capital city. Though still dominated by bazaars, modern shopping centres continue to increase their share of the market year-over-year (y-o-y). According to the project pipeline, by the end of 2019, modern shopping centre floorspace will exceed that of bazaars. The grand opening of the much-anticipated Galleria Tbilisi shopping centre accounted for an additional 25 K sq m of space. Located in the heart of the city, the shopping centre offers variety choice of entertainment and leisure activities, such as cinema, bowling, food courts and fashion stores. The number of specialized shopping centres also rose by 110,000 sq m, due in large part to the opening of Tbilisi Sea Plaza. Batumi also experienced an increase in retail supply in the middle of the year, with the opening of Black Sea Mall and Metro City Forum which added another 20 K sq m total of modern shopping centre floorspace. In contrast with Tbilisi and Batumi, Kutaisi’s retail floorspace remained unchanged. Net take-up and the number of new entrants have increased In 2017, net take-up on Tbilisi’s retail market amounted to approximately 54,000 sq m, reflecting a 35% increase as compared to the previous year. This uptick was caused primarily by the opening of Galleria Tbilisi and the expansion of several brands. The fashion category holds the vast majority of the occupied area (31%), represented with new entrants such as H&M, CK Jeans, Lacosté, Trussardi, Karl Lagerfeld, Guess, and Armani Exchange. Expansion of the local DIY brand Gorgia accounted for an additional 8 K sq m in Gldani Plaza and City Mall Gldani. Batumi has seen a massive 12 K sq m absorption of retail area in modern shopping centres. The brand Carrefour opened their first location, while Goodwill opened a second branch. Before 2016, McDonald’s was the only international fast food retailer, but in 2017, several popular chains opened for business including Subway, Wendy’s, Dunkin’ Donuts, and Burger King. Increasing supply has affected performance indicators In 2017, weighted average rents fell slightly when compared to 2016. In modern shopping centres, the figure dropped to USD 14.6, and on high streets it fell to USD 28.7, due in large part to an increase in competition and large-scale absorption. On high streets, vacancy rates experienced a positive trend in Tbilisi and Kutaisi, while in Batumi there was an insignificant increase. Vacancy rates are decreasing in Kutaisi and Batumi, while being stable in Tbilisi The lowest vacancy rate in modern shopping centres was recorded in Tbilisi (15%), in spite of the addition of a new shopping centre. In Batumi and Kutaisi, the figure decreased when compared with previous years, but remained high at 29% and 30%, respectively. Vacancy rates experienced a notable increase on high streets of Tbilisi and Kutaisi, while in Batumi the growth was insignificant.
3 Colliers International Georgia COUNTRY PROFILE Background Georgia is the most active economic center in the region. With a liberal tax code, corruption free government, and significant opportunities for foreign investment, it provides a highly supportive business environment.
At the crossroads of Europe and Asia, Georgia borders Turkey, Armenia, Azerbaijan, and Russia. The country KEY FACTS occupies an area of 69,700 square kilometers (sq km) and is home to a population of 3.7 million people. The country’s land borders run a length of 1,839 kilometers (km), while the Black sea coastline is 315 km. During last two decades, Georgia has implemented large-scale reforms that have led to political and economic transformation. It has strengthened its democracy and furthered its relationship with the European Union (EU). Georgia has also made business development within the country a top priority through encouraging 3.7million sq km entrepreneurship, attracting private investments, and shifting tax incentives, thereby positioning itself as an 69.7K attractive option to the international business world. With its unique cultural heritage and exuberant hospitality, Georgia’s tourism industry continues to grow and POPULATION AREA thrive, further bolstering economic growth. Government CAPITAL CITY OF GEORGIA TBILISI Georgia is a parliamentary republic. Parliamentary elections are held every four years. Georgia’s parliament is located in Kutaisi City and acts as the representative body for the country, exercising legislative power and OFFICIAL LANGUAGE GEORGIAN developing domestic and foreign policy. As an executive council of government ministers, Georgia’s cabinet is CURRENCY GEORGIAN LARI (GEL) headed by Giorgi Kvirikashvili, who is a member of the majority “Georgian Dream Party.” Based on accountability, citizen participation, technology, and innovation as its guiding values, today’s government GDP PER CAPITA, 2016 3864.6 USD continues to make European and Euro-Atlantic integration a primary strategic objective. UNEMPLOYMENT RATE, 2016 11.8% Legal Framework AVERAGE MONTHLY SALARY, 2016 375 USD The Georgian Constitution, adopted in 1995, lays out the structure of the national government and defines its authority and function. Georgia’s court system has three branches: the Courts of First Instance (District or City LIFE EXPECTANCY 72.7 years Courts), the Appellate Courts, and the Supreme Court. The Courts of the First Instance have jurisdiction over all civil, criminal, and administrative cases. Decisions from the Courts of the First Instance may be appealed to the Appellate Courts and further appealed to the Supreme Court. Labor Market Overview As an alternative to litigation, Georgian laws allow arbitration both in local as well as international arbitration institutions. Georgia is a member of the International Centre for Settlement of Investment Disputes (ICSID). Georgia’s labor force comprises approximately 1,998,300 people. The Public service hall in Georgia provides customers with state services including business registration and unemployment rate is 11.8%, which is lower than the 14.8% average property registration through ‘one-stop-shop’ principle that ensures efficient service delivery. over the last decade. As of December 2016, 14.9% of the working population are employed by public sector, while 85.1% work in the non- Property Ownership & Non-Agricultural Lands public sector. Georgia’s labor force is well-educated, multi-lingual and relatively low cost. In Georgia property rights are recognized and protected by the Law. An owner has the right to possess, use and dispose of his or her property. The rights of individual owners to possess, use and dispose of land are regulated by the land legislation. There is no restriction on non-agricultural land ownership in Georgia. According to the Heritage Foundation Index, Georgia has substantial improvement in property rights and is 11% above the world average.
4 Colliers International Georgia BUSINESS ENVIRONMENT
International Rankings GLOBAL COMPETITIVENESS INDEX 2017-2018 Georgia has improved its status as a free economy thanks to its fiscal policy, regulatory efficiency, and open market policies. According to the World Bank’s Doing Business report 2018 , Georgia ranks 9th for ‘ease of doing business’ among 190 economies, 4th for ‘ease of starting business’, and 4th for ‘ease of registering property’. In 2017 Fitch Ratings has affirmed Georgia's Long-Term Foreign Currency Issuer Default Rating at 'BB-' with a Positive Outlook. Standard &Poor’s and Moody’s rated Georgia as ‘BB-’ and ‘Ba2’ respectively. Georgia has been among the top ‘most improved’ countries four times in the past 13 years. Registering a new business takes a maximum of two days and requires no minimum capital requirements. According to the ‘Heritage Foundation Index of Economic Freedom 2018,’ Georgia’s economy is categorized as Mostly Free, ranking 16th across 180 countries. Georgia remains the least corrupt country in the region. According to Transparency International, Georgia remains the top performer among the Eastern Partnership countries. Foreign investors in Georgia are guaranteed equal rights to those of Georgian citizens. After payment of taxes foreign investors are entitled to repatriate the earnings (income) gained from investments and other funds abroad.
Tax Climate Source: World Bank, Colliers International In order to attract investments and boost economic growth, an Estonian-type tax model was adopted in 2017 that exempts undistributed earnings from profit tax, and instead taxes distributed earnings only. Georgia has a liberal EASE OF DOING BUSINESS 2018 tax code that includes only six types of taxes: Profit Tax (15%), Personal Income Tax (20%), Value Added Tax (18%), Import Tax (0%, 5% or 12%), Excise Tax (on selected goods), and Property Tax (up to 1%). Georgia has 9 Double Taxation Avoidance treaties with 52 countries. Georgia Lithuania THE WORLD CORRUPTION RANKING, 2017 Latvia Belarus Moldova Romania 46 Armenia 59 Bulgaria 71 68 81 Georgia Azerbaijan Romania Turkey Bulgaria Belarus 107 Turkey Ukraine 122 122 76 130 Armenia Azerbaijan Moldova Ukraine
Source: Transparency International, Colliers International Source: World Bank, Colliers International
5 Colliers International Georgia ECONOMIC OUTLOOK
Overview
Georgian economy performed well in 2017; GDP growth picked up to 4.8%.This boost was largely driven by REAL GDP GROWTH double-digit export growth that worked to improve the trade balance. Based on preliminary data, it is estimated that the annual export rate grew by 29% year-over-year (y-o-y). According to the National Bank of Georgia’s %, year preliminary data tourism revenues grew by 27% and money transfers also increased by 20%, narrowing the 6.4 current account deficit. 5.5 As Georgia’s principal trade partner economies such as Russia, Iran, and the EU are recovering, we should expect 4.8 5.0 to see an increase in Georgia’s export capacity. Georgia has free trade regimes with countries of Commonwealth 4.6 4.5 of Independent States and Turkey; Georgia has already signed free-trade agreements with the EU (DCFTA), the 4.2 4.8 European Free Trade Association (EFTA) states, and China, and negotiations are currently underway for free- 3.4 trade with India. 2.9 2.8 3.6 According to the International Monetary Fund’s forecast, Georgia will maintain the economic growth at around 4- 3.3 5.5% in 2018-2021. The Georgian government is committed to fiscal sustainability and restraining current 2.9 3.0 3.0 spending. Therefore, the fiscal deficit is expected to narrow through 2018-20. 2.5 2.1 Exports 1.0 -0.1 Georgia’s leading trade export partners in 2017 were Russia, Azerbaijan, Turkey, Armenia, and China. Exports to 2012 2014 2016 2018 2020 the EU countries increased by 13% y-o-y and represented 24% of the total exports; exports to the CIS countries that rose significantly by 60% y-o-y amounted to 43.3% of the total exports. Georgia Caucasus F'cast Fast-growing Sectors Source: Colliers International, Geostat, IMF The fastest growing sectors during the first nine months of 2017 were construction (up 12%), hotels and restaurants (up 11.9%), mining and quarrying (up 7.2%), financial intermediation (up 7%), and real estate NOMINAL GDP STRUCTURE, 2016 operations (up 6.9%).
REMITTANCES, 2012-2017 CURRENCY FLUCTUATIONS (LCU PER USD), Y-O-Y % CHANGE 1,600,000 30% 90% 1,400,000 20% 1,200,000 70% 10% 1,000,000 800,000 0% 50% 600,000 -10% 400,000 30% -20% 200,000 10% - -30%
2012 2013 2014 2015 2016 2017
2017
2013
2015
2012
2014 2016 -10% Ukraine Azerbaijan Armenia Total Remittances, thousands USD (LHS) -30% Growth, y-o-y (RHS) Russia Turkey Georgia
Source: National Bank of Georgia, Colliers International Source: World Bank, Colliers International Source: Geostat, Colliers International
6 Colliers International Georgia ECONOMIC OUTLOOK
Foreign Direct Investment (FDI) FDI INFLOWS BY YEARS (mln, USD) Based on preliminary data FDI inflows in 2017 increased by 16.2% y-o-y and amounted to USD 1.86 billion (bn). FDI growth in the construction, and hotel and restaurant sectors accelerated by 114% and 58%, respectively. FDI is expected to remain high into the 2020s due to two factors. The first will stem from Chinese road and rail investments that plan to link with new, long-distance trade routes (boosting traffic via Turkey, 1,818 1,862 Azerbaijan, and Iran). The second increase is expected to come from foreign investors seeking to do 1,653 1,603 business in a low-tax, lightly-regulated regional base. Approval by the European Bank for Reconstruction and Development (EBRD) to finance the Nenskra Hydropower Plant project (HPP) and the offer of USD 1,023 1,021 285mln in extended funds from the IMF also worked to strengthen external financing assurances. Inflation 2012 2013 2014 2015 2016 2017* Although the headline inflation in 2017 was at 6%, above the central bank’s target (3%), inflation is expected to slow down starting in early 2018. According to the IMF, Georgia’s monetary policy rightly *Preliminary data places emphasis on price stability. In addition, reforms continue to support price stability. Georgia’s Source: Geostat, Colliers International Larization program has triggered the decrease in the dollarization of deposits and loans.
INFLATION, % 9.0
8.0 8.6% 7.0 16.3% Transport and Communication 10.1% 6.0 Headline Inflation Construction
Core Inflation 5.0 4.8% Financial Sector FDI BY SECTORS 15.8% Real Estate 4.0 2017 Energy 3.0 16.0%
2.0 Hotels and Restaurants Others 1.0 28.3%
0.0
Jul17
Jul15
Jul16
Jan17
Jan15
Jan18
Jan16
Apr17
Oct17
Apr15
Oct15 Apr16 -1.0 Oct16 Preliminary data Source: Geostat, Colliers International Source: Geostat, Colliers International
7 Colliers International Georgia TOURISM OVERVIEW Travel Volume to Georgia In 2017 the number of international inbound travelers grew by 18.8% y-o-y from 6.4 million to all-time high 7.6 million. The majority of visitors came from Armenia, Azerbaijan, Russia, Turkey and Iran. The number of international visitors from Saudi Arabia, Kuwait and Iran grew significantly in 2017 by 165%, 154% and 118% respectively. Visits from the EU countries also showed the positive trend. Visits from the U.K., Austria and INTERNATIONAL VISITORS 2012-2017 Netherlands were up 40%, 34% and 31% respectively. July and August remained the most popular months for 8.00 visiting Georgia. 7.55 7.00 In 2017 46% of the inbound travelers were tourists followed by same-day visit (32%) and transit (22%) 6.36 6.00 5.90 categories. Tourist arrivals increased by 27.9% over 2016 reaching 3.5 million visitors in 2017. According to the 5.39 5.52 5.00 World Travel and Tourism Council’s (WTTC) forecast tourist arrivals will amount to 8,056,000 by 2027. 4.43 4.00 Georgia also ranks 16th among 185 countries in WTTC ranking of ‘long term-growth of tourism and travel’s Millions contribution to GDP’. According to the Georgian tourism development strategy, Georgia aims to attract 11 3.00 3.48 million international visitors by 2025. 2.00 2.72 2.23 2.28 1.79 2.07 Citizens of 98 countries are allowed to travel to Georgia without visa and stay up to one full year. In addition, 1.00 foreigners who hold visa/residence permit 0f 50 countries enjoy visa-free travel to Georgia. Visitors who need 0.00 2012 2013 2014 2015 2016 2017 to obtain visa can take advantage of e-visa portal for getting the short-term visa. Simplified travel and visa free regimes build on the strong growth of inbound tourism. Tourist Arrivals International Arrivals
Road travel remains the main mean of transport for international arrivals due to the large share of Source: Georgian National Tourism Administration, Colliers International neighboring countries in the inbound travel. However, visits by airlines grew by 47% in 2017.
DYNAMICS OF TOURISM ARRIVALS FROM TOP 15 SOURCE MARKETS
Country 2012 2013 2014 2015 2016 2017 INTERNATIONAL ARRIVALS BY TYPES OF VISIT Armenia 921,929 1,291,838 1,325,635 1,468,888 1,496,437 1,718,016 Azerbaijan 931,933 1,075,857 1,283,214 1,393,257 1,523,703 1,694,998 8 Russia 513,930 767,396 811,621 926,144 1,038,750 1,392,610 18.4% 7 16.5% 1.7 Turkey 1,533,236 1,597,438 1,442,695 1,391,721 1,256,561 1,246,745 6 1.3 Iran 89,697 85,598 47,929 25,273 147,937 322,938 5 1.1 1.4 4.3% 1.2 2.4 Ukraine 76,610 126,797 143,521 141,734 174,858 193,002 SHARE OF MAIN 4 0.8 2.3
Israel 30,851 39,922 42,385 59,487 92,215 125,319 Millions 22.4% SOURCE MARKETS, 2.2 2.2 3 2.1 India 6,833 6,195 4,679 12,114 36,410 59,732 2017 15.6% 1.9 2 Kazakhstan 15,115 21,148 28,394 36,777 48,849 56,765 3.5 2.7 Saudi Arabia 1,169 3,780 5,485 9,850 21,257 56,247 1 1.8 2.1 2.2 2.3 22.7% Poland 20,563 36,946 46,314 41,425 44,436 52,284 0 Germany 26,448 30,815 33,446 36,826 40,915 51,445 2012 2013 2014 2015 2016 2017 Belarus 7,972 12,915 19,148 28,959 37,110 47,984 Armenia Azerbaijan Russia USA 28,513 26,713 28,272 31,147 34,250 42,645 Turkey Iran Other 24h+ Same-day visit Transit UK 14,805 16,672 18,586 19,233 19,198 26,852
Source: Georgian National Tourism Administration, Colliers International Source: Georgian National Tourism Administration, Colliers International
8 Colliers International Georgia TOURISM OVERVIEW
Economic Impact of Tourism TOURISM REVENUES, USD, BILLIONS Tourism industry accounted for 7.1% of Georgia’s economy in 2016. During the first 9 months of 2017 tourism value added grew by 13% y-o-y and amounted to 3.16 bn. Tourism value added reflects the economic activity generated by industries such as hotels, food and beverage (F&B), travel companies, airlines and other transportation services. Accommodation category that represents 19% of the total value added grew by 33% y- o-y through 9M of 2017. F&B industry was also up 10%. Tourism and Travel industry supported 102,650 jobs in 2016 that represents 15% of total jobs provided by business sector. Revenues from inbound tourism have been growing rapidly for the past five years. Based on preliminary data, revenues in 2017 rose by 27% y-0-y and amounted to USD 2.75 bn. The volume of foreign card operations by international travelers has also been growing steadily (+27% ) hitting 2.1 bn Gel in 2017. Spending volume should increase as Georgia continues to attract travelers with higher holiday budgets. It has been announced that the 18th World Federation of Tourist Guide Associations (WFTGA) international convention will be held in Tbilisi, Georgia from January 21, 2019 to January 27, 2019. The convention will bring together around 300-500 tourist guides from 70 countries. Hosting WFTGA will increase awareness about tourism in Georgia and will contribute to the development of tourism industry. Source: National Bank of Georgia, Colliers International
TOURISM VALUE ADDED, BILLIONS, GEL
22%
28% 4.00 7.4% 7.3% 3.50 7.2% 7.1% STRUCTURE OF 3.00 7.0% 7.0% TOURISM OUTPUT 2.50 9M 2017 19% 6.8% 2.00 6.7%
Billions 6.6% 1.50 6.5% 6.4% 1.00 32% 0.50 6.2% 2.62 2.64 3.07 3.51 3.73 2.80 3.16 0.00 6.0% Transport Food and Beverage Travel Companies Accomodation 2012 2013 2014 2015 2016 9M 2016 9M 2017 Source: Geostat, Colliers International Tourism Output (RHS) Share in total GDP (LHS)
Source: Geostat, Colliers International
9 Colliers International Georgia TOURISM OVERVIEW
Travel Purposes LENGTH OF STAY OF TOURIST ARRIVALS Number of guests in hotels has a positive trend during the past four years. Out of 2.54 mln hotel guests in 2016 1.7 mln were international travelers. 75% of them were leisure travelers, 21% visited Georgia for business 20% 4.00 18% 3.63 purposes and only 2% for the health tourism. Average length of stay of tourists in Georgia is 12 days. Ukrainian 19% 3.50 and Russian tourists tend to stay for the longest periods on average 15 and 12 days, respectively. As number of 16% guests in hotels is growing, revenues in hotel industry have increased to 519.8 mln Gel in 2016. FDI in hotels and 16% 3.00 14% restaurants during 2012-2016 amounted to 320 mln USD. 12% 2.50 2.17 12% Types of Tourism 10% 2.00 11% 1.73 8% Winter tourism is gaining momentum. Government is actively involved in the implementation of various 1.54 1.50 projects. Mestia-Hatsvali cableway construction was completed in 2017. Goderdzi ski resort in Adjara and 6% 1.19 Tetnuldi ski resort in Mestia were recently opened. Two cableways were added to Goderdzi resort. 1.00 4%
Wine tourism, adventure tourism and spa and wellness tourism are in their early development although they 2% 0.50 have a great potential. Government is planning to intensify work on developing medical tourism as Georgia can 0.25 11% 5% 0% 0.00 become quite competitive in the region offering lower prices to the customers. Georgia Bulgaria Moldova Lithuania Romania Estonia
Benchmarking International tourist arrivals (24+ hours) y-o-y growth rate 2016/2015
In 2016, tourist arrivals in Central and Eastern Europe grew by 4%. Many destinations enjoyed strong results, International tourism receipts (USD/billion) 2016 including Georgia (+19%), Bulgaria (+16%), Moldova (+12%), Romania and Lithuania (both +11%). Estonia recorded 5% growth. Source: World Tourism Organization (WTO), GNTA, Colliers International
HOTEL INDUSTRY REVENUES LENGTH OF STAY OF TOURIST ARRIVALS (AVERAGE DAYS)
700 3.00 13.2 13.0 12.9 600 2.54 2.50 12.6 500 12.4 2.00 21% 1.86 1.85 400 HOTEL GUESTS BY 1.50 75% 1.39 PURPOSE OF VISIT 300 1.26 2016 2% 1.00 200 8%
100 0.50 249.44 281.66 342.12 459.68 579.79 0 - 2012 2013 2014 2015 2016 2013 2014 2015 2016 2017 Leisure and recreation Hotel Industry Revenues, Gel, mln (LHS) Business Statistics are based on the data for tourists who stayed in Georgia more than Number of Guests in Hotels, mln (RHS) 24 hours up to 1 year. Source: Geostat, Colliers International Source: Geostat, Colliers International Source: Ministry of Internal Affairs
10 Colliers International Georgia TOURISM OVERVIEW
Domestic Tourism Air Travel In 2016, Georgian residents took a total of 12.96mln domestic trips. 46% of those trips included at least one Airlines carried 4.07 million passengers in 2017, up by 43% from 2016 overnight stay, with the average trip length being 2.2 nights. Residents of Tbilisi accounted for the largest according to the Georgian Civil Aviation Agency. Tbilisi International Airport share (28.3%) of the trips, followed by the residents of Imereti and Racha (21.3%) and Shida Kartli (10%) once again received the largest number of passengers, depicting a 40% regions. Majority of the domestic trips made by the Georgian residents were with the intention to visit growth compared to last year. At the same time, the number of passengers friends and relatives. The second and third most frequent purposes were shopping and medical care, in Kutaisi Airport increased significantly by 49%. Batumi Airport is also up respectively. Adjara was the third most visited region in 2016; since it is located next to the Black Sea, it was from 312,357 to 495,668 passengers. The number of incoming international the most popular holiday, leisure, and recreation destination. travelers in Batumi airport rose from 129,718 in 2016 to 208,845 in 2017, Domestic tourism is a significant part of Georgia’s economic activity. In 2016, domestic travel spending which represents a 61% increase. The number of international arrivals accounted for 71.8% of direct Travel & Tourism GDP. Total expenditure by domestic visitors amounted to increased by 47.5% and 19.6% in Tbilisi and Kutaisi airports, respectively. over 1.6bn GEL. Majority, 463.8mln GEL, was spent on food and drinks, followed by shopping (433.4mln GEL) There are 33 airlines operating in Georgian market offering passengers 43 and transportation (273mln GEL). Since 85% of domestic visitors preferred to stay at a friend’s, relative’s, or direct routes to 28 countries. The major airlines offering flights to Tbilisi their own home, spending on accommodation accounted for only 4.6% of the total expenditure. airport includes Turkish Airlines, Lufthansa, Flydubai, and Qatar Airways The 869,631 local travelers stayed in hotels in 2016. 58% of them for leisure and 28% for business purposes. list of airlines operating in Batumi airport include Turkish Airlines, Georgian Hotels in Tbilisi received 232,390 local guests , while hotels in Batumi and Kutaisi hosted 170,790 and 42,911 Airways, Belavia, and Air Arabia. Ones operating in Kutaisi airport include Georgian guests, respectively. Wizz Air Hungary and Ukraine International. Wizz Air is the leading low-cost carrier in Georgia. It currently offers routes to 11 countries and more connections to major European cities are on the way in 2018. Flights to Barcelona, Paris, Rome and Prague will be launched in May 2018. In addition, Flydubai added Kutaisi as its new seasonal destination. Flydubai 16.8% 12.3% will offer flights to Kutaisi airport starting from June 2018. The airline will 11.1% also increase the number of flights to Batumi airport from 4 to 7 per week. 4.6% Pegasus also increased the frequency of its flights to and from Tbilisi airport 1.7% from 7 to 9 per week. Affordable travel opportunities from European cities 26.7% 9.0% will boost inbound tourism even further. SHARE OF TOTAL PURPOSE OF NUMBER OF PASSENGERS RECEIVED IN AIRPORTS 2016-2017 EXPENDITURE 2016 VISIT 2016 6.8% 3,164,139 21.5%
4.7% 2,252,535 52.5% 3.6%
28.6%
Food and Drinks Shopping Visiting friends/relatives Shopping 495,668 405,173 312,357 271,363 Transportation Accommodation Health and Medical Care Holiday, Leisure, Recreation Cultural and Entertainment Service Other Visit to Second Home Business or Professional Other Tbilisi Batumi Kutaisi Photo: Kutaisi International Airport 2016 2017 Source: Georgian National Tourism Administration, Colliers International Source: Georgian Civil Aviation Agency, Colliers International
11 Colliers International Georgia TOURISM OVERVIEW
DIRECT FLIGHTS FORM GEORGIA MAIN FLIGHT ROUTES
Flight Origin Destination Duration (hours)
Tbilisi Baku 1.1
Tbilisi Tehran 1.7
Tbilisi Istanbul 2.0
Tbilisi Tel Aviv 2.1
Tbilisi Kiev 2.2
Tbilisi Moscow 2.4
Tbilisi Athens 2.6
Tbilisi Minsk 2.6
Kutaisi Vilnius 2.6
Kutaisi Budapest 2.7
Tbilisi Dubai 2.9
Tbilisi Warsaw 3.0
Tbilisi Riga 3.1
Saint Tbilisi 3.1 Petersburg
Tbilisi Vienna 3.2
Kutaisi Berlin 3.3
Tbilisi Prague 3.4
Tbilisi Almaty 3.5
Tbilisi Munich 3.6
Kutaisi Milan 3.6 Flight Duration Tbilisi Amsterdam 4.2 0 – 2 Hours Tbilisi Urumqi 4.5 2 – 3 Hours 3 – 4 Hours Tbilisi London 4.6 4+ Hours Batumi Istanbul 1.7 Batumi Kiev 2.0
Source: Georgian National Tourism Administration, Colliers International Source: www.flighttime-calculator.com
12 Colliers International Georgia RETAIL TRADE
Retail Trade
The retail trade (excluding motor vehicles and motorcycles) is one of the largest and fastest growing RETAIL TRADE TURNOVER AND NUMBER OF EMPLOYED sectors in Georgia. In 2016, retail trade turnover volume amounted to GEL 10.6 billion (at current PERSONS (MLN/GEL) prices). When compared to the same timeframe in 2015, this reflects an 8% increase. A massive 12,000 100,000 growth was recorded in 2013, when the figure increased by 20%. The number of employed persons 95,376 also grows steadily in the sector. In 2016, this figure amounted to 95 K, which reflected an 8% growth 87,983 10,000 compared to the previous year. 79,913 80,000
8,000 66,075 With an 81% share, Tbilisi dominates Georgia’s trade economy. The average annual growth rate of 63,637 the trade sector in Tbilisi was 12% during the last three years. Adjara and Imereti are other significant 60,000 trade regions with 6% and 3% shares, respectively. In Adjara and Imereti regions, the average annual 6,000 10,622 growth during the last three-year period amounted to 18% and 17%, accordingly. 9,591 9,862 40,000 4,000 8,132 Along with the development of the retail trade sector, annual per capita retail expenditure has been 6,792 growing over the last decade. Per capita retail spending has almost doubled from GEL 675 in 2006 to 20,000 GEL 1,321 (around USD 558) in 2016. In international comparison this figure remains low, which is 2,000 also reflected in its structure. The share of spending on food is very high (60% in 2016), but there is a clear evidence that the figure is decreasing (69% in 2006). 0 - 2012 2013 2014 2015 2016 Retail trade turnover (LHS) Number of employed persons (RHS) Note: Excluding motor vehicles & motorcycles Source: National Statistics Office of Georgia, Colliers International
GDP AND ANNUAL RETAIL SPENDING PER CAPITA (GEL) RETAIL TRADE BY REGIONS
10,000 1,400 9,146 8,551 7% 7% 8% 9% 10% 3% 3% 1,200 3% 3% 3% 5% 6% 6% 8,000 6% 6% 6,492 1,000 5,818 5,988 6,000 800 766 791 799 732 648 600 86% 4,000 84% 83% 81% 81%
400 360 319 333 336 2,000 264 200 167 181 198 186 130
- - GDP Per Capita (Current Prices) LHS On food, beverages, tobacco 2012 2013 2014 2015 2016 Other consumption expenditure On clothes, footwear and household goods Tbilisi Adjara Imereti Other Source: National Statistics Office of Georgia, Colliers International Source: National Statistics Office of Georgia, Colliers International
13 Colliers International Georgia Tbilisi Retail Market Overview 2017
Galleria Tbilisi TBILISI RETAIL MARKET OVERVIEW
Supply The total volume of retail floorspace in Tbilisi amounts to 1.12 million sq m. The largest share (34%) is RETAIL SPACE SUPPLY 2017 still held by bazaars and open-type markets. It is notable that bazaar floorspace is not increasing in contrast with modern shopping centres (MSC). Since 2015, the floorspace of MSC’s increased by 20% to 276 K sq m. In 2016, a third shopping centre was opened in the Gldani district, with a total gross leasable area (GLA) of 22 K sq m, doubling the district’s floorspace and boosting its competitiveness. In 2017, two much-anticipated projects - Galleria Tbilisi and Tbilisi Sea Plaza - were completed and opened for business. Located in the heart of the city, Galleria Tbilisi is becoming the area’s most MSC’s prestigious shopping centre. With the internationally-known Swedish brand H&M as its anchor, several upscale retailers including Calvin Klein Jeans, Lacosté, Trussardi, and Karl Lagerfeld fill 276 K Galleria Tbilisi’s 25 K sq m, stretching across seven floors. sq m The specialized shopping centres (SSC) sector also increased mainly with the opening of Tbilisi Sea Plaza (Hualing Mall). With a GLA of 110 K sq m, the shopping mall is classified as ‘very large’ Bazaars according to ICSC’s international standards. Today, the mall is mainly occupied by non-branded shops. 384 K Streets sq m Leasable area on high streets also rose. In September 2016, the newly renovated Aghmashenebeli 208 K Avenue was opened to the public. City Hall underwent reconstruction of its historical buildings and sq m restricted car traffic. The area is now largely comprised of restaurants, bars, and similar catering SSC’s tenants, and the location is becoming one of the most popular destinations among both tourists and locals. 256 K Over the next two years, the modern shopping centre supply is expected to grow by 29% as City Mall sq m Saburtalo undergoes expansion. The project’s GLA is around 57 K sq m, and is scheduled for opening in 2019. The Axis Shopping Centre on Chavchavadze Avenue will open in 2018. Located in the city’s signature project, Axis Towers, the shopping mall will comprise GLA 12 K sq m.
MODERN SHOPPING CENTRE SUPPLY PIPELINE (GLA/sq m)
355,485 276,485 230,933 253,384 142,952 170,933 127,237
2012 2013 2014 2015 2016 2017 2018-2019 F
15 Colliers International Georgia TBILISI RETAIL MARKET OVERVIEW
LIST OF EXISTING MODERN SHOPPING CENTRES
GLA Construction Investment # Shopping Centre Location Parking Lots Developer/Operator (sq m) Type Volume
1 East Point 2 Tvalchrelidze Street 71,780 1,900 Greenfield CBD Development
2 Tbilisi Mall 213 Aghmashenebeli Alley 69,566 2,700 Greenfield Rakeen Development
3 Galleria Tbilisi 2/4 Rustaveli Avenue 25,000 300 Greenfield Georgian Co-Investment Fund
4 City Mall Gldani 1 Khizabavri Street 22,097 850 Greenfield IG Development
5 Tbilisi Central 2 Station Square 17,300 120 Brownfield Riverside Plaza
6 Gldani Mall Near Akhmeteli M/S 11,561 - Greenfield Salkhino-93 USD 500 7 City Mall Saburtalo 1 Kavtaradze Street 11,184 250 Greenfield IG Development mln (incl.VAT) 8 Karvasla 7 Tsotne Dadiani Street 9,072 60 Greenfield Karvasla
9 Goodwill Didi Dighomi Parnavazi Street Cross 9,045 220 Greenfield TBC Bank
10 Gldani Plaza 14 I.Vekua Street 7,870 80 Greenfield Plaza+
11 Merani Shopping Gallery 42 Rustaveli Avenue 7,544 60 Greenfield Warwickshire Estates Limited
12 GTC 3 Vekua Street 7,500 - Brownfield Georgian Trade Center
13 HomeMart 37L Chavchavadze Avenue 6,966 50 Greenfield Ibercompany Irao
16 Colliers International Georgia TBILISI RETAIL MARKET OVERVIEW
TBILISI MALL
GLDANI PLAZA GOODWILL DIGHOMI GLDANI MALL CITY MALL GLDANI
CITY MALL SABURTALO DIDUBE MEGA TRADE CITY MALL SABURTALO TBILISI CENTRAL LEGEND AXIS SC HOMEMART KARVASLA Airport MERANI GTC EAST POINT Central Station GALLERIA TBILISI EXISTING MSC’s
UPCOMING PROJECTS
Upcoming Projects
GLA Construction Completion # Shopping Centre Location Parking Lots Developer/Operator (sq m) Type Date
Axis/Georgian Co-Investment 1 Axis Shopping Centre Chavchavadze Avenue 12,000 N/A Greenfield 2018 Fund
2 City Mall Saburtalo (expansion) 1 Kavtaradze Street 57,000 1,250 Greenfield IG Development 2019
3 Didube Mega Trade 2 Eristavi Street 10,000 300 Greenfield Didube Mega Trade N/A
17 Colliers International Georgia TBILISI RETAIL MARKET OVERVIEW LEASED RETAIL FLOORSPACE | 2017 NET TAKE UP BY CATEGORY (%/sq m)
39,637 53,626 Shopping Street Retail Centres 20% 232 K sq m 65 K sq m 23%
9% 8%
Other 10% Demand 9% Electronics In 2017, net take-up on Tbilisi’s retail market was around 54 K sq m, representing a 35% increase over 2016. This can be attributed to the opening of Galleria Tbilisi, 85% occupied at the opening date. Entertainment 12% 11% Catering In 2017, the Fashion category leased additional 31% of the occupied area. The tenants include several new entrants such as H&M, CK Jeans, Lacosté, Trussardi, Karl Lagerfeld, Guess, and Armani Hyper/Supermarkets Exchange. Also, brands like New Yorker, LC Waikiki, KOTON, Levi’s, Lee, Wrangler, OVS, and Household DeFacto expanded their chains in various shopping centres. 17% 18% Fashion The increase seen in the Household category was mainly caused by the local DIY brand Gorgia opening two stores in Gldani Plaza and City Mall Gldani, managing 8 K sq m in total. The Scandinavian-based JYSK also opened a second branch in Galleria Tbilisi. Carrefour and Goodwill bolstered the hyper/supermarket category by opening stores in HomeMart and Galleria Tbilisi and thus, occupying an additional 4 K sq m. Carrefour replaced Smart, a sizeable chain of hypermarkets in Tbilisi as in other regions, while the locally-owned supermarket brand 31% Nikora purchased the store chain Nugeshi. 31% The Catering category grew due to the rise in street retail on rehabilitated Aghmashenebeli Avenue, and the opening of new, global F&B locations including McDonald’s, KFC, Burger King, Dunkin’ Donuts, and Wendy’s in new shopping centres and in the Tbilisi Mall. The Entertainment category absorbed around 5 K sq m of modern shopping centre space, including a 2016 2017 third Cavea Cinema location as well as several new entrants such as Airsoft Arena, Zootopia, and Boom Boom. Source: Colliers International
TOP 5 OCCUPIERS IN SHOPPING CENTRES TOP 5 OCCUPIERS ON HIGH STREETS
11% 20% 17% 11% 11% 9% 21% 32% 10% 27%
Fashion Household Hyper/Supermarkets Electronics Entertainment Fashion Service Catering Health & Beauty Hyper/Supermarkets
18 Colliers International Georgia TBILISI RETAIL MARKET OVERVIEW
WEIGHTED AVERAGE RETAIL RENT (USD/sq m) Performance indicators
In 2017, the weighted average rental rate continued its decline. In modern shopping centres, this drop was caused 36.0 by an increased competition and the growth of larger-scale (anchor tenant) new agreements, like Gorgia (that 32.7 rented 8 K sq m in two different shopping centres), and Carrefour which absorbed another 2.4 K sq m in the 28.7 HomeMart shopping centre.
18.0 The decrease in high street rates can be attributed to the loss of branded tenants on Pekini Street and 16.3 Aghmashenebeli Avenue. Street retail lost its relevance, as shoppers showed a preference for visiting shopping 14.6 centres that offer a collection of varied shops and services in one locale. The most significant decreases were recorded on Aghmashenebeli Avenue (with a 10% drop), followed by Pekini
Street (5%), which were caused by the recent signing of new rent agreements and depreciation of exchange rate. 2015 2016 2017 In accordance with reduced weighted average rents, both the overall and individual high street vacancy rates fell. The lowest rates were recorded on Rustaveli Avenue and Pekini Street, while Aghmashenebeli and Chavchavadze Shopping Centres High Streets Avenues reported 8% and 11%, respectively. Though a new shopping centre was added to the market, the vacancy rate increased slightly to 15%. Due to the Note: Rent prices are net of VAT and service charge fact that almost 85% of GLA in Galleria Tbilisi was leased before opening. Source: Colliers International
VACANCY RATE
VACANCY RATE ON HIGH STREET
4% 4% 11% 8% 17% 15% 13%
PEKINI CHAVCHAVADZE RUSTAVELI AGHMASHENEBELI 9% 7% 7%
2015 2016 2017
Shopping Centres High Streets
Source: Colliers International
19 Colliers International Georgia TBILISI RETAIL MARKET OVERVIEW MAP OF HIGH STREETS IN TBILISI
HIGH STREET RENTS (USD/net of VAT)
RUSTAVELI USD 34.4
10%
PEKINI USD 33.9
5%
CHAVCHAVADZE USD 29.1
0%
AGHMASHENEBELI USD 24.9
10% LEGEND
Airport
Central Station
Metro Station
HIGH STREETS
20 Colliers International Georgia Batumi Retail Market Overview 2017
Batumi Mall BATUMI RETAIL MARKET OVERVIEW
Supply The total volume of leasable retail floorspace in Batumi amounts to 164 K sq m – 15% more than the RETAIL SPACE SUPPLY same figure in 2016. The retail supply is dominated by high street retail (46%). Bazaars and open markets occupy 25% of the supply, modern shopping centers and other shopping facilities have 24% and 5% of the share, respectively. With the addition of Batumi Mall (8.3 K sq m) in late 2016, Batumi’s shopping centre supply almost doubled as compared to 2015. In 2017, this figure was again doubled with the opening of Metro City Forum and Black Sea Mall, comprising GLA of 20 K sq m in total. Bazaars Batumi Mall was the first shopping centre in the city that provided shoppers with different retail categories spanning multiple floors. For example, a Goodwill supermarket is on the ground floor, 41 K sq m with household goods and furniture on the second, followed by fashion and footwear retailers at the top. The Black Sea Mall is a single-floor building and is anchored by Carrefour. Also there are represented fashion, catering and other category retailers. Streets Other With a GLA of 15 K sq m, the Metro City Forum is Batumi’s largest shopping centre, which is part of 76 K sq m SC'c the mixed use development project - Metro City. 8 K sq m Old Batumi, Gorgiladze Street, and Chavchavadze Avenue are the city’s primary high streets, offering visitors various attractions, cafes, restaurants, and fashion stores. Modern SC's 39 K sq m
MODERN SHOPPING CENTRE SUPPLY (GLA/sq m)
39,410 18,660 10,360
2015 2016 2017
22 Colliers International Georgia BATUMI RETAIL MARKET OVERVIEW RETAIL MAP - BATUMI
BLACK SEA
BATUMI CENTRAL
BATUMI MALL
BLACK SEA MALL
LEGEND
Airport
METRO CITY FORUM Central Station
EXISTING MSC’s
HIGH STREETS
GLA Parking Construction Investment # Shopping Centre Location Developer/Operator (sq m) Lots Type Volume
1 Metro City Forum 1 Lech & Maria Kachinski Street 15,000 220 Greenfield Metro Atlas Georgia
2 Batumi Central 3 Odysseas Dimitriadis Street 10,400 250 Greenfield Batumi Central LLC USD 45 mln 3 Batumi Mall 88a Gorgiladze Street 8,250 124 Greenfield House in Boulevard (incl.VAT)
4 Black Sea Mall 14 Shartava Avenue 5,550 120 Greenfield MP Development
23 Colliers International Georgia BATUMI RETAIL MARKET OVERVIEW
Demand NET TAKE UP BY CATEGORY (%/sq m)
In the past, the demand for Batumi’s retail space was dominated by local, non- 12,114 11,034 11,739 branded tenants. This trend began to shift in 2017 as new shopping centres opened, increasing the number of international brands available. 5% 12% 13% In 2017, net take-up amounted to 11.7 K sq m, representing a 6% increase when 6% compared to 2016. With Goodwill’s expansion and the entrance of Carrefour, which in total absorbed almost 4K sq m, most of the leased retail floorspace is held by 9% 8% hyper/supermarkets. 12%
The second largest category is Electronics (19%), the majority of which can be found 9% in high street locations. The Household category absorbed almost 2 K sq m (15% of 20% the market), with the opening of JYSK in Batumi Mall and Metromart’s 1.5 K sq m- 13% expansion playing leading roles. 15% The Catering category grew due to the entrance of several international brands including Subway, Wendy’s, Dunkin’ Donuts, and Burger King. 16%
28% 19% TOP 5 OCCUPIERS IN SHOPPING CENTRES 19%
36% 8% 7% 33% 5%
32% 36% Hyper/Supermarkets Household Catering Health & Beauty Electronics 28%
TOP 5 OCCUPIERS ON HIGH STREETS
2015 2016 2017 20% 16% 12% 14% Hyper/Supermarkets Electronics Other 12% Household Entertainment Service
Fashion Catering Health & Beauty Catering Service Household Health & Beauty Fashion Source: Colliers International
24 Colliers International Georgia BATUMI RETAIL MARKET OVERVIEW Performance indicators The weighted average retail rent on Batumi high streets remained stable at USD 13.2 per sq m, while in modern WEIGHTED AVERAGE RETAIL RENT (USD/sq m) shopping centres it rose by 9%. K. Gamsakhurdia and Chavchavadze remain the most prestigious streets, where average retail rental rates varies from USD 10 to USD 30 per sq m. Chavchavadze Street is primarily occupied by electronics and service tenants, 13.3 13.3 13.2 while K. Gamsakhurdia tends to attract more fashion, footwear, and catering stores. Similar to the weighted average rent, high street vacancy rates remained stable. At 29%, the same data in shopping centres is exceedingly higher, though it appears to be trending downward as compared to previous 11.2 years. 10.3 9.6
HIGH STREET RENTS (USD/net of VAT) 2015 2016 2017
Shopping Centres High Streets
K.GAMSAKHURDIA Note: Rent prices are net of VAT and service charge USD 16.9 Source: Colliers International
6% VACANCY RATE
51%
CHAVCHAVADZE 44% USD 14.2
7% 29%
10% 9% 11%
GORGILADZE 2015 2016 2017 USD 12.8
13% Shopping Centres High Streets CiGusta, Biblus Source: Colliers International
25 Colliers International Georgia Kutaisi Retail Market Overview 2017
Atu Duty Free – Kutaisi International Airport KUTAISI RETAIL MARKET OVERVIEW
Supply RETAIL SPACE SUPPLY As compared to Batumi and Tbilisi, Kutaisi’s retail market is the least developed. Existing modern shopping centres provide better facilities in comparison to bazaars. Additionally, the common practice of selling individual retail units makes investment opportunities more challenging. Kutaisi’s total leasable retail floorspace amounts to 130 K sq m, with modern shopping centres holding the majority of leasable area (37%). In 2017, the area of modern shopping centres remained unchanged and there are currently no future pipeline projects. Streets High streets are accumulating around 31% of the total supply. Kutaisi’s primary streets include 40 K sq m Chavchavadze Avenue, Gamsakhurdia, Rustaveli, and Old Kutaisi streets. High streets are primarily leased by service, fashion, health & beauty, catering and hyper/supermarket tenants. Modern SC's Other 48 K sq m SC'c 7 K sq m Bazaars 35 K sq m
MODERN SHOPPING CENTRE SUPPLY (GLA/sq m)
48,084 48,084 37,917
2015 2016 2017
27 Colliers International Georgia KUTAISI RETAIL MARKET OVERVIEW RETAIL MAP - KUTAISI
KARVASLA NOVITA
IBERIA STAR
LEGEND KUTAISI PLAZA GRAND MALL
Airport COMFORT
Central Station
EXISTING MSC’s GLA Parking Construction Investment # Shopping Centre Location Developer/Operator (sq m) Lots Type Volume HIGH STREETS 1 Karvasla 4-4a Tsereteli Street 10,200 60 Greenfield Karvasla Management
2 Novita 14 Tamar Mephe Street 10,200 80 Greenfield Novita Capital Partners
3 Grand Mall 67 Chavchavadze Street 7,500 50 Greenfield Bajiti LLC USD 25 mln 4 Comfort 67 Chavchavadze Street 7,000 50 Greenfield Comfort LLC (incl.VAT)
5 Kutaisi Plaza 47 Z.Gamsakhurdia Avenue 6,700 40 Greenfield Tegi LLC
6 Iberia Star 67b Chavchavadze Street 6,500 30 Greenfield Iberia Star LLC
28 Colliers International Georgia KUTAISI RETAIL MARKET OVERVIEW
Demand In 2017, net take-up on Kutaisi’s retail market amounted to 3.8 K sq m. When NET TAKE UP BY CATEGORY (%/sq m) compared to previous years, the figure shows a decreasing trend. Electronics consumed the largest portion, taking 64%. 6,419 4,323 3,831
4% 3% There are a limited number of international brands in modern shopping centres, 7% such as Koton and Flo. McDonald’s is Kutaisi’s only international fast food brand. 3% 6% 6% High streets are occupied by a wide variety of categories, including service 9% representatives (TBC Bank, Bank of Georgia, and micro finance organizations), 8% supermarket chains (Nikora, Foodmart, Green Market), international fashion brands 27% (such as LC Waikiki), electronic retailers (Elit Electronics, Metromart, Altaokay and 16% Megatechnics), and pharmaceutical companies (including Aversi, PSP, GPC, and 10% Pharmadepot).
12%
33% TOP 5 OCCUPIERS IN SHOPPING CENTRES
3% 4% 20% 64% 47% 19% 57%
Electronics Household Fashion Footwear Service 35%
TOP 5 OCCUPIERS ON HIGH STREETS
27% 13% 13% 10% 2015 2016 2017
12% Hyper/Supermarkets Electronics Other Household Entertainment Service
Fashion Footwear Health & Beauty Service Health & Beauty Catering Electronics Hyper/Supermarkets Source: Colliers International
29 Colliers International Georgia KUTAISI RETAIL MARKET OVERVIEW Performance indicators WEIGHTED AVERAGE RETAIL RENT (USD/sq m) Retail rents in Kutaisi range between USD 5-40 per sq m. The weighted average rent in modern shopping centres declined by 2%, while high street rates increased by only 1%. Old Kutaisi remains the most prestigious and expensive retail location. 14.6 Though the average vacancy rate in modern shopping centres has declined, the figure remains high, due in large 14.4 part to a significant number of vacancies in the Novita Shopping Centre. The vacancy rate in high streets remains 13.3 stable, averaging 3%. 12.1 11.8 11.2
2015 2016 2017
Shopping Centres High Streets
Note: Rent prices are net of VAT and service charge Source: Colliers International
VACANCY RATE
48%
39%
30%
5% 4% 3%
2015 2016 2017
Shopping Centres High Streets
Source: Colliers International
30 Colliers International Georgia RETAIL MARKET OVERVIEW Benchmarking As compared to 2016, the prime high street rental rate decreased by USD 2 per sq m to USD 56. The prime PRIME RENTS IN MODERN SHOPPING CENTRES shopping centre rental rate decreased by 8% to USD 33 per sq m. These figures are below the CEE average (USD/sq m per MONTH) by 2% and 44%, respectively. By the end of 2019, Tbilisi’s modern shopping centre supply per 1,000 inhabitants is expected to grow by 29%. This increase will likely be supported with further economic growth and consumer spending, thereby 65 making Tbilisi more competitively comparable with other Eastern European cities. 45 42 39 33
20 16 10
EXISTING AND PROPOSED MODERN SC SUPPLY (sq m per 1,000 INHABITANTS) AND Bucharest Riga Vilnius Sofia Tbilisi Zagreb Batumi Kutaisi
HOUSEHOLD FINAL CONSUMPTION EXPENDITURE per CAPITA (USD/CONSTANT 2010) Source: Colliers International
PRIME RENTS ON HIGH STREETS (USD/sq m per Riga MONTH) 9,261 664 814 70 65 60 56 Vilnius 55 10,574 40 552 552 18 17
Bucharest Zagreb Vilnius Tbilisi Sofia Riga Batumi Kutaisi
Source: Colliers International
Zagreb 8,274 608 627 LEGEND Bucharest 6,624 City 524 Household final consumption Sofia 524 expenditure per capita (USD) 5,158 Tbilisi Existing Modern SC 303 1,480 (sq m per 1,000 inhabitants) 2017 303 248 Proposed Modern SC 318 Source: World Bank, Colliers International (sq m per 1,000 inhabitants) 2019
31 Colliers International Georgia CONCLUSIONS AND OUTLOOK
In 2017, the retail supply in Tbilisi, Batumi, and Kutaisi increased by 12% (1.42 mln sq m) as new, high-quality shopping centres were added. In order for the investment market to evolve and attract international capital, new shopping centres must be retained as single entities and owner/developers should be deterred from selling individual units in a piecemeal approach. In recent years, this tendency has diminished in Tbilisi and Batumi, thus increasing investor interest. Tbilisi Tbilisi has the largest stock of modern shopping centre floorspace in Georgia, with a recorded 276 K sq m in 2017. With three new shopping centres in the pipeline, this number is expected to increase to 355 K sq m by 2019. High street vacancy rates fell to just 7%, while modern shopping centre vacancy rate rose slightly to 15% (on average). Despite the addition of modern shopping centres, 34% of Tbilisi’s retail stock remains in bazaars. Since 2015, Tbilisi’s modern stock has grown due to the addition of several high-quality shopping centres, all of which were virtually fully occupied at the time of their opening. Market competitiveness is seen most clearly in rental rather than vacancy rates. The increase in shopping centre revenue numbers reveals the market’s continued shift towards centralized shopping rather than street retail, as shoppers prefer having a wide variety of entertainment choices and leisure activities offered in one convenient location. Batumi Batumi’s retail supply is still dominated by high streets (45%) and bazaars (25%). However, with the opening of the Black Sea Mall and Metro City Forum, the modern retail stock increased by 15% to 39 K sq m. The addition of new, high quality shopping centres affected performance indicators, increasing the weighted average rental rate by 9% in shopping centres. This number is expected to grow in unison with the rise in tourism. In recent years, vacancy rates have declined, reaching 29% in 2017, which can be seen most acutely in Batumi Central. Kutaisi Kutaisi’s retail market remains less developed than those in Batumi and Tbilisi. The city’s existing modern shopping centres offer a variation of better facilities in comparison with bazaars. Selling individual retail units was a common practice in Kutaisi during last years, which reduced attractiveness of investment market. Modern shopping centres comprise 37% of the city’s retail floorspace, though the vacancy rates in MSC’s are high (30%) and rents remain largely unchanged. In contrast with its modern shopping centres, Kutaisi’s high streets are trading well, with a vacancy rate of just 3%. In 2017, supply numbers remain unchanged. Along with the increasing passenger flow through Kutaisi International Airport and the opening of several new internationally-branded hotels, tourism is likely to increase in near future, which will create an opportunity for additional supply of high quality retail stock.
32 Colliers International Georgia APPENDIX 1
Real Estate Registration and Construction Permit REAL ESTATE REGISTRATION AND CONSTRUCTION PERMIT
Application Submission Public Service Hall or territorial Property Acquisition office of National Agency of Purchase / Gift Public registry
Document Preparation Service Fee Payment Documents needed: - Within 4 business days - 50 GEL - Proof of identity document - Within 1 business day - 150GEL - Duly attested Purchase Contract / - On the day of application - 200 GEL deed of gift on immovable item
Property Registration In Georgia, the National Agency of Public Registry is the state institution responsible for the In the case the property being purchased from the state/municipality (privatization, auction registration of property, registering both transfers between private entities and state-owned or other form of purchase) the documents should be submitted directly to the Agency. properties. Times and fees for registration In case of private transfer, the purchaser has two options: • 4 working days upon the submitting of documents (ordinary time) - the day of • Via a notary - contract drafting and legalization by the notary and subsequent submission of documents is not counted - GEL 50 (registration fee per one property) + registration. The notary assumes responsibility for the content of the draft and its GEL 5 for certifying the document (GEL 5 per each document subject to submission) legalization. The presence of a translator and his signature on the bilingual purchase • 1 working day - GEL 150 + GEL 5 for certifying the document document is required and the translator assumes responsibility for the authenticity of texts. Time for preparation of the bilingual document and its legalization varies • On the day of submitting the agreement in the Agency - GEL 200 + GEL 5 depending on the notary Times and fees for renewal of public registry information • Via the National Agency of Public Registry - direct submission of the purchase contract Online for legalization and registration. In this case, the bilingual purchase document is to be • 1 working day - GEL 10 (USD 4.4) drafted directly by both parties or by their authorized representatives. The Agency’s • Same working day - GEL 40 (USD 17.6) representative certifies the signatures and may provide recommendations if the Justice House document is not accurately drafted, but does not carry any responsibility for the validity or its content. • 1 working day - GEL 15 (USD 6.6) • Same working day - GEL 50 (USD 22) • The National Agency of Public Registry is represented in: a) Public Services Halls (Tbilisi, Gori, Kutaisi, Batumi, Ozurgeti, Mestia, Zugdidi, Rustavi, Marneuli, Gurjaani, Telavi, Kvareli and Akhaltsikhe) and b) regional departments of the National Agency of Public Registry (located in cities throughout the country).
34 Colliers International Georgia REAL ESTATE REGISTRATION AND CONSTRUCTION PERMIT
Construction Permits Stage II 18 days for II and III class buildings For the purposes of construction, buildings are divided into five types: 20 days for all IV class buildings, for Bakuriani, Bakhmaro, Ureki-Shekvetili recreation st 1 class buildings - no construction permit is required; territories , for all buildings that require ecological expertise and for V class buildings. nd 2 class buildings - buildings with low risk factors; Stage III rd 3 class buildings - buildings with medium risk factors; 5 days for II, III and IV class buildings th 4 class buildings - buildings with high risk factors; 10 days for V class buildings th 5 class buildings - buildings with very high risk factors. Exceptions: The permit issuance process is divided into three stages: The special terms for permission process: Stage I - Statement of urban construction terms; Construction permits concerning: Stage II - Approval of architectural-construction project; III class buildings with an intensity coefficient up to 1,500 p/m2 and for buildings with a Stage III - Issuance of Construction Permit; height of up to the 14 meters that will be located on the territories where urbanization State organs responsible for the issuance of permits: regulatory plans do not exist and are organized according to land use or which are organized according to the perspective development regulatory plans on the territory of Tbilisi - the Local self-governmental (municipal) organs - for II, III class buildings within the municipal permission process may involve II and III stages only territory (at stages I and II) except from Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special regulatory zones on the territory of Borjomi. The simplified permit procedure may involve just two stages and the permit is issued in the second stage. Local self-governmental (municipal) organs - for IV class buildings (at stages I and II) with the participation of corresponding state organs The terms for the simplified procedure are as follows: Local self-governmental (municipal) organs - for II, III and IV class buildings (at III stage) Stage I - 12 days for II and III class buildings independently (including Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation 15 days for all IV and V class buildings, for Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special regulatory zones on the territory of Borjomi) territories and for all buildings that require ecological expertise. Tbilisi City Hall - for II, III and IV class buildings in Tbilisi Municipality (at all stages) Stage II (issue of permit) - 20 days for all classes independently Permission fees Corresponding local organs of Adjara Autonomous Republic and Abkhazia Autonomous The municipal organs determine the permission fees though the maximum limits are Republic - for II, III and IV class (at all stages) on the territory of the Autonomous Republics envisaged by the Law: Local self-governmental (municipal) organs - II, III and IV class buildings (at stages I and II) For all territory of Georgia - 1 (one) GEL (USD 0.4) p/m 2 of construction territory for Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special regulatory zones on the territory of Borjomi - with the participation of the Ministry of For construction of industrial buildings at resort areas- 5 (five) GEL (USD 2.2) p/m2 of Economy and Sustainable Development. construction territory Ministry of Economy and Sustainable Development - for V class buildings Exceptions: Ordinary terms per each stage (working days): Investors seeking the construction of hotels in free tourism zones and investing not less than Stage I 1,000,000 (one million) GEL (USD 440,494) per each hotel are exempted from paying the 10 days for II, III and IV class buildings permission fee. 15 days for Bakhmaro, Bakuriani and Ureki-Shekvetili recreation territories (excluding V class buildings), also for all buildings that require ecological expertise. 30 days for V class buildings
35 Colliers International Georgia APPENDIX 2
Primary Information Sources, Data Used For The Study, Definitions and Assumptions PRIMARY INFORMATION SOURCES AND DATA USED FOR THE STUDY
In the process of preparing the research, we were guided by the information provided by property managers, Gross Leasable Area of Shopping Centres: Gross Leasable Area of shopping centres is calculated based on owners, developers, governmental institutions (The National Agency of Public Registry, the National Statistics information provided by property managers, developers and owners, as well as by the National Agency of Public Office of Georgia, the National Bank of Georgia, the Ministry of Economy and Sustainable Development of Georgia, Registry. Shopping centre Karvasla comprises only 0 and 1 levels of the property. City Halls). Information from Colliers International EMEA office was used for benchmarking. The following web- portals were also used: Retail floorspace by categories: Retail floorspace by categories was calculated based on the information obtained from the National Agency of Public Registry. In those cases, where the mentioned information was not available, www.geostat.ge we were guided by the information provided by GREMIC (Georgian Real Estate and Investments Management www.nbg.ge Company). www.gnta.ge The Weighted Average Rent: Are calculated based on registered lease transactions in the National Agency of Public www.tas.ge Registry, unless otherwise indicated, and weighted by the space. All rents are calculated in USD /m2 per month net www.worldbank.com of VAT and service charges. Turnover based rents are calculated according to the information provided by retailers www.cia.gov and/or property managers.
Vacancy rate: is calculated as ratio of total vacant stock to total stock within the specified area. Definition and Assumptions Prime Rent: Prime Headline Rent represents the top open-market tier of rent that could be expected to be paid by EMEA: Europe, Middle East and Africa an in-line tenant in a shopping centre for a unit of standard size commensurate with demand (typically 250 m²), of FDI: Foreign Direct Investment the highest quality and specification (Grade A) in the best shopping centre in the market at the survey date. Prime IMF: International Monetary Fund Headline Rent should reflect the level at which relevant transactions are being completed in the market at the time GDP: Gross Domestic Product but need not be exactly identical to any of them, particularly if deal flow is very limited or made up of unusual one- GEL: Georgian Lari off deals. If there are no relevant transactions during the survey period, the quoted figure will be more hypothetical, based on expert opinion of market conditions, but the same criteria on building size and specification will still apply. GLA: Gross leasable area The rent should be quoted excluding service charges and taxes, and should not reflect tenant incentives. m2: Square metre USD: The United States Dollar Prime Yield: The yield an investor is prepared to pay to buy a Grade A building, fully-let to high quality tenants at an open market rental value in a prime shopping centre. Lease terms should be commensurate with the market e.g. VAT: Value Added Tax typically 5 years +. The size of the building should also be commensurate with the local market. Gross Yield is y-o-y: year over year considered in calculations. Gross Yield = First years' passing rent (i.e. net effective rent) / Property Price RHS: Right Hand Side (irrespective of transaction costs). LHS: Left Hand Side High Streets in Tbilisi: Pekini Avenue, Rustaveli Avenue, Chavchavadze Avenue and Aghmashenebeli Avenue with Marjanishvili Street are considered as high streets. Modern Shopping Centres: The term used in this report - ‘Modern Shopping Centres’ coincides the term ‘Traditional Shopping Centre’, defined by the International Council of Shopping Centre. Street Retail in Batumi: Chavchavadze Avenue, Pushkini Street, Gorgiladze Street, Streets located in historical part of Batumi and retail space adjacent to Hilton Batumi are considered in Batumi street retail figures. Gross Leasable Area of Bazaars: Gross Leasable Area of bazaars is calculated using GIS program by measuring floorspace on cadastral maps and deducting 10%. Street Retail in Kutaisi: Chavchavadze Avenue, K.Gamsakhurdia Street, Rustaveli Street and Streets located in historical part of Kutaisi are considered in Kutaisi street retail figures. Gross Leasable Area of Street Retail: Gross Leasable Area of street retail is calculated using GIS program by measuring ground floor space on cadastral map and deducting 60%.
37 Colliers International Georgia Disclaimer
Colliers International is a leading commercial real estate services company Established by the Ministry of Economy and Sustainable Development of operating in 67 countries, providing a full range of services to real estate Georgia, “Enterprise Georgia” is a legal entity of public law aimed at occupiers, developers and investors on a local, national and international basis. development of Georgian enterprises. As the first state-owned institution Services include brokerage sales and leasing (landlord and tenant mandated to facilitate development, growth and internationalization of representation), real estate management, valuation, consulting, project country’s private sector through use of different mechanisms, Enterprise management, project marketing and research, and a recently added GIS Georgia operates within its three pillars: EG – Business, EG – Invest, and EG services. Colliers International provides services across the following core – Export. sectors as well as many specialized property types: retail, office, hotel, industrial and logistics. As one of the EG Pillars, Investment Promotion and Support Divisions play a role of moderator between foreign investors and the Government of Georgia, ensuring that the investor gets different types of updated information and has means of effective communication with the Government bodies. The aim of the Invest division is to attract, promote and develop foreign direct investments in Georgia. It serves as a “One-stop- shop” for investors to support companies before, during & after investment process.
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38 Colliers International Georgia COLLIERS GEORGIA AT A GLANCE
5 100* MILLION GEL REVENUE FROM REAL MARKET & ADVISORY REPORTS ESTATE SERVICES 50 25,000 RUSSIA PROFESSIONALS VALUATIONS CONDUCTED BLACK 13 $2,9** SEA CERTIFIED IVS VALUERS TOTAL AGGREGATE VALUE OF VALUED PROPERTIES ** 2 $1.3 TURKEY RICS MEMBERS BILLION CONSULTING PROJECTS’ AZERBAIJAN TOTAL DEVELOPMENT VALUE ARMENIA
* Accomplished by team members during last several years ** 2015-2017 figure COLLIERS GLOBAL STATS AT A GLANCE
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