Tbilisi | Real Estate Market Report 2014 Contents
Executive Summary 3
Georgia - Country Profile 5
Tbilisi – City Profile 7
Tbilisi Retail Market Overview 8
Tbilisi Office Market Overview 13
Tbilisi Hotel Market Overview 18
Tbilisi Residential Market Overview 22
Tbilisi Warehouse Market Overview 30
Tbilisi Entertainment Industry Overview 37
Appendix 1 45
Typical Lease Terms, Registration of Property, Construction Permits
Appendix 2 58
Primary Information Sources, Data Used for the Study, Definition and Assumptions
Appendix 3 57
Investment Indicators
Disclaimer 64
Project Team 65
About Colliers International 66
Contact Information 67
2 TBILISI | REAL ESTATE MARKET REPORT 2014 Executive Summary
Retail Market Comprehensive Free Trade Area (DCFTA), which is a core part of the The total amount of retail space in the three main Georgian cities accord. During the next few years we expect significant growth in the amounts to around 1.1 million sqm, out of which 80% is concentrated in MICE segment, while numerous workshops and conferences will be Tbilisi. organized in the framework to implement the Association Agreement. During the last two years the total volume of shopping centre supply in As of the first half of 2014, seven international hotel brands (Sheraton, Georgia grew by 28% approximately and currently amounts to 292,000 Radisson, Marriott, Courtyard by Marriott, Holliday Inn, Citadines apart sqm. Growth has mainly been driven by developments in the capital, hotel and Best Western) are represented in the Tbilisi hotel market. The Tbilisi. After the opening of the country’s first large modern mall in 2012 share of international upscale brand hotel rooms in Tbilisi is only 11% (Tbilisi Mall), the next major scheme (East Point) will start operations at and international midscale brands occupy 17% of total supply. the beginning of next year. Although Georgia has one of the lowest figures for international tourism The prime high street rent in Tbilisi is around USD 60 per sqm, which receipts per capita among selected countries, it has the highest growth exceeds several Eastern European cities (Tallinn, Riga, Sofia, Tirana, rate during recent years. The average y-o-y growth rate in Georgia 3 Vilnius, Bratislava), but is 27% less than the average CEE figure. amounted 28% during 2010-2013. Middle class hotels in Tbilisi have better performance indicators than several eastern European cities like The estimated prime retail yield in Tbilisi is 13% for shopping centres and Riga, Bucharest, Vilnius and Zagreb, where average daily rate and 12% for street retail, which exceeds average CEE figures (8.6%-9.1%) average occupancy rates for selected cities are respectively 10% and 8% significantly. less than the same figures for Tbilisi. Office Market Residential Market The total amount of office space in five Georgian cities amounts to Ongoing and pipeline residential project in Tbilisi amounts almost 2.9 around 1.05 million sqm, out of which 85% is concentrated in Tbilisi, and million sq. m. under construction. During next two years supply will rise the rest in regional business cities. During the last few years the total by 16,000 dwelling units and amount 360,000 sqm. In the last two years, volume of business centre supply in Tbilisi has grown by 15% and strong demand has resulted in stalled projects being resumed. currently amounts to 183,312 sqm. Registered purchase transactions are following a positive trend in Tbilisi. The prime rent in Tbilisi is around USD 21 per sqm, which is the least of The average growth rate of selling transactions during last two years was Eastern European cities and equals the average CEE figure. 9% in Tbilisi. The volume of registered transactions amounted USD 829 By 2014 the average modern business centre vacancy rate in Tbilisi million. The average growth rate was 10%. 2014 is expected to see an stands at around 7%, which has been declining gradually after the increase in transaction volume of 4% in Tbilisi (USD 860 million). highest rate in 2010 (25%). During 2010 – 2011, the growth rate of mortgage lending amounted 39% Total modern stock in Tbilisi accounts for 334,800 sqm of which 151,486 and the volume of issued loans reached USD 314 million. In 2012 a 34% sqm (45%) is owner-occupied. Big companies in Tbilisi prefer to build decrease was observed in comparison with the previous year. In 2013, office buildings for themselves, which are fitted to their needs, rather due to the marketing campaigns of commercial banks and reduced than rent one in a business centre. interest rates the volume amounted USD 416 million. Comparing the first Hotel Market nine months of 2014 to the same period in 2013, the growth rate stands at 68%. During the last three years the number of non-resident visitors in Georgia increased annually by 40% on average. At the same time, the number of The average residential real estate selling price in Tbilisi grew from USD international tourists1 experienced an average annual growth of 25%. 826 per sqm in Q1 2012 to USD 835 per sqm in Q3 2014. Compared to These figures peaked in 2013 reaching 5.4 million of total international the same figure in Q3 2013, the average selling price in Tbilisi remained visitors and 2.1 million of international tourists2. Fast growth in demand, unchanged. coupled with slower hotel room growth (12% annually), resulted in increased occupancy rates, especially in Tbilisi, where brand hotels are now achieving an average occupancy of 75%. In June of 2014, the Association Agreement between Georgia and the European Union was signed. This agreement aims to expand political and economic relations between Georgia and the European Union, and to gradually integrate Georgia into the European Union’s Internal Market. The Association Agreement includes the set up of a Deep and
1 Number of international arrivals excluding same-day visitors 2 Tourist is a person, who stays for more than 24 hours 3 International midscale brand hotels together with local upscale/middle class hotels
3 TBILISI | REAL ESTATE MARKET REPORT 2014 Warehouse Market The Government of Georgia is actively seeking to hold international sports The total volume of warehouse space in Georgia amounts to around 1.8 tournaments in the country and some of them are already planned, such as million square metres, of which around 1.2 million square metres is owner- The Youth Olympic Games 2015 and the UEFA Super Cup 2015. The occupied and the remainder is leasable. The largest share of total leasable country’s main stadiums and sports complexes are concentrated in the space is located in Tbilisi - 61%. capital Tbilisi (Boris Paichadze Tbilisi Dinamo Arena, Mikheil Meskhi Stadium and Tbilisi Sports Palace) which will see the development of new From the 379,000 square metres of leasable warehouse supply, 89% is dry sport facilities, such as the new rugby stadium and a new tennis complex. storage and 11% cold storage. The total capacity of cold warehouses in Tbilisi is around 170,000 tons. The water entertainment industry (Aqua park and swimming pools) is The broad categories with the highest occupied space are food and actively developing in Georgia. The recently opened Gino Paradise and the beverage, representing 42% of occupied space in listed warehouses and Euro Park are main players in the country. Completion of a new swimming building materials - occupying 14% of stock. Transport companies take up pool for the Youth Olympic Games 2015 is planned next year. Health and to 13% of space. well-being becomes more popular in Georgia, especially in Tbilisi. Aspria Fitness is actively expanding its chain. The warehouse market in Tbilisi is more developed than in other Georgian cities. The only A class warehouse storage in Georgia with a leasable area The major amusement parks of the city is Mtatsminda Park. Tbilisi also of 10,000 square metres is the recently developed facility by Gebrüder offers botanical garden, zoo and several recreation parks. The Weiss near Tbilisi Airport, which was fully occupied at the date of this relocation/expansion of the Tbilisi Zoo and renovation of Park Mziuri are research. The company plans to develop an additional 37,000 square the major planned projects in the near future. metres as a second phase of development. Tbilisi is one of the visited destination of the county. Red-tiled roofs, narrow Entertainment Market streets and ancient buildings as well as modern architecture buildings The government is actively supporting the development of the gambling impress visitors from around the world. Tbilisi offers visitors unique cuisine, industry, which gives Tbilisi a competitive advantage in the region. The gambling, sports and leisure opportunities. gambling industry accounts for about 70% of the entertainment industry’s The restaurant market is the most developed sector of the Gastronomic total turnover, which equalled 1.2 billion GEL in 2013. industry in Tbilisi. The Modern Café-Bars, night clubs and international During the next two years several new projects are planed in the city, Tbilisi cuisine market is growing fast. Fine Art Museum, the refurbishment of the Tbilisi Opera house, relocation of Tbilisi zoo are the major planned projects.
4 TBILISI | REAL ESTATE MARKET REPORT 2014 G & A Logistics, Tbilisi Georgia – Country Profile
Introduction 83.8% of the Georgian population are Georgians by ethnic origin. The Georgia is located between Asia and Europe and occupies a land area of second largest share are Azeri – 6.5%, followed by Armenians – 5.7% and 69,700 sq. km. It neighbours Turkey to the southwest, Azerbaijan to the Russians – 1.5%. east, Russia to the north and Armenia to the south. Recent Developments Georgia declared independence on 9 April 1991, following the dissolution of In June of 2014, the Association Agreement between Georgia and the the Soviet Union. European Union was signed. This agreement aims to expand political and economic relations between Georgia and the European Union and to Economy gradually integrate Georgia into the European Union’s Internal Market. The Georgia achieved robust economic growth between 2003-2012, averaging Association Agreement includes the setting up of a Deep and 6.1 percent annually, following structural reforms that stimulated capital Comprehensive Free Trade Area (DCFTA), which is a core part of the inflows and investment. The reforms helped improve the business accord. environment, strengthened public finances, upgraded infrastructure facilities In August 2014 Moody's Investors Service international rating agency and liberalized trade. Growth was also supported by increased foreign direct revised and improved the outlook on the sovereign rating of Georgia from investments (FDI) and was driven by capital accumulation and sound use of "stable" to "positive". The rating is now affirmed at "Ba3". excess capacity rather than by net job creation, with productivity gains In the World Bank’s “Ease of Doing Business Index 2014”, Georgia ranks concentrated mainly in the non-tradable sectors. GDP per capita increased 15th out of the survey’s 183 economies. In the same ranking in 2006 from $920 in 2003 to $3,597 in 2013 (in current prices). Georgia held the 100th position. In the first half of 2014 the GDP growth rate amounted to 6%, exceeding projections by one percentage point. According to IMF, Georgia has one of Key Socio-Economic Indicators 2010 2011 2012 2013 2014F the highest forecasted GDP growth rates among Eastern European Area 69 700 sq. km countries and its neighbors during 2014-2015. Population 2014 4.49 mln Capital Tbilisi Currency (code) Lari (GEL) Government GDP at current prices, mil. USD 11,636 14,438 15,846 16,140 16,947* Georgia is a democratic, Presidential-Parliamentary republic whereby the President is the Head of State and the Prime Minister is the Head of GDP - Real Growth Rate 6.3% 7.2% 6.2% 3.20% 5.0%* Government. GDP - Per Capita 2013 $2,623 $3,231 $3,523 $3,600 $3,780* Inflation rate (12 months 7.1% 8.5% -0.9% -0.5% 3.1% As a result of the presidential elections held on October 27, 2013, Giorgi average) Margvelashvili was elected as the president from the coalition "Georgian Unemployment rate 16.3% 15.1% 15% 14.6% N/A Dream”. The new cabinet of ministers was established in November, headed Total exports (mln. USD)-FOB $1,677 $2,189 $2,375 $2,908 $2,435*** by Irakli Gharibashvili. Total imports (mln. USD)-CIF $5,257 $7,058 $7,902 $7,885 $7,006*** Trade surplus/deficit 2013 (mln. (3,580) (4,869) (5,527) (4,977) (4,580)*** The declared strategy focuses on union into European and Euro-Atlantic USD) FOB-CIF organizations. Joining the EU and NATO are among the country's top Exchange rate - USD/GEL 1.7823 1.6865 1.6513 1.6634 1.7595**** foreign policy objectives. Exchange rate - EUR/GEL 2.3643 2.3477 2.1235 2.2094 2.3485**** Population *Forecast IMF **November 2014 The Georgian population is approximately 4.49 million. This figure has ***Jan-Oct 2014 grown since 2006 by 2%. About 54% of the total population lives in urban ****1st Jan 2014 - 11th Dec 2014 Source: www.geostat.ge www.nbg.ge www.imf.org areas and the urbanization rate has been increasing since 2006.
GDP Growth Forecasts, 2014-2015
6.0%
4.0%
2.0%
0.0%
-2.0%
2014 2015 Source: www.imf.org (World Economic Outlook-October 2014)
5 TBILISI | REAL ESTATE MARKET REPORT 2014 Iceberg Poti Georgia – Country Profile
Business and Investment Environment • The Baku-Tbilisi-Ceyhan (BTC) oil pipeline extends 1750 km Following the Rose Revolution in 2003, the Georgian government across Azerbaijan, Georgia and Turkey and is designed to increased efforts to reduce corruption in public and private sectors transport up to one million barrels of Azeri oil per day. The oil and sought to meet international standards. These efforts have is transported via Georgia to the Turkish port of Ceyhan. resulted in significant improvements in Georgia’s ranking in the • The South Caucasus Pipeline (SCP) System project was World Bank’s Doing Business Survey. By the latest survey it completed in late 2006. The initial capacity of the pipeline is stands on 15th position among 189 countries. Georgia ranks as 1st 8.8 billion cubic meters (bcm) of gas per year and, after 2017, in property registration, 3rd in dealing with construction permits, 5th its capacity could be expanded to 20 bcm per year. As part of in starting a business and 7th in getting the credit. the transit payment, Georgia will receive 5% of the volume of Among transitional economies, Georgia has improved its ranking natural gas transited from Azerbaijan to Turkey. in the Corruption Perception Index from 85 to 50 in the years 2002-2005. The Georgian tax system was simplified, customs Four airports with a total capacity of 3,100 passengers per hour, duties were reduced and procedures for granting licenses and serve the country in Tbilisi, Batumi, Kutaisi and Mestia. The total permits were simplified. Georgia enjoys competitive trade regimes length of railway amounts 1,612 km, with capacity of 3.3 million with many countries. passengers per year and the length of roadways amounts 19.109 km. Major sea ports are located in Poti and Batumi. Legal System The Constitution, adopted in 1995, sets out the structure of the Energy national government as well as its powers and functions. The Georgia has a developed, stable and reliable energy sector but powers of government are divided into three branches – efforts are required to improve the efficiency in domestic energy legislative, executive and judicial. use. The most promising source of additional energy generation is The court system in Georgia has three branches: Courts of First hydropower and the Government is focused on securing private Instance (District or City Courts), Appellate Courts and the investments for the construction of new hydropower stations. Supreme Court. First Instance Courts have jurisdiction over all Currently, only 12 % of Georgia’s hydropower potential is being civil, criminal and administrative cases. Decisions from First utilized. Instance Courts may be appealed to the Appellate Courts and, In 2012 9.694 billion kWh was produced in Georgia and from there, to the Supreme Court. consumption amounted 9.379 billion kWh. The Constitutional Court of Georgia is the sole organ of constitutional jurisdiction of Georgia. Rankings on the ease of doing business As an alternative to litigation, Georgia allows for third party arbitration. Georgian law also allows foreign companies to include 70 62 63 provisions in their contracts (including those with Georgian 55 60 51 entities) that allow for arbitration by international arbitration 48 50 45 institutions. 38 40 32 27 Infrastructure & Transport 30 21 17 Located on the shortest route between Europe and Asia, 20 14 15 7 Georgia’s transport system is a key link in the historic “Silk Road.” 10 1 It is believed that long-term growth will stem from Georgia’s role as 0 a transit state for pipelines. Three pipelines currently exist: • The Baku-Supsa pipeline (GPC-Georgian Pipeline Company) runs 814 km from Baku to Supsa (444 km in Azerbaijan and 370 km in Georgia) and transports "early oil" from the Caspian Sea region. Source: www.doingbusiness.org
6 TBILISI | REAL ESTATE MARKET REPORT 2014 Tbilisi – City Profile
Population 1,175,200 Population Density 2398.4 person/sq.km City Area 490 sq. km Number of Local 137 Hotels 7 (Upscale Brands – Radisson, Tbilisi Marriott Number of Midscale Brands – Holiday Inn, Courtyard Marriott, International Brand Citadines apart’ hotel, Best Western Tbilisi, Sheraton Hotels Metekhi Palace) Old Tbilisi, Sulfur Baths, Narikala Fortress, Tbilisi Botanical Garden, Freedom Square, Opera and Ballet Main tourist Theater, Sameba Church, Tbilisi Concert Hall, destinations Mtatsminda, Georgian National Museum, Giorgi Chitaia Ethnographical Museum - The Open Air Museum. Mtskheta, Svetitskhoveli Church. Tbilisi International Airport (total capacity 2,000 Infrastructural passengers per hour), Tbilisi Railway Station, facilities Underground
Tbilisi is one of the largest cities in the Caucasus as well as one apart' hotel as well as Best Western Tbilisi. Other major projects of the largest in Eastern Europe, with a population of around 1.2 have been announced (Intercontinental, Hilton Garden Inn) and million. Tbilisi accounts for over 25% of the national population. It some of them under construction (Millennium, Rixos, Park Inn by is the industrial, cultural and social centre of Georgia. Spread Radisson). over a 490.6 square kilometre area, Tbilisi is one of the few places on the planet where a synagogue and mosque are located The city is actively developing its tourism sector. Thanks to low next to each other. Despite an overwhelmingly orthodox Christian taxes and a favourable climate for investors, Tbilisi is ranked resident population, Tbilisi generously accommodates diverse among the top five European cities by the EBA (European cultures, religions and ethnicities. Business Association) Attractiveness of Investment index.
The city generates 52% of the country’s economic output, and On July 15, 2014 local government elections were held in Tbilisi. accounts for most of the formal employment. Larger incomes in Due to this fact there is a transition period in City Hall and the Tbilisi compared with the rest of Georgia, boosts spending on new government will establish city development plans in the near recreation and culture as well as restaurants and hotels. future.
Existing international hotel brands in Tbilisi are Sheraton, Radisson, Marriot, Courtyard Marriot and Holiday Inn, Citadines
7 TBILISI | REAL ESTATE MARKET REPORT 2014 Tbilisi Retail Market Retail Supply in Tbilisi 400 Supply 300 According to data for the first half of 2014, the total volume of retail floorspace in Tbilisi amounts to 887,280 sqm The largest share of Tbilisi 200 384 retail floorspace is occupied by bazaars and open markets (43%), with Thousand sqm 100 176 28% of space allocated to street retail and 29% for shopping centres. 158 99 69 0 It is worth noting that throughout the last four years the amount of Modern Traditional High Street Secondary Bazaars modern shopping centre supply has gradually increased as a proportion shopping shopping streets centres centres of total retail supply. In 2010, it amounted to only 16 % of total retail space supply, whereas by the first half of 2014 it amounted to 29% of Source: Colliers International total retail floorspace. Shopping centre supply in Tbilisi This year, 28,900 sqm GLA was added to shopping centre supply in Tbilisi (Tbilisi Sea Plaza – 22,000 sqm and Irao 6,900 sqm) and by the 400 end of 2014 another 25,200 sqm will be added to the market, including 99 Gldani Plaza (6,200 sqm) and Gldani Mall (19,000 sqm). By 2015, the 300 99 total supply of shopping centres will further increase by 41%, primarily because of the opening of the new shopping mall East Point, with 72,000 99 sqm GLA. 200 78
Thousand Thousand sqm 76 293 263 Many shopping centres in Tbilisi, even recent constructions, have more 100 75 70 158 than three levels/floors and most of the higher floors remain vacant. One 131 151 of the main characteristics of shopping centres in Tbilisi is that 55 65 0 developers sell small units within the shopping mall to different 2010 2011 2012 2013 2014 2015 F 2016 F individuals or tenants. Of course this fact makes property management more difficult and decreases the investment attractiveness of the Modern shopping centres Traditional shopping centres shopping mall. Source: Colliers International The most prestigious streets in Tbilisi are located in the Vake-Saburtalo and Old Tbilisi districts. The highest retail rents of USD 55-60 per sq. m. Average annual spending per capita in are typically achieved on Pekini Street and Rustaveli Avenue. Tbilisi (GEL) Chavchavadze Avenue, together with the recently renovated Marjanishvili Street and Aghmashenebeli Avenue which are becoming 4,000 increasingly attractive for high quality tenants. 3,000 1,648 Demand 1,422 2,000 1,306 The annual per capita retail expenditure in Tbilisi has been growing in 1,000 1,741 1,848 recent years. In 2013 the expenditure figure amounted GEL 3,496, which 1,388 is 20% more than the country’s average. 47% of total annual expenditure - in Tbilisi comes from retail expenditure, which is 5% more than the 2011 2012 2013 country’s average figure. Average annual retail spending per capita (GEL) Popularity of online shopping is significantly growing during the recent Average annual total spending per capita (GEL) years. Currently, 11% of Tbilisi population buy clothes on internet, same Source: National Statistics Office of Georgia figures for shoes and accessories amount to 9% and 8% accordingly.
Due to the fact that the vast majority of Bazaars and open style markets are occupied by individuals and local non-brand shops, branded Occupier demand in Tbilisi occupiers account for just 31% of retail space in Tbilisi.
Major fashion retailers in Tbilisi include Retail Group Georgia and Consumer Banks, Goods International Corporation ICR. They represent almost 60 different brands. Finance, 3% Zara, Massimo Dutti, Gap, Banana Republic, Ecco, Geox, Okaidi & Insurance Food and 4% Bevereges Obaïbi should be noted among them. 6% Non-branded shops Branded Other Clothes and 1% Consumer electronics brands are represented by Georgian Companies 69% 31% Accessories 7% Health and such as Elit Electronics, Metro Mart, Okay, Smiley, Alta etc. They are Bars, Beauty Restaurants, 4% continuously expanding their networks, not only in street retail, but also in Entertainment shopping centres. 6%
Together with the recent entries of Spar, Furshet, Wendy’s and Dunkin’ Donuts, existing modern supermarkets and fast food operators are Source: Colliers International rapidly developing their chains in Tbilisi. Despite this, banks and drug stores should not be excluded from the core occupiers of the retail market in Tbilisi.
8 TBILISI | REAL ESTATE MARKET REPORT 2014 Performance indicators Average Retail rents in Tbilisi USD per sqm
The average high street retail rent in Tbilisi exceeds the same figure $50 in shopping centres by USD 10 per sqm and stands at around USD $44 $42 $44 $40 $41 $42 $42 $42 $40 40 per sqm. The average rents in traditional shopping centres and $36 $35 $33 $34 $34 secondary streets varies between USD 18-22 per sqm. $30 $31 $30 $30 $30 $26 $27 $22 $22 $22 $20 $19 $20 $21 $21 $17$19 $18 $19 $19 $18 $18 The highest rents in street retail are achieved at Rustaveli Avenue $15 $13 $15 $10 and Pekini Street at USD 55-60 per sqm. Chavchavadze Avenue and the newly refurbished Aghmashenebeli Avenue, together with $- Marjanishvili Street can also be considered as high streets of the city. H1 H2 H1 H2 H1 H2 H1 H2 H1 2010 2010 2011 2011 2012 2012 2013 2013 2014 The average rents on these streets stands at around USD 35-40 per sqm. Modern shopping centres Traditional shopping centres High Street Secondary streets
Merani Shopping Gallery and Tbilisi Mall achieve the highest Source: Colliers International average rents among shopping modern centres USD 35-38 per sqm. Some of the traditional shopping centres are well located and Vacancy rates in Tbilisi respectively, their rents stand above the average figure, Kidobani 50% 43% and Passage are examples. 40%
30% 27% 24% 21% 23% 23% At the end of the first half of 2014 the average vacancy rate of 16% 19% 20% 15% 15% 13% shopping centres stood at 19%. This figure has decreased gradually 12% 12% 8% 7% 11% since the highest figure in H1 2012, when the biggest shopping 10% 6% 4% centre – Tbilisi Mall was opened. In the first half of 2015 another 0% large shopping centre – East Point - will be opened, almost 70% of H1 H2 H1 H2 H1 H2 H1 H2 H1 which is preleased. The average vacancy rate of street retail is more 2010 2010 2011 2011 2012 2012 2013 2013 2014 stable than in shopping centres. At the end of the first half of 2014 it Modern shopping centres Traditional shopping centres equalled 11%. Source: Colliers International International benchmark Prime Rents $150 The prime high street rent in Tbilisi is around USD 60 per sqm and the prime shopping centre rent is USD 40 per sqm. These figures are $100 below the CEE average by 27% and 54% respectively. $77 $60 $62 $40 The commercial real estate investment market in Tbilisi is in an early $50 stage of development. Institutional real estate investors are not active in the country and, accordingly, large investment transactions $- have not been recorded in the retail real estate market. The estimated prime retail yield in Tbilisi is 13% for shopping centres and 12% for street retail, which exceeds average CEE figures significantly. Prime High Street rent Prime Shopping Centre rent
Source: Colliers International
Prime Yields 14.0% 13.0% 12.0% 12.0% 9.1% 10.0% 8.6% 8.0% 6.0% 4.0% 2.0% 0.0%
Agmashenebeli Avenue Prime High Street Yield Prime Shopping Centre Yeld
Source: Colliers International
9 TBILISI | REAL ESTATE MARKET REPORT 2014 Retail Map of Tbilisi
Tbilisi Mall
Akhmeteli Theatre
Sarajishvili
Guramishvili”
Grmagele”
Didube
Gotsiridze
Medical University Nadzaladevi
Delisi
Tsereteli Vazha-Pshavela Technical University TBC Mall Station Square
Marjanishvili
Rustaveli
Tbilisi Avlabari Plaza Liberty Square High Streets Varketili
Airport 300 Aragveli Isani
Central Railway Station Samgori
Tbilisi Existing Shopping Centres East Point
Upcoming Shopping Centres
Main streets of the city Source: Developers, Operators/Property Managers, Colliers International River Mtkvari
10 TBILISI | REAL ESTATE MARKET REPORT 2014 Existing Shopping Centres in Tbilisi
# Shopping Centres GLA District Anchor Tenants
Carrefour, Zara, Banana Republic, Bershka, Massimo Dutti, Marks 1 Tbilisi Mall 69,566 Saburtalo & Spencer, LC Waikiki 2 Tbilisi Central 20,000 Didube Elit Electronics, Metro Mart, Smiley, Go Electronics, LC Waikiki
3 Karvasla 18,286 Chughureti Carrefour, Ecco, Sketchers, Jeans Gallery, Colin's, Alcott
4 GTC 10,000 Mtatsminda Carrefour, Jeans Gallery, Charmlane, MiFaSi, Bruno Banani, Polo
5 Goodwill Kavtaradze 9,500 Saburtalo Hypermarket Goodwill, Lotto, OVS, Collezione, Villeroy & boch Hypermarket Goodwill, Next, Jeans gallery, Mandarina, Delfos, 6 Pixel 8,380 Vake
Iphone+ Modern Shopping Centres 7 Goodwill Didi Dighomi 8,000 Saburtalo Hypermarket Goodwill, Art time, Baccarat, Mandarina 8 Merani Shopping Gallery 7,600 Mtatsminda Zara, Massimo Dutti, Kotton, OVS, Converse 9 IRAO 6,900 Vake Smart, Wendy's, Aspria Fitness 10 Saba 30,000 Didube Embawood, Non-Brand furniture shops 11 Tbilisi Sea Plaza 25,000 Samgori Non-Brand shops 12 Kidobani new 9,200 Didube Non brand shops 13 Didube plaza 5,500 Didube Non-Brand Shops 14 Megaline 4,700 Didube Giordano, Adidas, Consumer Electronics, Georgian Banks 15 Bavshvta samkaro 4,600 Didube Non-Brand Shops 16 Passage 4,500 Didube Giordano, Dioggi, Sport's World, non brand shops 17 Eurasia 4,000 Gldani Non Brand Shops 18 Shopping at Axis 3,459 Saburtalo Coincasa, Cop. Copine, Roberto Bruno, Polo, Prenatal 19 Panda 3,000 Didube Non Brand shops 20 Grato City Center 2,910 Saburtalo Elit Electronics
Traditional Traditional Shopping centres 21 Metskhre Tsa 2,000 Didube Aziz Bebe, Zoommer, Mobi Crystal, Safilo, Super, Bodyline, La belle, Lotus, TAC, Georgia 22 Sky holdings 2,000 Gldani Banks 23 Grato Passage 1,518 Mtatsminda Gusto, Breathless Modern Shopping Centres 158,232 Traditional Shopping Centres 99,387
Source: Developers, Operators/Property Managers, Colliers International
Announced Future Projects in Tbilisi
Future Projects Total leasable Completion # Address District Class Type Status (Name) Area sqm Date Along Akhmeteli Modern Shopping 1 Gldani Plaza Gldani 6,206 Q4 2014 Greenfield Under Construction Station Centres Along Akhmeteli Q4 2014/ Modern Shopping 2 Gldani Mall Gldani 19,000 Greenfield Under Construction Station Q1 2015 Centres Isani-Samgori District, Modern Shopping 3 Tbilisi East Point Samgori 72,000 Q1 2015 Greenfield Under Construction Tvalchrelidze Street 2 Centres Along Metro Station Modern Shopping 4 Carrefour Isani Isani 7,205 Q1 2015 Greenfield Under Construction Isani Centres Goodwill Modern Shopping 5 Kavtaradze Kavtaradze Street Saburtalo 8,800 2016 Greenfield Under Construction Centres extension Modern Shopping Construction 6 Tbilisi Plaza Rustaveli Avenue 2/4 Mtatsminda 21,647 2016 Brownfield Centres Temporarily Suspended Didube Mega Modern Shopping 7 T, Eristavi Street 2 Didube 13,380 2017 Greenfield Under Construction Trade Centres Modern Shopping 8 TBC Mall Tamarashvili Street Vake 40,000 2017 Greenfield Announced Centres Modern Shopping Construction 8 Niba Delisi Along Delisi station Saburtalo 16,000 2018 Greenfield Centres Temporarily Suspended
Sum 204,238
Source: Developers, Operators/Property Managers, Colliers International Note: Future pipeline Includes projects above 5,000 sqm leasable area
11 TBILISI | REAL ESTATE MARKET REPORT 2014 Conclusions and Outlook
Although the Tbilisi retail landscape is still dominated by shopping is becoming increasingly popular in Georgia and traditional supply, modern shopping centre development is especially in Tbilisi, where the accessibility to internet is the accelerating. After the opening of the country’s first large highest in the country. Apart from the fact that significant modern mall in 2012 (Tbilisi Mall), the next major scheme (East portion of customers wary of online shopping, demand is still Point) will start operations at the beginning of 2015. Currently, characterized by the growing trend. retail development is primarily driven by the expansion of modern supermarket formats (Carrefour, SPAR and Smart) The embryonic real estate investment market in Tbilisi, and an increasing number of fast-food retailers, such as featuring prime retail yields at around 12-13%, coupled with McDonald’s, Wendy’s, Subway and recent entrant KFC. significant potential for rental increase, opens up a myriad of attractive investment opportunities. In addition, streamlining Given the country’s urban structure, the bulk of expansion local property management practices alone will have the potential in the Georgian retail market can be found in the potential to add significant value. capital Tbilisi, the only city with a catchment area of sufficient size and affluence. The city’s retail market is undergoing For the coming years, the Tbilisi retail market will continue to significant changes, driven by increasing competition between offer attractive niches for retailers, developers and investors. retailers and locations. The high street retail offer is With the country embarking on its journey towards integration strengthening and older shopping centres are undergoing with the European Union, demand for modern retail formats will refurbishment and – in some cases – repositioning, which is continue to increase. The transformation towards a modern expected to continue further in the nearest future. Retailer market has started and in the next phase shopping centres will interest is fuelled by the country’s confirmed orientation see improved design and concept as new international towards Europe, its ever improving business climate and developers enter the market. strategic location in the region. After the current surge in modern supermarket development, it is anticipated that After the declining trend of the shopping centre rent prices, the international big box retailers will start to eye this market with mentioned figure has stabilized and there is not expected it to increasing appetite. be changed significantly. In edition, gap between street retail and shopping centre rents will grow further as street retail It is worth mentioning, that during the recent years internet supply remains limited.
12 TBILISI | REAL ESTATE MARKET REPORT 2014 Tbilisi Office Market Total Office Stock Supply in Tbilisi 2014 (thousand sqm)
Supply 700 Tbilisi is one of the largest cities in the Caucasus as well as one of the 600 largest in Eastern Europe, with a population of around 1.2 million. 500
Tbilisi accounts for over 25% of the national population and is the Thousands 50% industrial, cultural and social centre of Georgia. Tbilisi has also been a 400 strong commercial, cultural and political centre for centuries. 300 46% 200 The city generates 52% of the country’s economic output, and 50% accounts for most of its formal employment. 100 54%
2 2 0 Total office space in Tbilisi is 912,367 m , of which 46% (328,598 m ) Modern Stock Traditional is modern office stock. 54% of modern stock is leasable. Traditional stock is distributed equally between leasable and owner-occupied Leasable Owner Occupied offices. Source: Colliers International Georgia Supply of office space has been growing since 2008 and further growth is expected, because several business centres will open in nearest future and some organizations are going to build office buildings for Modern Office Stock in Tbilisi themselves. Panorama business centre project at Freedom Square is announced, but by the date details about total space and opening date 450 are not specified. 400 350 The share of office spaces located in A class business centres in total Thousands 300 173 2 151 rented space is 7% (35,235 m ), A-, B+ and B class offices occupy 7%, 151 2 250 151 23% and 1% respectively. The biggest share (42%, 200,000 m ) is D 137 149 class offices, under which offices in apartments and old Soviet Union 200 buildings are considered. 150 73 54 100 195 210 220 One of the main characteristics of office market in Tbilisi is that 160 166 183 41 41 developers sell small units within the business centre to different 50 92 109 37 49 individuals or tenants. Of course this fact makes property management 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 more difficult and decreases the investment attractiveness of the F F F business centre. Leasable Owner Occupied Source: Colliers International Georgia Among CEE cities, Tbilisi has the least modern office stock. The mentioned figure in the capital of Georgia is 4.6 times less than CEE average figure. Average modern office stock per 1,000 inhabitants in Leasable Office Space by CEE cities is 1,436 sqm and only 293 sqm in Tbilisi. Category
A 7% A- 7%
D 42% B+ 23%
B 1% C 20%
Source: Colliers International Georgia
Benchmarking: Modern Office Stock (sqm) Benchmarking: Total Modern Office Stock sqm per 1,000 Inhabitants 5,000 4,000 4,500 4,000 3,500 3,500 3,000
3,000 2,500 Thousands 2,500 2,000 2,000 1,436 1,500 1,500 1,000 1,000 500 293 500 329 - -
Source: Colliers International Source: Colliers International
13 TBILISI | REAL ESTATE MARKET REPORT 2014 Demand Distribution in Business Centres Demand 2014
Consulting (19%), Diplomatic (5%) and Financial (13%) Organizations 7% occupy most of the office space in Tbilisi business centres. Categories 7% 18% with less than 2,000 sqm are united in name “Other”. 14% The vast majority (64%) of owner-occupied offices is accounted for State organizations, next come financial institutions (11%), mainly banks. 19%
12% 5% 5% Performance Indicators 13% The highest vacancy rates in 2014 are in A- class business centres (16%) Other Consulting next come A and B+ with 8% and 4% respectively. Average vacancy rate Diplomatic Organization Financial Organization in A, A- and B+ business centres has been declining since 2010, reaching Service Trade Organization 7% in 2014 and further decline is highly probable. Average take up in Undefined Manufacturing these years is 22,375 sqm. Source: Colliers International Georgia The office real estate investment market in Tbilisi is in an early stage of Owner Occupied Office Breakdown by development. Institutional real estate investors are not active in the Customers country and accordingly, large investment transactions were not recorded 4%1% on the retail real estate market. The estimated prime retail yield in Tbilisi is 4% minimum 12%, which exceeds average CEE figures significantly. 7%
The weighted average rent in modern offices has been declining since 9% 2010. Rents were highest in 2009, then there was decline and since 2012 weighted average rents in modern business centres have been constant to date. The highest rents in 2014 are achieved in A class business centres 11% 64% ($22), next come A- and B+ with average rent of $15 and $14 respectively. The prime office rent in Tbilisi is around USD 21 per sqm. The figure is the same as CEE average.
State Organization Financial Organization Other
State Owned Legal Energy State Owned Transport
Telecommunication
Source: Colliers International Georgia Weighted Average Rent Prices in Leased Modern Vacancy Rates in A, A- and B+ Class Business Centres Office Stock (exc. VAT and Service Charges) 60% 35.0 49% 28.9 26.7 50% 30.0 24.5 25.3 22.4 22.4 22.4 25.0 20.8 40% 33% 17.7 18.0 29% 28% 28% 20.0 17.0 27% 26% 15.0 15.0 15.0 30% 21% 19% 15.0 17.9 17% 19% 16.5 20% 26% 24% 22% 15.5 10.0 14.0 13.2 13.2 13.2 9% 16% 19% 14% 10% 6% 5% 16% 8% 5.0 2% 13% 6% 5% 4% 0% 0.0 H1 2010 H2 2010 H1 2011 H2 2011 H1 2012 H2 2012 H1 2013 H2 2013 2014 2008 2009 2010 2011 2012 2013 2014
A A- B+ A A- B+ Source: Colliers International Georgia Source: Colliers International Georgia Prime Rent (per sqm USD exc. VAT and Service Prime Office Yield Charges) 14.0% 12.0% 60 12.0%
50 10.0% 8.2% 40 8.0%
30 6.0% 21 21 20 4.0%
10 2.0%
0 0.0%
Source: Colliers International Source: Colliers International
14 TBILISI | REAL ESTATE MARKET REPORT 2014 Map of Tbilisi
“Akhmeteli Theatre”
Sarajishvili
Guramishvili”
“Grmagele”
Didube
Gotsiridze
Nadzaladevi Delisi
Vazha-Pshavela Technical University
Station Square
Marjanishvili
Rustaveli
Airport Liberty Square Avlabari Central Railway Station
Varketili Existing A and A- class Business Centres 300 Aragveli Upcoming A and A- class Isani Business Centres Samgori Main streets of the city
River Mtkvari
Announced Future Projects in Tbilisi Business Completion Construction # Address District Class Area (sqm) Type Property Type Centre Date Stage Freedom 1 Pushkini street Krtsanisi A-class 7,500 2015 Suspended Greenfield Leasable Square Under 2 MGI Tarkhnishvili str.2 Mtatsminda A-class 2,612 2015 Greenfield Leasable Construction Kazbegi Ave. Under 3 Kazbegi ave.1 Saburtalo A-class 2,000 2015 Greenfield Leasable 1 Construction Vakhushti Near Vakhushti Under 4 Saburtalo A-class 3,900 2016 Greenfield Leasable Bridge Bridge Construction 5 Vake Plaza Chavchavadze Ave. Vake A-class 11,148 2016 Suspended Greenfield Leasable Owner 6 TBC HQ Tamarashvili Street Vake A-class 22,000 2017 Announced Greenfield Occupied 7 Axis Towers Chavchavadze Ave. Vake A-class 7,000 2019 Announced Greenfield Leasable Right Bank of the 8 Tiflis City Saburtalo A-class <10,000 N/A Early Stage Greenfield Leasable river Mtkvari Sum 66,160
Note: Future projects include projects above 2,000 sqm Source: Developers, Operators/Property Managers, Colliers International Major Existing Leasable Business Centres
Business Centre Class GLA District Main Tenants
Pixel 34 A Vake Microsoft, BDO, Rakia 11,235 Grato A Mtatsminda Colliers International, Georgian co-investment Fund 4,800 Merani A Mtatsminda KFW Bank 4,800 Aword Business Centre A Mtatsminda M2 Real Estate, Madneuli LLC, Kvartsiti 4,000 Green Building A Chughureti Wings and Freeman Capital, IREX 3,600 Tabidze 1 A Mtatsminda Philip Morris 3,100 GMT Plaza A Mtatsminda BBC, Statoil, Azerbaijan International Bank, Booz Allen Hamilton 3,000 Sheraton Metekhi Palace A Isani German Embassy, Dutch Embassy 1,400 Maidan Palace A- 10,000 Krtsanisi Grand Thornton, Metromart
BCV A- 6,715 Saburtalo Huawei, Veritas Brown, Samsung, Caucasus Online
Pirimze A- Mtatsminda Qatar Airways 5,760 Mantashevi Rows A- Krtsanisi Local Companies 5,000 Besiki Business centre A- Mtatsminda KPMG, Investbank, Sairme Mineral Waters 3,000 Metekhi Business Centre A- Krtsanisi Local Companies 2,100 BCL A- Krtsanisi HeidelbergCement, Bosch, Carlsberg, Telasi 1,650 Subtotal A class 35,935 Subtotal A- class 34,225
Source: Developers, Operators/Property Managers, Colliers International
Modern Owner Occupied Offices
Office Class GLA District Occupier Type
Justice House A 50,000 Mtatsminda Government
Ministry of Internal Affairs A 14,205 Samgori Government
Procredit Bank A 12,066 Saburtalo Financial Services
Liberty Bank A- 11,120 Vake Financial Services
Ministry of Education and Science A- 8,103 Chughureti Government
Revenue Service A- 8,094 Saburtalo Government
Bank of Georgia A 8,007 Saburtalo Financial Services
Socar Georgia Petrolium A 5,280 Isani Energy
Aldagi BCI A 4,787 Krtsanisi Financial Services
Ministry of Justice A 4,480 Krtsanisi Government
VTB Bank A 4,344 Mtatsminda Financial Services
Samkharauli Expertise Bureau A- 4,302 Vake Government
National Bank of Georgia - Vault A 4,224 Samgori Government
National Bureau of Execution A- 2,880 Saburtalo Government
TBC Bank A 2,623 Chughureti Financial Services
112 A 2,552 Saburtalo Government
Prosecutor's Office A 1,880 Saburtalo Government
Total 148,947
Source: Developers, Operators/Property Managers, Colliers International
16 TBILISI | REAL ESTATE MARKET REPORT 2014 Conclusions and Outlook
With its narrow economic base and evolving market services vacancy rate for modern offices in Tbilisi is expected to decline sector, Georgia’s office real estate market is small and further. Occupiers looking for modern space in the CBD are concentrated in the capital city of Tbilisi. A large proportion already experiencing difficulties, particularly when there is a (46%) of modern stock is owner occupied and availability of need for larger floor plate sizes. good quality offices with larger floor plates remains highly limited. Until recently, activity on the Tbilisi office market has With favourable economic developments and the anticipated been low, with demand focused on smaller units. Similarly, increase in both trade and FDI with and from the European development activity has been subdued and vacancy rates Union, prospects for the Tbilisi office market are starting to look were relatively high. very healthy. With a limited amount of land available in the CBD, opportunities are opening up for refurbishments and for However, from the year of 2014 this is starting to change. office development in specific areas outside the city centre. For Earlier this year, some larger international occupiers announced the first time in the history of the city’s real estate market, offices market entry or expansion, including EIB, Philips and BP. The should be firmly on the radar for both developers and investors. latter is currently investigating the market to develop their new In European post-soviet countries in the stage of development 5,000 sqm HQ. In addition, flexible office providers Regus and offices were moved outside the city centre. The construction of Compass are preparing entry and expected to start operations new office park will cause many office occupiers to move from during the second half of next year. Demand from local the single residential apartments to the recent development. companies remains relatively small and is derived mainly from owner-occupiers. TBC Bank has announced to start This sector is crucial for the longer term economic growth of construction of its new 22,000 sqm HQ in Saburtalo, besides Georgia. This is recognized by Government nationally and in this, the pipeline is limited to about 44,000 sqm. Tbilisi, where strong efforts are underway to attract foreign direct investment and support indigenous businesses. Entrance With demand on the increase, the shortage of supply is slowly of international companies will increase demand for modern becoming apparent. The vacancy rate for A-grade offices is office spaces, that will stimulate increase of modern office decreasing and now stands at 9%. One of the best examples of supply. A crucial part of this strategy will be to ensure the turn-around in the Tbilisi office market is the recently Georgia/Tbilisi has a office property offer for start-ups, growing completed Merani scheme (on Rustaveli 42), which has been companies and large corporates. B class office centres should almost fully leased out within a short period of time. be developed to move small companies from D and C class offices, which are in the streets and apartments, to business With a small amount of available suitable properties, the centres.
17 TBILISI | REAL ESTATE MARKET REPORT 2014 Tbilisi Hotel Market Overview Demand: Number of Hotel Guests 700
The number of hotel guests in Tbilisi has been growing over the years, 600 with the only exception being 2008, when it declined by 8% compared to the previous year. The main cause of the decline was because of the 500 conflict between Georgia and Russia in August 2008. The share of 400
business travellers as a proportion of the total number of hotel guests Thousands 300 has been declining in recent years. It has dropped from 69% in 2008 to 200 37% in 2013. Big share of international visitors to Tbilisi are business travellers, who have demand on International Brand Hotels. Tourists 100 mainly have demand for economy class boutique hotels, which are 0 cheap and have favourable location, mainly in Old Tbilisi. 2007 2008 2009 2010 2011 2012 2013 Business Travellers Other Holiday, Leisure, Recreation The number of accommodation units in Tbilisi has increased by 17 from 2013 to 2014, adding 555 new rooms and 1,385 beds. In 2015, the Source: National Statistics Office of Georgia, Colliers International construction of six new hotels will be completed, which will increase supply by 900 rooms. The biggest share (38%) in room supply in Tbilisi Supply in Tbilisi is Local Budget/ Economy Class, next comes Local Upscale and Middle class hotels with 35%, International Upscale and Midscale Brand occupy 16,000 160 10% and 17% respectively. 14,000 140 7574 9464 12,000 120 6189 The highest occupancy rate in Tbilisi is in international midscale brand 10,000 100 hotels (75%), with the average occupancy in international upscale brand 8,000 80 147 153 hotels at 74%. 6,000 130 60 4,000 40 The ADR ranking is vice versa, it is highest for international upscale 5391 2,000 20 hotels (203 USD), with international midscale hotels at USD 127. 3036 3591 0 0 2013 2014 2015
Number of Accommodation Units Number of beds Number of rooms Source: Colliers International Source: Georgian National Tourism Agency, Colliers International
Occupancy Rate (2013 May - 2014 May )
80% 70% 60% 50% 40% 74% 75% 30% 58% 20% 42% 10% 0%
International Upscale Brands International Midscale Brands
Local Upscale and Middle Class Local Budget/Economy Class
Source: Colliers International
Number of Beds/Rooms ADR (May 2013- May 2014) (USD) exc. VAT 7,000 250
6,000 3,128 200 5,000 150 4,000 100 203 3,000 1,350 2,679 127 2,000 50 1,253 80 1,000 1,177 49 612 0 590 0 376 Number of rooms Number of beds International Upscale Brands International Midscale Brands International Upscale Brands International Midscale Brands Local Upscale and Middle Class Local Budget/Economy Class Local Upscale and Middle Class Local Budget/Economy Class Source: Colliers International Source: Colliers International
18 TBILISI | REAL ESTATE MARKET REPORT 2014 Tbilisi: Main Existing and Planned Hotels
Akhmeteli Theatre
Sarajishvili”
Guramishvili”
Grmagele”
Didube
Gotsiridze
Nadzaladevi
Medical University Delisi Tsereteli
Holiday Inn Best western Vazha-Pshavela Technical Station Square Olympic Village University
Hilton garden Inn
Intercontinental Marjanishvili Radisson Blu Iveria
Rustaveli Future Hotels Park inn by Radisson Rooms Hotel Tbilisi Marriot Tbilisi HyattLiberty Square Existing Hotels Sheraton MetekhiAvlabari Palace Rixos Hotel Varketili
300 Aragveli Main streets of the city Courtyard Isani Marriott Citadines River Mtkvari Apart 'Hotel Samgori
Main Market Players
# Hotel District Category Number of Rooms Number of Beds
1 Radisson Blu Iveria Mtatsminda International Upscale Brands 249 400
2 Tbilisi Marriott Mtatsminda International Upscale Brands 127 190
Sheraton Metekhi 3 Isani International Midscale Brands 140 280 Palace
4 Courtyard Marriott Mtatsminda International Midscale Brands 118 236
5 Holliday Inn Saburtalo International Midscale Brands 252 330
Citadines apart' 6 Mtatsminda International Midscale Brands 66 264 hotel Best Western 7 Saburtalo International Midscale Brands 36 67 Tbilisi Rooms Hotel 8 Mtatsminda Local Upscale and Middle Class 84 184 Tbilisi
Source: Developers, Operators/Property Managers, Colliers International
19 TBILISI | REAL ESTATE MARKET REPORT 2014 Tbilisi Hotel Pipeline
Completion # Developer Operator Stars Category Address District Number of rooms Construction status Type date (Year)
Local Upscale Tbilisi, Kostava Str. 1 City Loft LLC Rooms Hotel 4 Mtatsminda 56 H1 2015 Under Construction Brownfield and Middle Class 14 Local Upscale Tbilisi, Shavteli 2 Eka Kopaleishvili Ambasadori 4 Krtsanisi 79 H1 2015 Under Construction Brownfield and Middle Class Str.13 International Tbilisi, near Tbilisi 3 Hualing Group Hotels & Preference 5 Samgori 240 H2 2015 Under Construction Greenfield Upscale Brands Sea Dhabi Group International Tbilisi, Rustaveli Greenfield/Brownfiel 4 Millennium Hotel 5 Mtatsminda 216 H2 2015 Under Construction Georgia Upscale Brands Ave. 29 d Silk Road Park Inn by International Tbilisi, Rustaveli Planned, Permit 5 Business Center 4 Mtatsminda 200 H2 2015 Brownfield Radisson Midscale Brands Ave. 31 Received LLC Maqro International Tbilisi, Gorgasali 6 IBIS 3 Krtsanisi 80 H2 2015 Under Construction Greenfield Construction Midscale Brands Ave. Local Upscale Tbilisi, Tabukashvili 7 Oasis 9 LLC Unknown 3 Mtatsminda 29 H2 2015 Under Construction Greenfield and Middle Class Street Sheraton Metekhi Rakia Georgia International Planned, Permit 8 Palace 5 Tbilisi, Telavi Street Isani 255 H1 2016 Brownfield LLC Upscale Brands Received (Refurbishment) International Tbilisi, Dumbadze 9 N/A Yoo2 5 Mtatsminda 90 H1 2016 Announced Greenfield Upscale Brands Street Intercontinental International Tbilisi, Kostava Str. 10 City Loft LLC 5 Mtatsminda 200 H2 2016 Under Construction Brownfield Hotel Upscale Brands 14 International Tbilisi, Chanturia 11 BG Hotels LLC Park Inn 4 Mtatsminda 196 H1 2017 Announced Greenfield Midscale Brands Street 10 Rustaveli International Tbilisi, Rustaveli 12 Hyatt 5 Mtatsminda 170 H2 2018 Announced Brownfield Property LLC Upscale Brands Ave. Old City Development Local Upscale Tbilisi, Freedom 13 Unknown 5 Mtatsminda 225 H2 2018 Announced Greenfield (Panorama and Middle Class Square Freedom Square) Old City Development Local Upscale Tbilisi, King Erekle 14 Unknown 5 Krtsanisi 200 H2 2018 Announced Greenfield (Panorama King and Middle Class Square Erekle Square) Local Upscale Tbilisi, 15 Axis Unknown 4 Vake 250 H2 2019 Announced Greenfield and Middle Class Chavchavadze Ave. Tbilisi, International Planned, Permit 16 Redix Hilton Garden Inn 5 Tchavtchavadze Vake 165 N/A Greenfield Midscale Brands Received Ave. 64 Construction International Tbilisi, Gudiashvilis 17 City M LLC Rixos Hotel 5 Mtatsminda 170 N/A Temporarily Greenfield Upscale Brands Str. 2 Suspended
2,821
Source: Developers, Operators/Property Managers, Colliers International
20 TBILISI | REAL ESTATE MARKET REPORT 2014 Batumi, Georgia
Conclusions and Outlook
Although the tourism boom in Tbilisi is levelling out, four years of infrastructure as well as the diversification of existing services demand growth outstripping supply growth by a wide margin has and the promotion of new initiatives (such as the stimulation of left the market with ample development and investment MICE tourism). In 2015, Tbilisi will host the Youth Olympic opportunities. During recent years, supply has increased at Games, the UEFA Super Cup final and the EBRD annual around a third of the demand growth rate, causing a widening meeting, which involves participation of over 1,500 international supply-demand gap, strongly increasing occupancy rates and guests. It is expected that the recent signing of the EU relatively high room rates. As a result, international brand Association Agreement will stimulate further growth of MICE- operators already present in the market are expanding and new tourism. players are preparing to enter. For years to come, the tourism market will continue to present Thanks to strong demand growth, an increasing number of some of the best prospects for investment. Improving political international hotel brands are expanding (like Radisson, Marriot, stability and business climate, coupled with relatively low and Sheraton) or entering (such as Hilton, Rixos and Best development costs and an increasingly supportive government, Western). Boutique hotels and economy hotels in the old parts have made Georgia a true gem among international tourism of the city are characterized by high occupancy, due to the fact investment destinations. that these areas are attractive places for tourists. The number of international visitor arrivals to Tbilisi has a growing trend. Increased number of charter flights will increase number of tourists significantly, this will increase demand and occupancy Georgia has the ambition to become a tourism hub and the rates, so charter flights should be stimulated by Georgian government is actively working on development of tourism Government.
21 TBILISI | REAL ESTATE MARKET REPORT 2014 Tbilisi Residential Market Overview Population in Tbilisi 1.20 Market Fundamentals 1.15 1.16 1.17 1.17 1.17
0.80 Population Millions
The total population of Tbilisi is 1,175,200 million. The mentioned figure 0.40 has increased by 2% since 2009.
Compared with the other cities in Eastern Europe, it is of a similar size to Prague and Sofia. Over the next ten years we expect a 10% growth 0.00 in population of Tbilisi. 2009 2010 2011 2012 2013
Tenure structure (home ownership) Source: National Statistics Office of Georgia
Home ownership in Tbilisi is high, as it is in Georgia. In the current Benchmarking Population Tbilisi period it stands at 86%. Compared with Eastern European cities the 2.5 Tbilisi figure is second only to Bucharest. Such a high rate is an 2.0 indication that development of the rental market is very low. However, it 2.12 can not be discounted that part of the population has not officially 1.89 1.5 1.74 registered lease agreements. 1.58 1.44 Millions 1.30 1.0 1.25 1.18 Living area 1.12 0.5 0.81
The average living area in Tbilisi stands at 23 sqm. per capita. The 0.0 largest properties are located in Vake and Saburtalo district. The smallest living areas are in Chughureti (5.4 sqm.) and Nadzaladevi (6.7 sqm.).
Compared to other Eastern European cities Tbilisi stands between Source: National Statistics Office of Georgia, CIA Vilnius and Budapest. Benchmarking of tenure structure (home Mortgage lending ownership) 100%
During 2013, the volume of issued mortgage loans amounted to USD 80% 89% 86% 85% 84% 84% 83% 83% 691 million, which is the double the level of 2012 and 31% higher than 80% 77% 60% 2011. The largest proportion of mortgages in 2013 was issued in 61% December (around USD 149 million), due to the marketing campaigns 40% of commercial banks and reduced interest rates. 20%
Currently the average interest rate is 10%, which is still high when 0% compared internationally.
Currently, we expect annual growth in mortgages of around 78%, as almost every bank has decreased the interest rate. Per our forecast, the amount of issued mortgages at the end of 2014 will stand at USD Source: National Statistics Office of Georgia, Eurostat 1.23 billion.
Mortgage lending (USD) 2010 - 2014 F Benchmarking of average living area sqm/per capita 1,800 1,601 30 1,500 29 29 27 27 1,141 25 24 1,200 20 23 882 924 21 900 733 612
16 16 Millions 10 600 691 618 529 300 397 344 0 0 2010 2011 2012 2013 2014 F
Issued mortgages Total outstanding
Source: National Bank of Georgia, Colliers International Source: National Statistics Office of Georgia, Eurostat
22 TBILISI | REAL ESTATE MARKET REPORT 2014 Tbilisi Residential Market Overview - Number of dwelling units supplied in Tbilisi Supply 150
Stock 123 100
The total housing stock in Tbilisi equals to 344,000 dwelling units, of which Thousands 88 the largest share was built during 1960-1990, so called “Soviet-type” 50 residential buildings. After this period, in 1991-2000 there was a significant 57 decrease in development, but after this decade residential construction 33 35 4 21 picked up significantly. During 2013-2016, 21,000 dwelling units will be - delivered.
Main market suppliers
The Georgian residential market is dominated by local developers. Source: IPM, Colliers International Participation of foreign investors is limited to a handful of larger schemes such as Dirsi (Azerbaijan), Hualing (China) and Dona Group (Israel). Upcoming supply by years and classes Developers fall into the following categories: large-sized developers, in Tbilisi (dwelling units) middle-sized developers, small-sized developers and passive developers. 6.0 Large-sized developers includes companies that have large scale 2.0 construction projects (over 50,000 sqm.) and also are involved renovation, 4.5 refurbishment and fit-out.
Thousands 3.0 1.7 The middle-sized developers are actively implementing middle scaled 3.1 projects (from 10,000-50,000 sqm.). 1.5 1.4 1.1 Small-sized developers are represented by developers of condominiums, 0.5 1.1 0.9 0.0 limited liability companies and houses etc., whose total construction area is 2014 2015 2016 under 10,000 sqm. Premium Middle Low
Passive developers are those companies, who have encountered problems Source: Colliers International during development and have consequently suspended construction. Development company categories in Tbilisi Ongoing and future projects
Currently there are 233 residential development projects in Tbilisi, covering 19 1,013,000 square metres land area and a total of 2,900,000 square metres 853,554 Large-sized developers 29% construction area. 19 539,478 19% Middle-sized developers Ongoing projects have been divided into several categories by selling price, 1 such as premium, middle and low segments . 45% of total supply is the Small-sized developers middle and low segments, only 10% is represented by the premium 55 140 758,791 segment. 26% 748,177 Passive developers 26% Currently, from observed development projects around 19 units2 have suspended status, with a total area of 539,478 sqm. it holds 19% of the total supply. Source: Colliers International Issued construction permits Ongoing projects by type of class in According to the information provided by National Statistics Office of Tbilisi Georgia, during 2003-2013 over 10,000 construction permits were issued in Tbilisi, which totally amount 12 million sqm.3 construction space. In 10% accordance to this period only 2,000 units were completed with 2.3 million sqm. Despite such a negative interdependence of these indicators, it should Low segment be noted that the quantity of completed constructions are characterized by 45% Medium segment a growing trend. Premium segment 1 The segmentation was based on selling prices reported from developers. Premium segment 45% – USD 1,200 and higher, Middle segment between USD 800-1,200 and Low segment from USD 400 to USD 800.
2 Suspended constructions include large-sized projects and/or small-sized suspended projects of the development companies, managing more than one project.
Source: Colliers International 3 Permits for I-IV class buildings, new constructions and renewals.
23 TBILISI | REAL ESTATE MARKET REPORT 2014 Main Development Projects in Tbilisi Key
Airport
Metro Station Akhmeteli Theatre Main streets of the city
Sarajishvili” Main development projects
Guramishvili”
Grmagele”
Didube
Gotsiridze
Delisi Medical 4 University 3
Vazha-Pshavela Technical Station Square University6 8 5 7 Marjanishvili
Rustaveli 2
Liberty Square Avlabari
Varketili
300 Aragveli Isani
Samgori
1 Construction Completion # Developer Project/Location District Area (sqm.) Date 1 Dirsi/AS Georgia Cholokashvili Street Isani 236,603 2015/2016 Hualing Special 2 Varketili Economy Samgori 144,122 2015 Economic Zone Palace 1, Saburtalo 3 Axis Saburtalo 114,218 2015 Street MaQro 4 Green Budapest Saburtalo 48,832 2016 Construction 5 GDG 70 Abashidze Street Vake 40,708 2015
Domus 13 Tamarashvili 6 Saburtalo 37,633 2016 Development Street Metra 7 Metra Park Bagebi Vake 37,558 2015 Development 8 Archi Group Archi Towers Vake 35,456 2016
Source: Developers, Operators/Property Managers, Colliers International
24 TBILISI | REAL ESTATE MARKET REPORT 2014 Tbilisi Residential Market Overview - Transactions of residential units in Tbilisi 2009 - 2014 F Demand 25 20 19 19 20 The number of transactions in Tbilisi has been growing steadily. 17 16 15
Since 2009 the average annual growth rate has been 5%. Only in Thousands 15 2011 was there a slight 2% decrease comparing with the previous year. According to our forecast we are expecting 6% growth in 10 transactions in 2014. 5
- Transaction volume 2009 2010 2011 2012 2013 2014 F
In 2012, the residential real estate transaction volume was USD 774 Source: National Agency of Public Registry, Colliers International million. In 2013 it grew by 7%. The expectation for 2014 is a 4% increase, to USD 860 million. Transaction volume USD 2012 - 2014 F
Transaction distribution by districts $1,000
$800 The largest share of transactions is represented is Saburtalo district $278 with 21%. Then comes Samgori, Gldani and Nadzaladevi, even $600 though these parts of the city do not have the largest shares of Millions supply, the high volumes are caused by low prices, as these districts $400 $774 $829 represent city suburbs. Vake and Mtatsminda together, account only $581 10% of total transactions. $200 $0 Transaction distribution by size of dwelling unit4 2012 2013 2014 F Source: National Agency of Public Registry, Colliers International
The largest share of transactions is for small flats (< 50 sqm.) in most Transaction distribution by districts in districts. This difference is more pronounced in suburban parts of the Tbilisi 2014 Chughureti city – Chughureti, Gldani, Nadzaladevi, and Samgori. Vake district Krtsanisi 3% 4% holds the biggest portion of 150-250 sqm. units in registered Mtatsminda transactions. Most of these transactions occurred in newly built 4% residential buildings, of a type with very low numbers in the suburbs, Didi Dighomi which is why the proportion of large apartment transactions is much 6% Saburtalo 21% lower in suburbs.
Vake 6%
Isani 4 Samgori The figures are calculated using 0-250 sqm. residential property 8% transactions from the database of the National Agency of Public 16% Registry. Didube 9% Nadzaladevi Gldani 10% 13%
Source: National Agency of Public Registry, Colliers International Note: Didi Dighomi is a part of Saburtalo district
Distribution of transactions in Tbilisi districts by size 2014
60% 0-50 51-70 71-100 101-150 151-250 57% 50% 50% 49% 48% 46% 40% 44% 40% 39% 30% 35% 33% 30% 28%28% 28% 26% 26% 26% 20% 24%24% 25% 24% 21% 21% 22% 21% 20% 21% 20% 19% 20% 19%18%17% 10% 14% 11%13% 13% 11% 10% 11% 9% 5% 0% 5%4% 3% 7%1% 4% 0% 6%1% 2%0% 0% Vake Mtatsminda Saburtalo Didi Dighomi Krtsanisi Didube Chughureti Gldani Nadzaladevi Isani Samgori
Source: Colliers International Note: Didi Dighomi is a part of Saburtalo district
25 TBILISI | REAL ESTATE MARKET REPORT 2014 Map of Tbilisi Districts
Gldani 10,354 Didi Dighomi 53,096 3,422 USD 577 9,677 94,000 sqm. USD 584 Nadzaladevi 86,000 sqm. 7,512
15,209
USD 651
Saburtalo 129,000 sqm.
3,794
38,709
USD 915 Didube
939,000 sqm. 10,129 30,659
USD 753
182,000 sqm.
Chugureti 5,379 Samgori
Vake 10,809 2,752
3,286 USD 871 60,026 Isani 46,349 12,000 sqm. USD 600 7,799 USD 923 230,000 sqm. 549,000 sqm. 45,310 USD 738
409,000 sqm.
Krtsanisi Mtatsminda 2,484 5,817 12,284 16,978 USD 801 USD 1,115 75,000 sqm. 78,000 sqm.
Key Density (inh/km²)
Stock (unit)
Price (average transaction price in district) Pipeline (ongoing and pipeline projects) Source: Colliers International Note: Didi Dighomi is a part of Saburtalo district
26 TBILISI | REAL ESTATE MARKET REPORT 2014 Tbilisi Residential Market Overview - Average selling price of transactions 2012 - Q3 2014 Price Indices $900 Selling price by type $850 $835 $834 $835 $826 $823 $827 Selling prices by type can be divided into three segments: low, $815 $817 $815 $819 $810 medium and premium. Housing price by type varies from $630 to
$1,680 per sqm. depending on the location and condition of property. $800
The premium segment includes premium class projects with additional facilities such as renovation and fit-out. Selling prices starts from USD $750 1,200. The medium segment includes middle class projects where no Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 additional facilities are provided. Selling price ranges from USD 800 to 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 USD 1,200. This segment represents 45% of the development pipeline stock. Low segment residential units are mostly extended in suburbs of the city. Source: National Agency of Public Registry, Colliers International
Selling price by district
The most prestigious and expensive flats are represented in Vake, Mtatsminda and some parts of Saburtalo. In these districts the price per square metre is 40%-50% higher than the average district prices. Middle class supply occurs mainly in following districts: Ortachala and part of Avlabari. In this class, prices vary from $700 to $1,000 per square metre. Other districts are considered to be less prestigious and prices are comparatively low.
In 2014, the highest price per square metre was recorded in Mtatsminda district, while the market activity was very low and in an area where only 26% of the sale transactions are conducted. Market activity, the highest rate in the Samgori district - 75%, but the average selling price of $ 600 US dollars per square metre is low.
Selling price of transactions
The average selling price is very stable due to new supply matching increased demand. In 2014 the market average selling price stands at USD 832.
Average selling price by type in Tbilisi ($/sqm.) 2012 - Q3 2014
$2,000
$1,653 $1,665 $1,677 $1,648 $1,617 $1,611 $1,633 $1,644 $1,564 $1,508 $1,518 $1,500
$974 $951 $953 $967 $932 $966 $971 $958 $958 $937 $940 $1,000
$672 $634 $645 $638 $646 $631 $643 $653 $648 $656 $663
$500 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Premium segment Medium segment Low segment Source: Colliers International
27 TBILISI | REAL ESTATE MARKET REPORT 2014 1 room 2 rooms 3 rooms Tbilisi Residential Market Overview – Rent Prices USD/month Rent Prices & Yields min max min max min max Central districts $270 $330 $360 $450 $490 $600
Rental rate by district Middle class districts $220 $270 $290 $350 $370 $460
Suburbs $170 $210 $250 $310 $320 $400 The average rent prices for an apartment in the suburbs are characterized with more volatile than in the middle class and central Average $245 $335 $450 districts. This is caused by an insufficient supply of apartments in the suburbs. The current situation, compared with the first quarter of 2010, shows that the rental rate in central districts and middle class Source: Colliers International districts decreased by 21% and 3% respectively. In suburbs rent prices grew by 34%. Yield for individual dwelling unit 2011 - Q3 2014 12% Rental rate by type
In the third quarter of 2014 the rent prices by types of apartment in 10% Tbilisi send no significant changes. In one and three-room apartments, the rent price increased by 2% with 1% growth in two- room apartments. In one-room apartments the average rent stands 8% at USD 245, in two-room apartments - USD 335 and in three-room apartments - USD 450. 6% Q1-2011 Q3-2011 Q1-2012 Q3-2012 Q1-2013 Q3-2013 Q1-2014 Q3-2014 Yield for individual dwellings
Until the end of 2011 the highest yield segments were characterized Central districts Middle class districts by flats in the middle class districts, but in the beginning of 2012, due Suburbs Average to the reduction of rent prices and the increase of selling prices the yield fell to 9.08%. Within the last four years, the highest income was Source: Colliers International observed in the third quarter of 2010, when the average yield reached 10.1%. Yield VS annual interest rate on long-term deposit Q3 2014 Generally, real estate and bank deposits are considered as the 10% alternative investments. Therefore, the yield for individual dwellings 9.44% 9.51% should be compared with long-term deposit interest rates. In 2013, 9.12% the yield for all three types of districts became more profitable than 7.60% bank deposits. 5%
0% Central Districts Middle Class Suburbs Annual interest Districts rate on long-term deposit (USD)
Source: National Bank of Georgia, Colliers International
Average rent prices by districts 2011 - Q3 2014
$600 $498 $480 $473 $500 $458 $462 $453 $452 $448 $455 $448 $437 $417 $395 $413 $410 $400 $365 $354 $334 $358 $351 $351 $328 $333 $324 $325 $322 $320 $339 $334 $340 $353 $300 $321 $350 $347 $328 $333 $325 $332 $328 $322 $327 $305 $303 $307 $297 $277 $277 $200 $253 $268 $273 $273 $270 $243 $235 $227 $197 $208 $210 $207 $212 $100
$- Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2012 2013 2014
Central districts Middle districts Suburbs Average Source: Colliers International
28 TBILISI | REAL ESTATE MARKET REPORT 2014 LISI VERANDA, TBILISI
Conclusions and Outlook
The residential real estate market in Tbilisi has been During recent years the most developed districts in Tbilisi is characterized by increased demand and supply in the last three Saburtalo, where the largest share of development projects are years. At the same time, selling prices did not change represented. It should be noted that the selling price per square significantly. Annual 2-3% of selling price increase is expected metre accords to middle-class category, which is why the market during next three years. activity is high. Therefore, the density of district provides the Positive demographics, population growth and mortgage lending opportunity for further development. activities from the banks are also creating the improving demand The majority of the development projects do not offer property prospects in the long term. management and this may become a distinct selling point in the The average living area stands at 23 sqm. per capita, also the future. positive trend of demographics indicates that demand on newly Recently, Tbilisi has seen an upward trend of townhouse type constructed apartments will remain growing trend and also the constructions started due to positive demand for this type of Soviet-type refurbished buildings will be replaced gradually. housing. The developments are mainly represented nearby Residential real estate remains one of the attractive investment recreational zones of Vake, Saburtalo, Krtsanisi and Didgori tools for local population as well as non-resident Georgians. The districts, which benefit from a quiet environment, ecologically mentioned fact is also caused by higher yield figures for fresh air, green territory. Also the topography of the city provides individual dwelling units, than long-term deposit rates in foreign fascinating panoramic views from different locations and districts currency. over Tbilisi. In long-term forecast the growing trend of demand will proceed on townhouse type constructions.
29 TBILISI | REAL ESTATE MARKET REPORT 2014 Georgia – foreign trade overview External Trade of Georgia (2007-2014 January - November) Georgia has signed the Association Agreement (AA) with the 10,000 European Union, which included the Deep and Comprehensive Free 7,842 7,875 7,730 7,058 Trade Area (DCFTA) agreement. The EU commission reported that, if 8,000 6,301 implemented and sustained, the DCFTA could increase exports to 5,212 5,257 6,000 4,500 the EU by 12% and imports by 7.5%. In the long-term, it could boost 2,910 2,628 national income by USD 365 million (705 million GEL). 4,000 2,189 2,377 1,677 1,232 1,495 1,134 During last four years, the import-export balance of Georgia varied 2,000 between USD 5,465 million and USD 3,580 million. In December 0 2013 the balance was reported to be USD 4,965 million. The average 2007 2008 2009 2010 2011 2012 2013 2014 growth rate of imports was 15.3% and, at the same time, the export Jan-Nov rate was growing 20.5%. import export The major export commodities from Georgia are cars (24%) (the major part of the mentioned figure comes to re-export to Azerbaijan) Source: National Statistics Office of Georgia and Ferroalloys (8%). Petroleum & petroleum oils and cars are major import commodities. Major Commodity Positions by Exports Azerbaijan, Armenia and Russia are the largest trading partners in 2013 with 20%, 11% and 10% share of total Georgian export. China is a major source of imported goods, representing 20% of total imports. Motor cars 24%
Ferroalloys 8%
Other Nuts products 6% 52% Copper ores and concentrates 6% Fertilizers 4%
Source: Ministry of Economy
Major Commodity Positions by Imports in 2013
Pertroleum and petroleum oils 12%
Other Motor cars products 9% Petroleum 69% gases and other gaseous 4%
Medicaments Wheat 4% 2%
Source: Ministry of Economy
30 TBILISI | REAL ESTATE MARKET REPORT 2014 Georgia – Transport and Logistics Infrastructure
Georgia provides significant investment opportunities in the Due to the fact that Russia eliminated discounts on transit in manufacturing sector, which already contributes up to 12% to the direction of Ukraine, Georgian Railway is expected to gross domestic product of the country and, since 2007, has become more competitive. Completion of the Baku-Tbilisi- attracted more than $ 1.2 billion in investments. New Kars (BTK) railway in 2015 will also stimulate advancement opportunities are expected to be grasped by Greenfield of Georgian Railway. Therefore, Georgia aspires to be, and investments in export oriented manufacturing sectors, for which can be, the best place for regional offices, regional stocks access to the European market would be attractive. Therefore, and various value chains. together with international and local experts, the Government of Poti Sea Port is the largest port in the Republic of Georgia. Georgia is undertaking a deep analysis of competitive sectors The port currently serves as the European gateway for in order to find ways of stimulating investment inflows, international trade in Georgia, Armenia and Azerbaijan and attracting new technology and know-how and creating high is ideally located to become a future hub for Central Asia value-added production in the country. trade. Poti Sea Port has experienced high growth over the From the perspective of transport and logistics, Georgia can last decade and the fundamentals for continued solid growth serve as a gateway for foreign companies interested in the remain. APM Terminals Poti is operating Poti Sea Port in a Caucasus/CIS region due to its geographic location and open joint venture with RAKIA. A plan to build a new deep sea business environment. Georgia is uniquely positioned to port in Anaklia, which is located on the Black sea coast, has capitalize on increasing trade flows between Europe, the also been announced. The new port will take the country's Caspian Region, Central Asia and China in the foreseeable logistic capabilities to a new level. future. The country offers the shortest route between the Black Georgia has four airports in different regions of the country. Sea and the Caspian Sea. The railway line connecting Georgia The largest one is in the capital city Tbilisi, operated by TAV and Turkey is in the final stage of development and it will Airports. The other airports are in Batumi, Mestia and further facilitate trade in the entire region. The government is Kutaisi. investing heavily in the development of road infrastructure, including highways and local roads. Currently, modern warehouse and logistics facilities hardly exist in Georgia and are mostly owner-occupied. The only Georgia has 20,229 km of public roads, including 1,474 km of significant recent development is the first phase of the international, 3,326 km of state and 15,439 km of local roads. Gebrüder Weiss logistics park near Tbilisi Airport. The Reconstruction of Georgia’s central highway is one of the top anticipated development of infrastructure and manufacturing priorities in the Government’s infrastructure rehabilitation in Georgia, combined with its increasingly recognized program. Most roads of international importance were strategic location at the cross roads of Europe and Asia, will reconstructed and upgraded in 2005. open up opportunities for modern industrial real estate.
KHASHURI
31 TBILISI | REAL ESTATE MARKET REPORT 2014 Tbilisi – Warehouse Market Overview Leasable supply distribution and vacancy rate by classes in Tbilisi (sqm/%) H1 2014 The total amount of warehouse space in Tbilisi amounts to 1.3 million square metres, of which 910,000 square metres (70%) is owner-occupied 300 50% and 380,000 square metres is leasable area. Modern European standard 250 40% warehouse and logistics space did not exist until, in 2013, Austrian provider 251 40% Gebrüder Weiss delivered 10,000 square metres of A class warehouse 200 26% 30% near Tbilisi Airport. Thousands 150 20% Breakdown by types 100 118 10% 50 10 89% of total leasable stock is dry storage and 11% cold storage. The total capacity of cold warehouses in Tbilisi is around 170,000 tons. The biggest 0 0% A class B class C class portion of dry storage is B class warehouses and the least portion A class warehouses. Supply Volume (LHS) Vacancy Rate (RHS) Source: Colliers International Analysis of rental rate by types Leasable supply distribution and vacancy rate The average rent in A class dry storage stands at USD 11.4 per square by types in Tbilisi (sq.m./%) H1 2014 metre, in B class it equates to USD 4.7 and in C class – USD 2.4. The rent price in cold type storage is around USD 15.9 for B class and USD 14 in C class. A class cold storage is not available in Tbilisi. 400 60%
51% 50% Vacancy rate by types 300 338 40%
The average vacancy rate in dry warehouses in Tbilisi stands at around Thousands 200 30% 23% and for cold storage around 51%. The high vacancy of cold storage is 23% 20% mainly caused by seasonality. The average vacancy rate of A class 100 warehouses in Tbilisi stands at 0%, B and C classes have 26% and 40% of 10% 41 vacancy respectively. 0 0% Dry Storage Cold Storage Key players Supply Volume (LHS) Vacancy Rate (RHS) Source: Colliers International Gebrüder Weiss is the only supplier of A class warehousing in Tbilisi. A big proportion of supply is provided by local companies, which own recently Average rent in dry and cold storage built or refurbished buildings with additional warehouse facilities. Lilo 1, warehouses in Tbilisi (USD) H1 2014 Zahesi 2007 and Transservice are some of the larger local suppliers.
16 Consumer breakdown by categories 15.9 12 14.0 The highest share of occupied space in listed warehouses in Tbilisi comes 11.4 from F&B companies and hypermarkets (48%), for example: Smart, 8
Furchet Georgia, Carrefour, Natakhtari and Tolia. Another big proportion of 4 4.7 demand comes from importers of auto parts, building materials and 2.4 construction tools – 16% and 14% respectively. Among them should be 0 mentioned Bosch, which recently opened its first large scale regional A class B class C class warehouse in Southern Caucasus at Gebrüder Weiss. Third and fourth Dry Storage per sq.m. Cold Storage per ton place is occupied by local providers of consumer goods & appliances and pharmaceutical companies such as Aversi, PSP and GPC. Source: Colliers International
Issued construction permits Demand distribution in Tbilisi for leasable stock H1 2014 According to the National Statistics Office of Georgia, in 2010-H1 2014 around 500 permits were issued for the construction of warehouse Building Consumer materials buildings in Tbilisi, totalling 653,000 square metres. The majority of these goods and 14% permits represent small sized (< 3,000 square metres) buildings which are appliances 9% predominantly owner-occupied. During 2014, 91 construction permits were Pharmacy issued, of which the majority is owner-occupied or small-sized. None of 8% them were suspended. In the next two years, six new leasable warehouses will be added to the market with total an area of 57,000 square metres. Auto parts Food & 16% beverage 48%
other 5%
Source: Colliers International
32 TBILISI | REAL ESTATE MARKET REPORT 2014 GEBRÜDER WEISS, TBILISI
Main Market Players
Warehouse Developer Location District Class Type Category Main Occupiers Space (GLA)
Kakheti Highway, Lilo Gebrüder Weiss LLC Airport Adjacent 10,000 A Dry Leasable Tegeta Motors, Bosch (Samgori) Territory 105a Mshvidoba Zahesi 2007 LLC Gldani 50,600 B Dry Leasable Toyota, Natakhtari Street 98 K.Tsamebuli Isani Trade Center, Transservice LLC Isani 10,000 B Dry Leasable Avenue Furchet Georgia Philip Morris Georgia, Lilo Lilo 1 LLC 14 Iumashevi Street 60,000 B Dry Leasable PSP Pharma, Aversi (Samgori) Pharma 29 Demetre Didi Dighomi G & A Logistics LLC 3,300 B Cold Leasable Carrefour, Smart, Tolia Tavdadebuli Street (Saburtalo) Magnum Electronics, Sakinvest LLC 32 Agladze Street Didube 20,000 B Dry Leasable Ziller Georgia Casa Calda (Tbili Lilo LC Tbilisi LLC 4 Iumashevi Street 18,000 B Dry Leasable Sakhli), Lider (Samgori) Distribution
Source: Developers, Operators/Property Managers, Colliers International Note: Didi Dighomi is a part of Saburtalo district Upcoming Projects in Tbilisi
Warehouse Construction Completion Developer Location District Space Class Category Type Status Date (GLA) Kakheti Highway, Lilo Gebrüder Weiss LLC Airport Adjacent 37,000 A Leasable Announced Greenfield N/A (Samgori) Territory Diplomat Georgia Orkhevi Industrial Owner Samgori 5,327 B Ongoing Greenfield August 2015 LLC Zone occupied December Lilo Mall LLC Lilo (parcel 02/031) Samgori 4,376 B Leasable Ongoing Greenfield 2015 Nearby 29 Foam Georgia LLC Andronikashvili Gldani 3,828 B Leasable Ongoing Greenfield January 2016 Street Owner Ilori – 2005 LLC 2 Chirnakhuli Street Samgori 3,393 B Ongoing Greenfield June 2015 occupied Dighomi, in proximity Owner Euro Park LLC to Agrarian Saburtalo 3,049 B Ongoing Greenfield May 2015 occupied University
Sum 56,973
Source: Developers, Operators/Property Managers, Colliers International
33 TBILISI | REAL ESTATE MARKET REPORT 2014 Existing And Future Projects Map in Tbilisi
Zahesi 2007 Foam Georgia
Akhmeteli Theatre G & A Logistics Euro Pack
Sarajishvili
Guramishvili
Grmagele”
Didube
Gotsiridze
Sakinvest
Medical University Nadzaladevi Delisi
Tsereteli
Vazha-Pshavela Technical University
Station Square
Rustaveli
Liberty Square Avlabari Transservice Diplomat Georgia Lilo Mall Varketili LC Tbilisi 300 Aragveli Lilo 1 Isani Ilori 2005 Samgori Gebruder Airport Weiss Gebruder Weiss Central Railway Station
Main market players Main streets of the city
Upcoming projects River Mtkvari
Source: Developers, Operators/Property Managers, Colliers International
34 TBILISI | REAL ESTATE MARKET REPORT 2014 Warehouse Map of Tbilisi Districts
Gldani and Nadzaladevi Didi Dighomi Dry Cold Dry Cold 84,739 2,000 4,234 3,300 $3.3 N/A $4.9 N/A 27% N/A 33% 20%
Didube
Dry Cold 47,545 5,600 $4.8 N/A 10% 35%
Samgori Isani Dry Cold Dry Cold 156,147 13,250 40,592 2,600 $3.6 $16.9 $3.1 $12.7 24% 52% 27% 30%
Lilo
Dry Cold 5,200 14,100 $2.4 $15.8 N/A 62%
Key Warehouse type
Gross leasable area Source: Colliers International Average rental rate Note: Didi Dighomi is a part of Saburtalo district, Lilo is a part of Samgori district
Vacancy rate
35 TBILISI | REAL ESTATE MARKET REPORT 2014 LILO 1, TBILISI
Conclusions and outlook
Of all sectors in the Tbilisi real estate market, the industrial facilitate growth in the sector. Combined with Georgia’s market is the least developed. With the exception of the confirmed orientation to Europe, featuring the recently recently completed Gebrüder Weiss facility in Tbilisi, modern signed Association Agreement and DCFTA, these public A-class space is non-existent and developer-led schemes initiatives should result in strongly improved conditions for have not yet started. The market is further characterized by growth of the industrial real estate market. a very high share of (local) owner-occupied stock and a limited amount of international occupiers. With current modern supply at a very low level and A-class vacancy at 0%, this potential is already evident. The sole A- After the collapse of Soviet Union state-owned industrial class provider GW has recently confirmed its expansion buildings came into possession of individuals. This event plans in Tbilisi, fuelled by achieved rents of over USD 11 per promoted the growth of the low class warehouse supply and square meter per month. currently, majority of this buildings are occupied by the local Governments stated policy and strategic location is giving companies. International and local brands mainly take up A Georgia the opportunity to become regional hub for the and B class warehouse space located in Tbilisi. It should be neighbor countries. Entrance of international large-scale noted that low indices of exports is one of the major factor of distributor companies and progress of manufacturing obstacle the development of warehouse market. industry will also accelerate the development of warehouse market in Tbilisi. Given the country’s strategic position and potential as a gateway between Europe and CIS/Asia, it is anticipated that Given Georgia’s relatively narrow economic base, the development of the warehouse market will accelerate in potential of the industrial real estate market will remain coming years, especially in Tbilisi, which is the most modest for the coming years, but with strong economic developed city in terms of infrastructure facilities. The Baku- growth and public investment initiatives, the market is ready Tbilisi-Kars railway and bypass railway road will likely for further development.
36 TBILISI | REAL ESTATE MARKET REPORT 2014 Turnover of cinemas, theatres and Entertainment Industry museums in Georgia mln GEL (2009-2013)
60 Overview 47.8 48.4 50 45.0 39.8 The entertainment Industry in Tbilisi can be divided into four main 40 categories: gambling, cultural entertainment, active entertainment, gastronomy & wine tourism. 30 19.0 20
Cultural Entertainment 10
0 Cinemas 2009 2010 2011 2012 2013
In the cinema industry of Tbilisi international operators are not Source: National Statistics Office of Georgia represented and the market is submitted by three local operators: Rustaveli Cinema, Amirani Cinema and Cinema House Number of Cinemas, Theatres, accommodating up to 1,600 people. The vast majority of visitors Concert Halls and museums are locals and resident Georgians. 30 28 Rustaveli Cinema is the largest movie theatre in Tbilisi, consisting of five screens of various sizes and one VIP cinema hall offering 25 customers additional facilities. The largest hall of the cinema has 20 17 a capacity of up to 400 seats. Rustaveli Cinema is operated by 15 Rustaveli Cinema JSC which also operates Amirani Cinema in Tbilisi . 10 5 5 The supply of movie theatres in Tbilisi will grow sharply in early 2015. A new branch of Rustaveli Cinema will be opened in Tbilisi 0 Mall in 2015. Rustaveli Cinema also plans to open another branch Tbilisi in new shopping center Tbilisi East Point. This movie theatre will consist of 10 screens. Source: National Statistics Office of Georgia Colliers International Small scale cinema houses are becoming increasingly popular in Tbilisi offering flexibility and more comfort to the Georgian Cinemas in Tbilisi audience. Several such movie houses are operating in the city, such as Cache and Cinema City. Number of Name Location Capacity The turnover of cinemas, theatres and museums in Georgia screens amounted to GEL 48.4 mln in 2013. In the first half of 2014, the Rustaveli turnover of the sector amounted to GEL 21.8 mln. Tbilisi 5 750 Cinema
Amirani Tbilisi 3 650 Theatres & concert hall Cinema
Tbilisi dominates theatre market of Georgia with 16 theatres and Cinema House Tbilisi 1 150 4,500 seats.
The major theatres in the city are Rustaveli State Drama Theatre and Marjanishvili State Drama Theatre. Source: Colliers International Tbilisi Concert Hall, with a capacity of 2,200 seats, is the largest hall in Georgia. It generally hosts important cultural events of Rustaveli Theatre, Tbilisi Theatres and Concert Halls in Tbilisi Tbilisi.
The Refurbished Tbilisi Opera and Ballet Theatre is planned to Number of open in the spring of 2015. Reconstruction has been underway Name Location Capacity stages since 2010. Rustaveli Tbilisi 3 1,230 Theatre
Marjanishvili Tbilisi 4 780 Theatre
Tbilisi Concert Tbilisi 1 2,200 Hall
Art and Music Centre, Batumi Source: Colliers International
37 TBILISI | REAL ESTATE MARKET REPORT 2014 Museums The vast majority of Georgian museums are concentrated in Tbilisi. The recently refurbished Georgian National Museum and Ethnographic Museum, occupying 52 hectares of land, are the most visited places of the country.
In the near future the Fine Art Museum of Tbilisi will be opened on the central avenue of the city. The museum will launch in 2016. The first and second floors of the building will be assigned to an exposition center and offices for administration. The museum will occupy the upper three floors of the complex.
Fine Art Museum of Tbilisi
Museums in Tbilisi Number of Museum Visitors in Georgia Name Location (thousand person) 1,200 1,101 994 Ethnographic Museum Turtle Lake Highway, Tbilisi 1,000 730 800 705 Georgian National Museum 3 Rustaveli avenue, Tbilisi 616 473 600 446 436 Soviet Occupation Museum 3 Rustaveli avenue, Tbilisi 301 400
200 Source: Colliers International 0 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: National Statistics Office of Georgia
Planned Cinemas, Theatres, Concert Halls and Museums in Georgia
Number of Type Location Capacity Completion date screens/stages
Cinema Tbilisi East Point 10 screens 1,800 seats 2015
Cinema Tbilisi Mall 5 screens 650 seats 2015 Tbilisi Opera and Ballet 25 Rustaveli avenue, 1 stage 1,065 seats 2015 Theatre Tbilisi 7 Rustaveli avenue, Museum - - 2016 Tbilisi
Source: Developers, Operators/Property Managers, Colliers International
Ethnographic Museum, Tbilisi
Archeological treasures of Ethnographic Museum, Tbilisi Georgia
38 TBILISI | REAL ESTATE MARKET REPORT 2014 Gaming Venues Turnover of gaming venues in Georgia mln GEL (2009-2013) Surrounded by countries where gambling is prohibited or
severely restricted, Georgia has a regional competitive 1,400 1,213.4 advantage in the gaming business. A steady stream of 1,200 996.0 foreigners from Turkey, Azerbaijan, Armenia and the Middle 1,000 East are attracted to Georgia for this reason. 800 600 The casino market in Tbilisi is better developed than in other 366.3 400 Georgian regions. In December 2014, three casinos are 112.7 200 74.3 operating in the city and one casino is due to open during the 0 next years. 2009 2010 2011 2012 2013
Besides casinos slot clubs and bookmakers are popular Source: National Statistics Office of Georgia gambling amenities in Tbilisi.
The government has loosened casino regulations to attract Existing and planned Casinos in Tbilisi foreign and local investments and stimulate the development of the casino business. Existing Planned The government of Georgia has introduced a flat tax system so that gaming operators no longer have to pay income tax. Millennium Hotel Casino Payouts are also no longer taxed. Quarterly fees on tables, slot Shangri La machines and Gaming are required, on top of an annual license for slot machines. Casino Adjara The turnover of gaming venues has been growing since 2009 and reached its highest level of GEL 1,314 mln in 2013. The Casino Iveria reported turnover of gaming venues in 2013 is more than three times higher than the same figure for 2011. In the first half of 2014 turnover of the casino industry amounted to GEL 338.1 Source: Developers, Operators/Property Managers, Colliers mln. We expect the annual turnover of gaming venues in 2014 International to be lower than in 2013 reflecting a reduced number of tourists Permit Fee According to Geographic form Turkey. location in Georgia
Gaming regulations in Georgia Geographic name Permit fee
1. A casino operator has to obtain a permit from the State Tbilisi GEL 5,000,000 Authorities of Georgia. The permit is issued by the Revenue Service of Georgia; Batumi 2. The fees for obtaining the permit are – for the whole Surrounding area of the Lake GEL 250,000 territory of Georgia (excluding Batumi, Dusheti Bazaleti Municipality nearby the Lake Bazaleti, Gudauri Borjomi Municipality recreation territory, Bakuriani, Kobuleti, Borjomi, Dusheti Municipality Tskaltubo and Signaghi municipalities) – no less than 5 000 000 (five million) GEL per year; Akhaltsikhe Municipality GEL 100,000 3. A casino operator in Tbilisi is entitled to a free permit for opening three gaming clubs in the territory of Tbilisi. The Kazbegi Municipality permit for operating the gaming club will be granted for no more than the permit granted for casino operation. Tskaltubo Municipality 4. The validity of the permit is five years. Sighnaghi Municipality - 5. In order to obtain the gaming permit the person shall Bakuriani meet the special requirements defined by the law and Gudauri special acts of the Government. The requirements are the following: The rest of the country GEL 5,000,000 a) Casino Regulation that shall include: the list of tables in the casino, indicating the manufacturers number, title, date of production, manufacturing Source: Colliers International Georgia country; the minimum and maximum bets; the manual for operation; Gaming Rules; Rules of Conduct; the place and the time for issuance of prizes; the time for consideration of the claim; b) Types of coins; c) The types of games that are not indicated in Casino Regulations are prohibited to be offered.
39 TBILISI | REAL ESTATE MARKET REPORT 2014 Turnover of sports complex, stadiums and Active Entertainment sports clubs in Georgia mln GEL (2009-2013)
Stadiums and sports complexes 50 45.1
The reported turnover of sport complexes and stadiums . 40 amounted to GEL 24.8 mln in 2013, which is 2.3 times higher 30 than the same figure for 2009. Turnover increased rapidly in 24.4 24.8 2012 as a result of new football transfer agreements. In the first 20 14.4 half of 2014, turnover of the sector amounted to GEL 10.4 mln. 11.0 10 Tbilisi is the most developed region in Georgia for sports infrastructure. Two large stadiums (Boris Paichadze Tbilisi 0 Dinamo arena and Mikheil Meskhi Stadium) are operating in the 2009 2010 2011 2012 2013 capital, with the third one (rugby stadium) in the pipeline.
Tbilisi will host the Youth Olympic Games and the UEFA Super Source: National Statistics Office of Georgia Cup in 2015. The government actively supports the development of sports infrastructure in Tbilisi.
A new sports complex is being constructed near Park Mziuri. Gino Paradise The complex will host the 2015 Youth Olympic Games and will comprise a central open court with a capacity of 850 seats, eight open courts and two indoor tennis courts accommodating an audience of up to 300.
It is also planned to develop the area of “Dighmis Chalebi” . Under the plan, a water sports complex will also launch in 2015 as a part of the Youth Olympic Games. The complex will be located in Dighomi and will consist of two swimming pools, a gym, fitness centre and sauna.
The major players in the Georgian aqua park market are Euro Park and the recently opened Gino Paradise. Euro Park manages four aqua parks throughout Georgia. Its complexes Existing Stadiums in Tbilisi are located in Tbilisi, Batumi, Kutaisi and Telavi. Gino Paradise operates an aqua park which is spread over 22 a hectare land plot and includes several swimming pools, saunas and a spa Name Location Capacity Sport centre. Boris Paichadze Football, Health and well-being is growing in popularity, encouraging the Tbilisi 55,000 development of fitness clubs in Georgia. The international brand Tbilisi Dinamo Arena Rugby Aspria Fitness launched in Tbilisi in 2013. Currently, Aspria Mikheil Meskhi Football, Tbilisi 27,000 Fitness operates four branches throughout the city and has Stadium Rugby expansion plans. A rugby stadium is being constructed in Tbilisi, Basketball, near the US embassy. The stadium will have a capacity of Tbilisi Sports Palace Tbilisi 9,000 30,000. Judo
Shevardeni Tbilisi 3,000 Football
Source: Colliers International Planned Stadiums and Sports Complexes
Completion Name Location Capacity date
Rugby Stadium Tbilisi 30,000 N/A Rugby Stadium Tbilisi 3,000 2015 Lelo Additional Completion Name Location info date Near Mziuri Tennis Courts 11 Courts 2015 Park, Tbilisi Swimming “Dighmis 2 Swimming 2015 Pool Chalebi”, Tbilisi Pools
Source: Developers, Operators/Property Managers, Colliers International
40 TBILISI | REAL ESTATE MARKET REPORT 2014 Theme parks Parks in Tbilisi
Name Location Visitors per year Mtatsminda Park is the largest amusement parks in Tbilisi. It is located in Tbilisi, occupying a 100 hectare land plot. The park is Mtatsminda Plateau, Mtatsminda Park 700,000-800,000 open throughout the year and the total number of visitors varies Tbilisi between 700,000 and 800,000 per year. Vake-Saburtalo Tbilisi Zoo 500,000 Zoo is also located in Tbilisi. City Hall plans to move Tbilisi Zoo district, Tbilisi from the city centre to the surrounding area of Tbilisi Sea. The Didube-Chugureti Mushtaidi Park 150,000 new zoo will occupy a total area of 45 hectares. district, Tbilisi
During the next two to three, years the Tbilisi City Hall plans to Rose Revolution Gldani-Nadzaladevi 90,000 develop Mziuri Park and the surrounding area of the high-rise Park district, Tbilisi buildings of TSU for recreation purposes. Botanical Garden Tbilisi 120,000
Vake-Saburtalo Vake Park N/A district, Tbilisi
Source: Colliers International
Mtatsminda Park Mtatsminda Park
Tbilisi Botanic Garden Tbilisi Zoo
Vake Park, Tbilisi
41 TBILISI | REAL ESTATE MARKET REPORT 2014 Gastronomy Turnover of Cafe-bars, Restaurants and Canteens in Georgia mln GEL (2009-2013) Restaurants, cafes and bars 600 508.9 The turnover of cafes and restaurants has been growing rapidly 487.0 500 since 2009 and reached GEL 508.9 mln in 2013. The highest 390.1 increase occurred in 2011, when the growth amounted to 59%. 400 According to statistics, types of visitors are corporate (30%) and 300 individuals (70%). In total 75% of visitors are locals and only 245.3 175.2 25% tourists, of which the vast majority is represented by post- 200 Soviet countries. 100 Supply is dominated by traditional Georgian restaurants 0 providing national dishes and a unique environment. Many 2009 2010 2011 2012 2013 restaurants focus on serving customers the traditional Georgian
dish, Khinkali. Source: National Statistics Office of Georgia Foreign cuisine takes up a relatively small proportion of total supply. Eastern dishes are more or less new for Georgian society and are steadily growing in popularity. Number of Cafes, Restaurants, Bars and Canteens (2014 August)
700 574 600 500 400 300 199 200 99 100 0 Tbilisi Cafes and Restaurants Bars Canteens
Source: National Statistics Office of Georgia Otium Main Market Players
Operator Brands
In the Shadow of Metekhi, Bread House, MGroup Maspindzelo!, and Otium
Chela, Puri Guliani, Function Suite, GMT Group Lounge Bar Funicular and Restaurant Funicular
Shemoikhede Genatsvale and Dzveli AMS Group Kalaki
Café Kala, Acid Bar, Café Near Opera, 19 Kala Group and KGB
Source: Colliers International
Restaurant Funicular
42 TBILISI | REAL ESTATE MARKET REPORT 2014 MAP OF TBILISI
Akhmeteli Theatre
Sarajishvili”
Guramishvili”
Grmagele”
Didube
Gotsiridze
Medical University Delisi Nadzaladevi
Tsereteli
Vazha-Pshavela Technical Station Square University
1 4 Marjanishvili
Rustaveli
Liberty Square Avlabari
3 Varketili
300 Aragveli Isani
Samgori
Main streets of the city 1 Abashidze Street, Paliashvili Street River Mtkvari 2 Aghmashenebeli Alley, Beliashvili Street
Café-bars, foreign cuisine 3 Shardeni Street, Kote Source: Colliers International Apkhazi Street
Georgian restaurants Akhvlediani Street, Kiacheli 4 Street
43 TBILISI | REAL ESTATE MARKET REPORT 2014 Conclusions and Outlook
With a relatively narrow domestic demand base and a strong This also applies to active entertainment, with a small number of need for tourism infrastructure improvements, the entertainment sport complexes and theme parks in Tbilisi industry in Tbilisi is in a early stage of development. Until recently, the gaming business was heavily promoted by the The main development opportunity, however, is related to government regulations and give the country a competitive Georgia’s unique gastronomic culture and a highly distinct advantage in the region. Until now, only Tbilisi has benefitted cuisine. Combined with hotel development prospects, increased from this. investment by both domestic and foreign capital are anticipated in the coming years The low level of supply in this sector is perhaps best illustrated by the fact that the capital Tbilisi accommodates just three The relocation and development of modern zoo was recently movie theatres. Other cultural entertainment facilities are also announced by Tbilisi City Hall near the Tbilisi Sea. In the city highly limited throughout the country, with just a handful of with a population around 1.2 million inhabitants this may (often outdated) museums and concert halls. become another investment opportunity for international investors and zoo operators.
44 TBILISI | REAL ESTATE MARKET REPORT 2014 Appendix 1 Typical Lease Terms, Registration of Property, Construction Permits Typical Lease Terms
Office lease contracts for one year and more period in As usual international tenants have three years and Georgia should be registered in National Agency of longer term contracts and lease contract period for local Public Registry. companies varies between one to three years.
Typical lease terms in Georgia are based on fixed The average brokerage fee for renting the property amount per sqm. varies between 10%-15% of the first year’s rent, depending on the lease term.
Registration of Property
In Georgia, the National Agency of Public Registry is the and registration. In this case, the bilingual purchase state institution responsible for registration of property, document is to be drafted directly by both parties or registering both transfers between private entities and by their authorized representatives. The Agency’s state-owned properties. representative certifies the signatures and may provide recommendations if the document is not In case of private transfer, the purchaser has two accurately drafted, but does not carry any options: responsibility for the validity or its content.
• Via a notary – contract drafting and legalization by The National Agency of Public Registry is represented the notary and subsequent registration. The notary in: a) Public Services Halls (Tbilisi, Gori, Kutaisi, Batumi, assumes responsibility for the content of the draft Ozurgeti, Mestia, Zugdidi, Rustavi, Marneuli, Gurjaani, and its legalization. The presence of a translator and Telavi, Kvareli and Akhaltsikhe) and b) regional his signature on the bilingual purchase document is departments of the National Agency of Public Registry required and the translator assumes responsibility for (located in cities throughout the country). the authenticity of texts. Time for preparation of the bilingual document and its legalization varies In case the property is purchased from the depending on the notary state/municipality (privatization, auction or other form of purchase) the documents should be submitted directly to • Via the National Agency of Public Registry – direct the Agency. submission of the purchase contract for legalization
46 TBILISI | REAL ESTATE MARKET REPORT 2014 Construction Permits
For the purposes of construction, buildings are divided into 5 Ordinary terms per each stage (working days): types: Stage I 1st class buildings – no construction permit is required; 12 days for II and III class buildings 2nd class buildings – buildings with low risk factors; 15 days for all IV class buildings, for Gudauri, 3rd class buildings - buildings with medium risk Bakuriani, Bakhmaro, Ureki recreation territories factors; and for special regulatory zones on the territory of Borjomi (excluding V class buildings), also for all th 4 class buildings - buildings with high risk factors, buildings that require ecological expertise th 5 class buildings – buildings with very high risk 30 days for V class buildings factors. Stage II The permit issuance process is divided into 3 stages: 18 days for II and III class buildings Stage I – Statement of urban construction terms 20 days for all IV class buildings, for Gudauri, Stage II – Approval of architectural-construction Bakuriani, Bakhmaro, Ureki recreation territories project and for special regulatory zones on the territory of Stage III – Issuance of Construction Permit Borjomi (excluding V class buildings), also for all buildings that require ecological expertise and for V State organs responsible for the issuance of permits: class buildings Local self-governmental (municipal) organs – for Stage III II, III class buildings within the municipal territory (at stages I and II) except from Gudauri, Bakuriani, 5 days for II, III and IV class buildings Bakhmaro, Ureki recreation territories and for special 10 days for V class buildings regulatory zones on the territory of Borjomi. Exceptions: Local self-governmental (municipal) organs – for IV class buildings (at stages I and II) with the The special terms for permission process: participation of corresponding state organs Construction permits concerning: Local self-governmental (municipal) organs – for II, III and IV class buildings (at III stage) III class buildings with an intensity coefficient up to independently (including Gudauri, Bakuriani, 1500 sqm. and for buildings with a height of up to Bakhmaro, Ureki recreation territories and for special the 14 meters that will be located on the territories regulatory zones on the territory of Borjomi) where urbanization regulatory plans do not exist and are organized according to land use or which Tbilisi City Hall - for II, III and IV class buildings in are organized according to the perspective Tbilisi Municipality (at all stages) independently development regulatory plans on the territory of Tbilisi – the permission process may involve II and Corresponding local organs of Adjara Autonomous III stages only Republic and Abkhazia Autonomous Republic - for II, III and IV class (at all stages) on the territory of The simplified permit procedure may involve just 2 stages the Autonomous Republics and the permit is issued in the second stage. Local self-governmental (municipal) organs – II, The terms for the simplified procedure are as follows: III and IV class buildings (at stages I and II) for Gudauri, Bakuriani, Bakhmaro, Ureki recreation Stage I – 12 days for II and III class buildings territories and for special regulatory zones on the 15 days for all IV class buildings, for Gudauri, territory of Borjomi – with the participation of the Bakuriani, Bakhmaro, Ureki recreation territories Ministry of Economy and Sustainable Development. and for special regulatory zones on the territory of Ministry of Economy and Sustainable Borjomi (including V class buildings), also for all Development – for V class buildings buildings that require ecological expertise. Stage II (issue of permit) – 20 days for all classes
47 TBILISI | REAL ESTATE MARKET REPORT 2014 Appendix 2 Primary Information Sources, Data Used for the Study Definition and Assumptions Primary Information Sources, Data Used for The Study Definition and Assumptions Retail Market
In the process of preparing the survey, we were guided by the and taxes. information provided by property managers, governmental Vacancy Rates institutions/agencies (National Agency of Public Registry, Vacancy rate is calculated as ratio of total vacant stock to total National Statistics Office of Georgia, National Bank of Georgia, stock within the specified area. Vacant Stock is calculated as Ministry of Economy and Sustainable Development of total currently vacant within the specified area. Georgia, City Halls). Materials from various Georgian and Demand: The measurement plans of retail spaces, provided foreign publications have also been used, such as, by GREMIC (Georgian Real Estate and Investments www.gnta.ge, www.geostat.ge, www.colliers.com. In addition, Management Company) and retail market characteristics of we developed our conclusions and recommendations based Tbilisi were analyzed. Based on above mentioned analysis upon our own local market knowledge and insight. assumptions about average floor space occupied by different segment of tenants were done: Definition and Assumptions Category Subcategory sqm Banks 150 Total Space of Bazaars: Total retail stock of bazaars is Banks, Finance, Insurance Microfinance Organizations 100 calculated using GIS program. That means measuring Lombard 20 occupied space on satellite map of Tbilisi and Batumi. Restaurants 500 Total Space of High Street retail: We used GIS program for Café-Bars 100 Bars, Restaurants, Entertainment and gaming centers 200 calculating total floor space of street retail in Tbilisi and Entertainment Batumi. Based on market analysis we concluded that Fast Food 100 Confectionaries 100 averagely les than half of ground floor space is occupied by Clothes and Shoes 150 tenants. Consequently we made 60% adjustment to total Sports Shops 150 Clothes and Accessories ground floor space. Jewelry and Accessories 50 High Street Rents: We analyzed listings provided by real Optic Shops 50 Consumer Goods Consumer Goods 300 estate portals and made adjustments for negotiation (10%). Supermarkets 250 VAT (18%) and income tax (20%) was also excluded, where Food and Drink Hypermarkets 3000 needed. We also obtained lease agreements from National Groceries 50 Agency of Public Registry in order to have accurate Clinical and Esthetic Centers 200 information about existing rental rates on high streets. Pharmacies 50 Health and Beauty Beauty Salons 40 Rents of Shopping Centers: Calculation of rental rates in Perfume 100 shopping centers is based on the information provided by Dental Clinics 100 Book Shops 30 centres’ administration and statements made by retail space Other Toy Shops 100 owners. Actual lease contract are also requested and Other 100 analyzed from National Agency of Public Registry. Average rental rate do not comprise payments for additional services
49 TBILISI | REAL ESTATE MARKET REPORT 2014 Definition and Assumptions Discount Rate: is considered to be 13%. Gross Building Area: is total construction area of the building Yield/Reversion Rate: is considered to be 12.5%. including common and technical spaces. Stabilized year: is the financial period after which it is Net Leasable area: is calculated by deducting common and considered that vacancy rate/occupancy rate will not be technical area from the gross building area. It is considered changed. The third year will be considered as stabilized year that net leasable area amounts 80% of gross building area for in case of shopping centre development. shopping centres. Present Value of Future Cash Flows: is calculated as the sum Net Rent: is based on the market data. It is assumed that the of the future cash flows before stabilized year and the net rent for the investment indicators sections is 10% more reversion value of the property at the end of stabilized year. than the market figure, because of the fact that hypothetical Development Cost: is the sum of Construction Expense, shopping centre will be recently developed building. marketing & leasing expense, professional Service fee and Occupancy rate: is calculated by deducting percentage land cost. amount of vacancy rate from 100%. Construction Expense: is calculated based on the interviews Annual Revenue: is calculated by multiplying net rent to the with construction cost accountants, real estate developers and net leasable area. valuers. It is calculated as the amount (USD) of per sqm gross Net Annual Revenue: is calculated by multiplying annual building area basis. Construction expense also includes pre revenue to the occupancy rate. acquisition costs and architectural works. Construction Management Fee: is the fee paid for the property management expense is considered to be USD 950 per sqm for the modern and is calculated as percentage amount of net sales. In the shopping centre and USD 500 per sqm for the traditional case of shopping centre development management fee is 1% shopping centre. for modern shopping centres and 1%-for traditional shopping Marketing &Leasing Expense: is the expense which is paid for centres. the advertising and selling activities during the development Reserve for replacement: is the fee paid for the replacement period. Marketing & leasing expense is calculated as 10% of and refurbishment of the building, furniture, fixtures and fittings construction expense. and is calculated as percentage amount of net sales. In the Professional Service Fee: is the cost paid for the case of shopping centre development, reserve for replacement management and supervision of the project development. It is is considered to be 3% for modern shopping centres and 1%- calculated as 10% of construction expense. for traditional shopping centres. Land Cost: Is considered to be USD 900 per sqm for the Marketing & Letting Fee: Is the fee paid for advertising and modern shopping centres and USD 700 for traditional brokerage services and is calculated as percentage amount of shopping centres. The gross floor area ratio (K2) is considered net sales. It is assumed that marketing & letting fee is 3% for to be 2 for modern shopping centres and 1.5 for traditional modern shopping centres and 1% for traditional shopping ones. centres. Past/Future Project Investment Volume: the information Property tax: is calculated as 1% of net sales. regarding past/future projects investment volume is based on Insurance cost: is the fee paid for the building insurance. It is the data provided by real estate developers. In some cases calculated as 0.3% of net sales. there were no available data and justifications were made Total Operating Cost: is the sum of management fee, reserves based on the information, provided by construction cost for replacement, marketing & letting fee, property tax and accountants. The type/class of the past and future projects insurance cost. It is considered that service fee covers utility was also considered during such justifications. cost and due to this assumption, utility cost was not included in Performance Indicator analysis by Districts: is based on the the calculation of total operating cost. administrative borders of city districts. Market Conjunctures for Operating Profit: The operating profit is calculated by different real estate segments were also considered during deducting annual operating cost from the net annual revenue. mentioned analysis and several districts were added/merged Operating Profit Margin: Is calculated by dividing the operating based on its importance in supply and demand. profit to the net annual revenue. Correctness of the information: The information used in the Profitability Index: is an index that attempts to identify the survey is objective and Colliers believes that the report reflects relationship between the costs and benefits of a proposed current conditions in the Georgian retail market. However, project through the use of a ratio calculated as: PV of Future Colliers cannot guarantee the accuracy of third party data Cash Flows/Initial Investment. A ratio of 1.0 is logically the referenced in the report and cannot be held responsible for lowest acceptable measure on the index. Any value lower than that element. “Colliers International Georgia” is not responsible 1.0 would indicate that the project's PV is less than the initial for possible consequences of any actions taken by the investment. As values on the profitability index increase, so consumer/reader of the given survey. does the financial attractiveness of the proposed project.
50 TBILISI | REAL ESTATE MARKET REPORT 2014 Primary Information Sources, Data Used for The Study Definition and Assumptions
Office Market
In the process of preparing the survey, we were guided by the would indicate that the project's PV is less than the initial information provided by property managers, governmental investment. As values on the profitability index increase, so does institutions/agencies (National Agency of Public Registry, the financial attractiveness of the proposed project. National Statistics Office of Georgia, National Bank of Georgia, Discount Rate: is considered to be 13%. Ministry of Economy and Sustainable Development of Georgia, Yield/Reversion Rate: is considered to be 12.5%. City Halls). Materials from various Georgian and foreign Stabilized year: is the financial period after which it is considered publications have also been used, such as, www.gnta.ge, that vacancy rate/occupancy rate will not be changed. The third www.geostat.ge, www.colliers.com. In addition, we developed year will be considered as stabilized year in case of business our conclusions and recommendations based upon our own local centre development. market knowledge and insight. Present Value of Future Cash Flows: is calculated as the sum of the future cash flows before stabilized year and the reversion Definition and Assumptions value of the property at the end of stabilized year. Development Cost: is the sum of Construction Expense, Gross Building Area: is total construction area of the building marketing & leasing expense, professional Service fee and land including common and technical spaces. cost. Net Leasable area: is calculated by deducting common and Construction Expense: is calculated based on the interviews with technical area from the gross building area. It is considered that construction cost accountants, real estate developers and net leasable area amounts 80% of gross building area for valuers. It is calculated as the amount (USD) of per sqm gross business centres. building area basis. Construction expense also includes pre Net Rent: is based on the market data. It is assumed that the net acquisition costs and architectural works. Construction expense rent for the investment indicators sections is 10% more than the is considered to be USD 850 per sqm for the A class buildings, market figure, because of the fact that hypothetical business USD 675 per sqm-for the A- class buildings and USD 575 for B+ centre will be recently developed building. class buildings. Occupancy rate: is calculated by deducting percentage amount Marketing &Leasing Expense: is the expense which is paid for of vacancy rate from 100%. the advertising and selling activities during the development Annual Revenue: is calculated by multiplying net rent to the net period. Marketing & leasing expense is calculated as 10% of leasable area. construction expense. Net Annual Revenue: is calculated by multiplying annual revenue Professional Service Fee: is the cost paid for the management to the occupancy rate. and supervision of the project development. It is calculated as Management Fee: is the fee paid for the property management 10% of construction expense. and is calculated as percentage amount of net sales. In the case Land Cost: Is considered to be USD 1,000 per sqm for A class of business centre development, management fee is 5% for A Buildings and USD 500-for A- class buildings and USD 300 per class buildings and 2%-for A- class buildings and 1.5%-for B+ sqm-for B+ class buildings. The gross floor area ratio (K2) is class buildings. considered to be 4.6 for all business centres. Reserve for replacement: is the fee paid for the replacement and Past/Future Project Investment Volume: The information refurbishment of the building, furniture, fixtures and fittings and is regarding past/future projects investment volume is based on the calculated as percentage amount of net sales. In the case of data provided by real estate developers. In some cases there business centre development, reserve for replacement is were no available data and justifications were made based on considered to be 1% for all business centres. the information, provided by construction cost accountants. The Property tax: is calculated as 1% of net sales. type/class of the past and future projects was also considered Insurance cost: is the fee paid for the building insurance. It is during such justifications. calculated as 0.3% of net sales. Performance Indicator analysis by Districts: is based on the Total Operating Cost: is the sum of management fee, reserves administrative borders of city districts. Market Conjunctures for for replacement, property tax and insurance cost. It is considered different real estate segments were also considered during that service fee covers utility cost and due to this assumption, mentioned analysis and several districts were added/merged utility cost was not included in the calculation of total operating based on its importance in supply and demand. cost. Correctness of the information: The information used in the Operating Profit: The operating profit is calculated by deducting survey is objective and Colliers believes that the report reflects annual operating cost from the net annual revenue. current conditions in the Georgian office market. However, Operating Profit Margin: Is calculated by dividing the operating Colliers cannot guarantee the accuracy of third party data profit to the net annual revenue. referenced in the report and cannot be held responsible for that Profitability Index: is an index that attempts to identify the element. “Colliers International Georgia” is not responsible for relationship between the costs and benefits of a proposed possible consequences of any actions taken by the project through the use of a ratio calculated as: PV of Future consumer/reader of the given survey. Cash Flows/Initial Investment. A ratio of 1.0 is logically the lowest acceptable measure on the index. Any value lower than 1.0
51 TBILISI | REAL ESTATE MARKET REPORT 2014 Primary Information Sources, Data Used for The Study Definition and Assumptions Hotel Market
In the process of preparing the survey, we were guided by the connection to the structure of a building or utilities including information provided by hotel managers, governmental chairs, tables, beds, wardrobes etc. institutions/agencies (Georgian National Tourism Agency, GOP (Gross Operating Profit): Gross Operating Profit is National Statistics Office of Georgia, National Bank of Georgia, defined as total revenue less all departmental expenses and Ministry of Economy and Sustainable Development of Georgia, undistributed expenses (and management fees if they apply). Tbilisi City Hall, Batumi Tourism Department). Materials from Also referred to as IBFC (Income before Fixed Costs). various Georgian and foreign publications have also been Management Fees: Management Fees are fees charged by an used, such as, www.gnta.ge, www.geostat.ge, organization managing a property for management services www.colliers.com. In addition, we developed conclusions and and supervision of the property. Typically made up of a base recommendations based upon our own local market fee and an incentive fee. knowledge and insight. NOI (Net Operating Income): Incomes after operating expenses have been deducted but before income taxes and Definition and Assumptions interest are deducted (same as EBITDA). Operating Margin: GOP (Gross Operating Profit) divided by ADR/ARR (Average Daily Rate/Average Room Rate): total revenue Calculated by dividing revenues by the number of rooms sold. PAR (Per Available Room): Revenue and expenses are often ADR is based on market data (information gathered from the expressed as amounts per number of rooms available to let. hotel operators, owners and developers) POR (Per Occupied Room): Revenue and expenses are often AGOP (Adjusted Gross Operating Profit): Adjusted Gross expressed as amounts per room occupied. Operating Profit is defined as total revenue less all Profitability Index: is an index that attempts to identify the departmental expenses and undistributed expenses and relationship between the costs and benefits of a proposed additional fees including management fees. Typically used as project through the use of a ratio calculated as: reversion value the basis for an incentive management fee. of the property by the end of stabilized year/Initial Investment. Bed nights: Quantifies the number of guests resident in the A ratio of 1.0 is logically the lowest acceptable measure on the hotel. index. Any value lower than 1.0 would indicate that the Departmental Expenses: Departmental Expenses relates to project's revenue is less than the initial investment. As values costs incurred in each revenue generating department. on the profitability index increase, so does the financial Discounted Cash flow (DCF): A DCF is a projection of attractiveness of the proposed project. expected future earnings over a period of time (usually 10 Yield/Reversion Rate: is considered to be 12.5%. years) to reflect what the expected cash flow would be and is Reversion Value: is calculated as NOI or EBITDA of the in inflated values. A DCF valuation involves the capitalization stabilized year divided by the reversion rate of the 10 year income stream discounted back to the valuation Stabilized year: is the financial period after which it is date using capitalization and discount rates relevant to the considered that vacancy rate/occupancy rate will not be market at the date of the valuation and thus reflects the time changed. The third year will be considered as stabilized year in value of money and the realistic return expectations of the case of warehouse development. purchaser. Rack Rate: The standard price of a hotel room before any DOP (Departmental Operating Profit): Total departmental discounting has taken place and is often a statement of revenue less cost of sales, payroll costs and direct operating position in the market. expenses. RFF&E (Replacement Reserve FF&E): A fund; typically a EBITDA(R) Earnings Before Interest Tax Depreciation percentage of total revenue, put aside to replace FF&E. Amortization (and Rent): Total revenue less all departmental RevPAR (Revenue per Available Room (or Room Yield): expenses, undistributed expenses (and management fees if Calculated by dividing rooms revenue by rooms available for they apply) and fixed costs but before deductions for interest, sale in the same period. tax, depreciation, amortization (and rent if it is applicable). FF&E - Fixtures, Fittings and Equipment: FF&E are movable fixtures, fittings or other equipment that have no permanent
52 TBILISI | REAL ESTATE MARKET REPORT 2014 Room Occupancy: Calculated by dividing the number of room adjusted rate for International Brand hotels was, on average, nights sold during a period by the total number of rooms 35%, with a 20% discount from the rack rate for all other hotel available in the same period. Room occupancy is based on classes in Tbilisi. Our determination of ADR takes into account market data (information gathered from the hotel operators, the above mentioned discounts. owners and developers). During the information retrieval Development Cost: is the sum of Construction Expense, land process several hotel managers (owners) did not wish to cost, technical equipment cost, furniture, fixture & fitting cost, provide any information about occupancy. In these cases, the operating supplies & equipment cost, soft cost and pre- occupancy rate was determined by observing similar sized and opening & working capital. type hotels (where we had information) and their respective Performance Indicator analysis by Districts: is based on the occupancy rates. administrative borders of city districts. Market Conjunctures for Room nights: Describes the number of rooms that are different real estate segments were also considered during occupied in a hotel, regardless of the number of people staying mentioned analysis and several districts were added/merged in the room. based on its importance in supply and demand. UOE (Undistributed (Operating) Expenses): This classification Correctness of the information: The information used in the is used for administrative and general expenses, marketing survey is objective and Colliers believes that the report reflects expenses, energy costs, and property operation and current conditions in the Georgian Hotel market. However, maintenance expenses. Colliers cannot guarantee the accuracy of third party data Negotiation adjustment rate: Rack hotel room rates are higher referenced in the report and cannot be held responsible for than average daily rates. This means that many rates are that element. “Colliers International Georgia” is not responsible individually suggested to customers. The amount of discount for possible consequences of any actions taken by the differs according to the hotel type and management. After consumer/reader of the given survey. interviewing hotel managers it was determined that the
53 TBILISI | REAL ESTATE MARKET REPORT 2014 Primary Information Sources, Data Used for The Study Definition and Assumptions Residential Market
In the process of preparing the survey, we were guided by the Total Sales: is calculated by multiplying selling price to net information provided by property managers, governmental sales area. institutions/agencies (National Agency of Public Registry, Profitability Index: is an index that attempts to identify the National Statistics Office of Georgia, National Bank of Georgia, relationship between the costs and benefits of a proposed Ministry of Economy and Sustainable Development of project through the use of a ratio calculated as: Total Georgia, City Halls). Materials from various Georgian and Sales/Initial Investment. A ratio of 1.0 is logically the lowest foreign publications have also been used, such as, acceptable measure on the index. Any value lower than 1.0 www.gnta.ge, www.geostat.ge, www.eurostat.com, would indicate that the project's revenue is less than the initial www.colliers.com. In addition, we developed our conclusions investment. As values on the profitability index increase, so and recommendations based upon our own local market does the financial attractiveness of the proposed project. knowledge and insight. Development Cost: is the sum of Construction Expense, marketing & leasing expense, professional Service fee and Definition and Assumptions land cost. Large-sized developers: Large-sized developers includes Construction Expense: is calculated based on the interviews companies that have large scale construction projects (over with construction cost accountants, real estate developers and 50,000 sqm.) and also are involved renovation, refurbishment valuers. It is calculated as the amount (USD) of per sqm gross and fit-out. building area basis. Construction expense also includes pre Middle-sized developers: Middle-sized developers are actively acquisition costs and architectural works. Construction implementing middle scaled projects (from 10,000-50,000 expense is considered to be USD 420 per sqm for premium sqm.). segment residential development, USD 350 per sqm-for Small-sized developers: Small-sized developers are middle segment residential development and USD 280 per represented by developers of condominiums, limited liability sqm-for low segment residential development. companies and houses etc., whose total construction area is Marketing & Leasing Expense: is the expense which is paid for under 10,000 sqm. the advertising and selling activities during the development Passive developers: Passive developers are those companies, period. Marketing & leasing expense is calculated as 10% of who have encountered problems during development and construction expense. have consequently suspended construction. Professional Service Fee: is the cost paid for the Premium segment: The segmentation was based on selling management and supervision of the project development. It is price, the average varies around USD 1,200 and higher. calculated as 10% of construction expense. Medium segment: The segmentation was based on selling Land Cost: Is considered to be USD 1,200 per sqm for price, the average varies around USD 800 to USD 1,200. premium segment residential development, USD 400 per sqm- Low segment: The segmentation was based on selling price, for middle segment residential development and USD 250 per the average varies around USD 400 to USD 800. sqm-for low segment residential development. The gross floor Suspended Construction: Suspended constructions include area ratio (K2) is considered to be 3 for premium segment large-sized projects and/or small-sized suspended projects of residential development, 4-for middle segment residential the development companies, managing more than one project. development and 4-for low segment residential development. Issued Construction Permits: Issued construction permits for Past/Future Project Investment Volume: the information I-IV class buildings, includes new constructions and renewals. regarding past/future projects investment volume is based on Central Districts: In this category are represented Vake, the data provided by real estate developers. In some cases Saburtalo, Mtatsminda, Vera and Sololaki. there were no available data and justifications were made Middle Class Districts: Nutsubidze plateau, Avlabari, based on the information, provided by construction cost Ortachala, Krtsanisi, Chughureti, Didube, Dighomi Massive, accountants. The type/class of the past and future projects Nadzaladevi and Didi Dighomi. was also considered during such justifications. Suburbs: Temka, Muxiani, Gldani, Avchala, Isani, Samgori, Performance Indicator analysis by Districts: is based on the Varketili, Vazisubani and Ponichala. administrative borders of city districts. Market Conjunctures for Ongoing & Future Projects: For the market study it was different real estate segments were also considered during analyzed development projects above 1,000 sqm. mentioned analysis and several districts were added/merged Gross Building Area: is total construction area of the building based on its importance in supply and demand. including common and technical spaces. Correctness of the information: The information used in the Net Sales Area: is calculated by deducting common and survey is objective and Colliers believes that the report reflects technical area from the gross building area. It is considered current conditions in the Georgian residential real estate that net sales area amounts 82% of gross building area for market. However, Colliers cannot guarantee the accuracy of premium and middle segment residential projects and 85%-for third party data referenced in the report and cannot be held low segment residential project. responsible for that element. “Colliers International Georgia” is Selling Price: is based on the market data for each segment of not responsible for possible consequences of any actions residential development. 10% negotiation adjustment is taken by the consumer/reader of the given survey. deducted from the announced selling prices.
54 TBILISI | REAL ESTATE MARKET REPORT 2014 Primary Information Sources, Data Used for The Study Definition and Assumptions
Warehouse Market
In the process of preparing the survey, we were guided by the Yield/Reversion Rate: is considered to be 12.5%. information provided by property managers, governmental Stabilized year: is the financial period after which it is considered institutions/agencies (National Agency of Public Registry, that vacancy rate/occupancy rate will not be changed. The third National Statistics Office of Georgia, National Bank of Georgia, year will be considered as stabilized year in case of warehouse Ministry of Economy and Sustainable Development of Georgia, development. City Halls). Materials from various Georgian and foreign Present Value of Future Cash Flows: is calculated as the sum of publications have also been used, such as, www.gnta.ge, the future cash flows before stabilized year and the reversion www.geostat.ge, www.colliers.com. In addition, we developed value of the property at the end of stabilized year. our conclusions and recommendations based upon our own local Development Cost: is the sum of Construction Expense, market knowledge and insight. marketing & leasing expense, professional Service fee and land cost. Definition and Assumptions Construction Expense: is calculated based on the interviews with construction cost accountants, real estate developers and Gross Building Area: is total construction area of the building valuers. It is calculated as the amount (USD) of per sqm gross including common and technical spaces. building area basis. Construction expense also includes pre Net Leasable area: is calculated by deducting common and acquisition costs and architectural works. Construction expense technical area from the gross building area. It is considered that is considered to be USD 400 per sqm for A class warehouses, net leasable area amounts 95% of gross building area for USD 280 per sqm-for B class warehouses and USD 200 per shopping centres. sqm-for C class warehouses. Net Rent: is based on the market data. It is assumed that the net Marketing &Leasing Expense: is the expense which is paid for rent for the investment indicators sections equals market figure. the advertising and selling activities during the development Occupancy rate: is calculated by deducting percentage amount period. Marketing & leasing expense is calculated as 10% of of vacancy rate from 100%. construction expense. Annual Revenue: is calculated by multiplying net rent to the net Professional Service Fee: is the cost paid for the management leasable area. and supervision of the project development. It is calculated as Net Annual Revenue: is calculated by multiplying annual revenue 10% of construction expense. to the occupancy rate. Land Cost: Is considered to be USD 150 per sqm for A class Management Fee: is the fee paid for the property management warehouses, USD 100 per sqm-for B class warehouses and USD and is calculated as percentage amount of net sales. The 50 per sqm-for C class warehouses. The gross floor area ratio management fee considered to be 10% for A class warehouses, (K2) is considered to be 0.7 for all warehouse classes. 2%-for B class warehouses and 1.5% for C class warehouses. Past/Future Project Investment Volume: the information Reserve for replacement: is the fee paid for the replacement and regarding past/future projects investment volume is based on the refurbishment of the building, furniture, fixtures and fittings and is data provided by real estate developers. In some cases there calculated as percentage amount of net sales. The reserve for were no available data and justifications were made based on replacement cost is considered to be 1% all warehouse classes. the information, provided by construction cost accountants. The Marketing & Letting Fee: Is the fee paid for advertising and type/class of the past and future projects was also considered brokerage services and is calculated as percentage amount of during such justifications. net sales. It is assumed that marketing & letting fee is 1% all Transaction trend analysis: Warehouse selling transactions are warehouse classes. limited. Basically, warehouses are part of the industrial real Property tax: is calculated as 1% of net sales. estate in the database of National Public Registry of Georgia. Insurance cost: is the fee paid for the building insurance. It is There is not available relevant data for statistical analysis of calculated as 0.3% of net sales. selling transactions. Total Operating Cost: is the sum of management fee, reserves Benchmarking with European cities: Since the warehouses are for replacement, marketing & letting fee, property tax and considered part of the industrial sector and market researches in insurance cost. It is considered that service fee covers utility cost the comparable countries of Georgia are not conducted on and due to this assumption, utility cost was not included in the regular basis, benchmarking of Georgian warehouse market calculation of total operating cost. figures was not available by the date of the research. Operating Profit: The operating profit is calculated by deducting Performance Indicator analysis by Districts: is based on the annual operating cost from the net annual revenue. administrative borders of city districts. Market Conjunctures for Operating Profit Margin: Is calculated by dividing the operating different real estate segments were also considered during profit to the net annual revenue. mentioned analysis and several districts were added/merged Profitability Index: is an index that attempts to identify the based on its importance in supply and demand. relationship between the costs and benefits of a proposed Correctness of the information: The information used in the project through the use of a ratio calculated as: PV of Future survey is objective and Colliers believes that the report reflects Cash Flows/Initial Investment. A ratio of 1.0 is logically the lowest current conditions in the Georgian warehouse market. However, acceptable measure on the index. Any value lower than 1.0 Colliers cannot guarantee the accuracy of third party data would indicate that the project's PV is less than the initial referenced in the report and cannot be held responsible for that investment. As values on the profitability index increase, so does element. “Colliers International Georgia” is not responsible for the financial attractiveness of the proposed project. possible consequences of any actions taken by the Discount Rate: is considered to be 13%. consumer/reader of the given survey.
55 TBILISI | REAL ESTATE MARKET REPORT 2014 Primary Information Sources, Data Used for The Study Definition and Assumptions
Entertainment Industry
In the process of preparing the survey, we were guided by the information provided by property managers, governmental institutions/agencies (National Agency of Public Registry, National Statistics Office of Georgia, National Bank of Georgia, Ministry of Economy and Sustainable Development of Georgia, City Halls). Materials from various Georgian and foreign publications have also been used, such as, www.gnta.ge, www.geostat.ge, www.colliers.com. In addition, we developed our conclusions and recommendations based upon our own local market knowledge and insight.
56 TBILISI | REAL ESTATE MARKET REPORT 2014 Appendix 3 Investment Indicators Shopping Centre Operating Profit Margin in Retail Market Investment Indicators Tbilisi 2014 Operating profit margin 95% In Tbilisi the shopping centre operating margin is around 85%-89% depending on shopping centre type. Traditional shopping centres 90% have higher operating profit margin, than modern ones. This fact is caused by low vacancy rate and management fee. 85%
Profitability index 80% 89% 85% Shopping centre profitability index in Tbilisi is more than the one, for 75% modern shopping centres as well as for traditional ones. This fact means that development of the shopping centre in Tbilisi is profitable 70% Modern shopping centres Traditional shopping centres Past/future project investment volume The approximate investment volume for the existing shopping Source: Colliers International centres in Tbilisi is around USD 300 million and considering the future pipeline, additional 250 million is expected to be invested during next three years. The highest investment volume had Tbilisi Shopping Centre Profitability Index in Mall and East Point USD 110 million and 90 million respectively. Tbilisi 2014 Specifications/services 1.09 The vast majority of existing modern shopping centres in Tbilisi have 1.07 central heating, ventilation and air conditioning systems. Car parking, security & cleaning services are also offered by management 1.05 companies. It is worth mentioning, that shopping centres in Tbilisi, 1.03 even modern ones, do not have high quality property management. 1.01 Improving of stated fact can be considered as one of the market 1.04 1.05 challenges in the nearest future. 0.99 0.97 It is expected that concept/design of shopping centres will be improved together with completing current developments and 0.95 Modern shopping centres Traditional shopping centres entering new international developers.
New project trend Source: Colliers International
Around 66% (70.447 sqm out of 204,238 rooms) of announced future projects in Tbilisi are greenfield and 34% is brownfield.
Construction expense
Total development cost of shopping centres in Tbilisi is calculated per sqm. The mentioned figure is USD 1,521 per sqm for modern shopping centres and USD 1.024 for traditional shopping centres. The highest share of development cost comes to construction expenses, which is 62% of total cost for modern shopping centres and 49% for traditional shopping centres.
Shopping centre development costs Modern Shopping Centre Traditional Shopping Centre (USD/per sqm net of VAT) Construction Expense 950 62% 500 49% Marketing & Leasing 26 2% 17 2% Professional Services 95 6% 40 4% Land Cost 450 30% 467 46%
Total Development Cost 1,521 100% 1,024 100%
58 TBILISI | REAL ESTATE MARKET REPORT 2014 Business Centre Operating Profit Margin in Office Market Investment Indicators Tbilisi 2014
Operating profit margin 95% The business centre operating margin in Tbilisi is around 87%-91% depending on business centre class. B+ class business centres have 90% the highest operating profit margin, than modern ones. This fact is caused by low vacancy rate and management fee. 85%
91% Profitability index 80% 89% 87%
Business centre profitability index in Tbilisi is more than the one for 75% all classes. The highest profitability index is indicated for B+ class business centres, which equals 1.46. 70% A Class A- Class B+ Class Past/future project investment volume The approximate investment volume for the existing business Source: Colliers International centres in Tbilisi is around USD 150 million and considering the future pipeline, additional 50 million is expected to be invested during Business Centre Profitability Index in Tbilisi next three years. 2014
Specifications/services 1.60 The majority of A, A- have central heating, ventilation and air 1.40 conditioning systems, modern/high quality façade, convenient 1.20 parking conditions, centralized security and cleaning services. In the lower class business centre some office spaces are sold by 1.00 individual units, which creates inconvenience in terms of property 0.80 1.46 management. Office market in Tbilisi is also characterized by high 0.60 1.17 portion of C and D class offices, which include soviet union time 1.02 buildings (majority of them needs renovation) and residential 0.40 apartments in the central part of the city, used for office purpose. 0.20 Business centres in Tbilisi were classified considering the below - mentioned criteria: A Class A- Class B+ Class • HVAC (Heating, Ventilation and Air Conditioning) • MFSS (Modern fire security system) Source: Colliers International • Elevators • Power Supply • Security System • Fit out and façade finishing • Location • Transport Access • Type of Parking (indoor parking, indoor parking with access) • Parking ration • Single Ownership • Property Management New project trend 100% of office pipeline projects is greenfield and there is no brownfield project announced on the market.
Construction expense
Total development cost of business centres in Tbilisi is calculated per sqm. The mentioned figure is USD 1,174 per sqm for A class business centres, USD 851 for A- class business centres and USD 688 per sqm for B+ class business centres. The highest share of development cost comes to construction expenses, which is 72% of total cost for A class business centres, 57% in A- class business centres and 49% for B+ class business centres.
Business centre development costs (USD/per sqm net of A Class A- Class B+ Class VAT) Construction Expense 850 72% 675 57% 575 49% Marketing & Leasing 22 2% 13 1% 13 1% Professional Services 85 7% 54 5% 35 3% Land Cost 217 19% 109 9% 65 6%
Total Development Cost 100% 851 100% 688 100% 1,174
59 TBILISI | REAL ESTATE MARKET REPORT 2014 Operating Profit Margin in Tbilisi Hotels Hotel Market Investment Indicators 2014
Operating profit margin 60%
In Tbilisi the hotel operating margin varies from 35% to 49% depending on 50% hotel type. The highest operating margin is indicated for International Brand Upscale hotels because of the combination of high occupancy levels and 40% high room rates. 30% Profitability index 49% 20% 43% 37% 35% Hotel Profitability index in Tbilisi is above one for international brand hotels (upscale brands have 1.97 of profitability index and the same figure for 10% midscale brands is 1.08). The mentioned fact underlines the potential 0% investment opportunity for branded hotels. At the same time, investment in Int. Upscale Int. Midscale Local upscale and Local Brands Brands middle class economy/budget unbranded hotels is not profitable. class
Past/future project investment volume Source: Colliers International The approximate investment volume for the existing International hotel brands in Tbilisi amounts more than USD 150 million. The mentioned sector continues to attract additional investments in the nearest future. According Hotel Profitability Index in Tbilisi 2014 to the announced hotel pipeline, more than USD 300 million is expected to be invested during next three years in Tbilisi hotel Market. 2.50
Specifications/services 2.00 Existing high class hotels buildings in Tbilisi meet all major requirements for 1.50 international operators. The vast majority of operator brands are involved in the construction and architectural phase. The major specifications offered by branded hotels include: Air conditioning, central heating, free internet, 1.00 1.97 satellite TV, telephone, mini-bar, shower, safe lock, laundry, conference facilities and restaurant. 0.50 1.08 0.68 0.46 Main branded hotels offer customers additional services such as: Airport - transfer, taxi, excursions, guide etc. The majority of hotel staff are local Int. Upscale Int. Midscale Local upscale and Local Brands Brands middle class economy/budget inhabitants who have undertaken required trainings. class New project trend Source: Colliers International Around 63% (1,665 rooms out of 2.625 rooms) of announced future projects in Tbilisi are greenfield and 37% is brownfield. It is worth mentioning, that hotel sector in Tbilisi has the highest share of brownfield projects in pipeline comparing to the another real estate sectors. Construction expense Total development cost of hotel in Tbilisi is calculated per hotel room. The mentioned figure is the highest for International upscale brand hotels (USD 130,000 per sqm and lower The main part of hotel development cost in Tbilisi comes to the construction works (around 34%-41% of total development cost), which is followed by technical equipment and land cost (12%-25%).
Hotel development costs Local Local upscale and (USD/per guest room net of Int. Upscale Brands Int. Midscale Brands economy/budget middle class VAT) class Land Cost 15,000 12% 15,000 14% 15,000 20% 10,000 25% Construction 53,300 41% 46,000 42% 26,800 36% 13,400 34% Technical Equipment 31,500 24% 24,000 22% 16,000 21% 8,000 20% Furniture Fixture & Equipment 15,700 12% 11,000 10% 5,700 8% 2,900 7%
Operating Supplies & Equipment 2,400 2% 2,000 2% 1,900 3% 1,000 3%
Soft costs 9,700 7% 10,000 9% 7,700 10% 3,800 10% Pre-Opening & Working Capital 2,400 2% 2,000 2% 1,900 3% 900 2%
Total 130,000 100% 110,000 100% 75,000 100% 40,000 100%
60 TBILISI | REAL ESTATE MARKET REPORT 2014 Residential Real Estate Development Residential Market Investment Profitability Index in Tbilisi 2014 Indicators 1.15 Profitability index 1.10 Residential real estate profitability index in in Tbilisi is above one for all segments. The mentioned fact underlines attractiveness of high 1.05 residential real estate development in the city. Profitability index for is 1.13 higher for medium segment residential developments which equals 1.13. 1.00 1.06 1.06 Past/future project investment volume 0.95
The total estimated amount of the residential real estate development 0.90 projects is around USD 1.5 milliard. Premium Segment Medium Segment Low Segment Specifications/services Source: Colliers International
The majority of residential pipeline projects are delivered in white frame condition. It includes: • Concrete flooring • Plastered walls • Communication wiring • External doors & windows Therefore, some of the new constructions have additional specifications, such as: renovation, furniture, parking and etc. Some apart hotel style projects offer customers the following services: • Concierge • Reception • Café • Boutique New project trend
100% of residential pipeline projects is greenfield and there is no brownfield project announced on the market. Operating profit margin Calculation of operating Profit Margin for residential development is not applicable, because of the fact, that each project is based on sales.
Construction expense
The development cost of residential real estate project in Tbilisi is calculated per sqm of total construction space. The mentioned figure is USD 921 per sqm for premium segment residential buildings, USD 513 for middle segment and USD 384 per sqm for low segment. The highest share of development cost comes to construction expenses, and land.
Residential real estate development costs Premium Medium Low (USD/per sqm net of VAT)
Construction Expense 420 46% 350 68% 280 73% Professional Fee 42 5% 28 5% 17 4% Marketing & Sales 59 6% 35 7% 24 6% Land Cost 400 43% 100 20% 63 16% Total Development Cost 921 100% 513 100% 384 100%
61 TBILISI | REAL ESTATE MARKET REPORT 2014 Warehouse Operating Profit Margin in Warehouse Market Investment Tbilisi 2014 Indicators 85% Operating profit margin 80% The warehouse operating margin in Tbilisi varies between 75%-81% 75% depending on warehouse class. A and B class warehouses have 81% 81% higher operating profit margin, than c class warehouses. This fact is 70% caused by lower vacancy rate and higher rents. 75% 65%
Profitability index 60% A Class B Class C Class Warehouse profitability index in in Tbilisi is above one only for A class warehouses. The mentioned fact underlines attractiveness of high quality warehouse building in Tbilisi. Profitability index for B and Source: Colliers International C class warehouses are below one, which means that development of the mentioned class warehouses are not reasonable by the date of research. Warehouse Profitability Index in Tbilisi 2014
Past/future project investment volume 1.200 The approximate investment volume for the existing warehouse 1.000 buildings in Tbilisi is around USD 120 million. It is worth mentioning, 0.800 that all C class warehouses represent soviet union period premises and their development was not considered in above mentioned 0.600 1.142 figure. The total estimated amount of future pipeline warehouse 0.400 projects is around USD 35 million. 0.746 0.520 0.200
Specifications/services - A Class B Class C Class Supply is dominated by B class warehouses, providing vast variety of services, such as ventilation system, controlled temperature, office Source: Colliers International premises, heating system, fire alarm and automatic fire-fighting system, high ceiling, loading bay, telecommunications and video surveillance, personnel facilities, fenced area. There is only one A class warehouse in Tbilisi – Gebruder Weiss – which offers customers international standards warehousing opportunities. New project trend 100% of warehouse pipeline projects is greenfield. A class warehouse is planned to be 35% (37,000 sqm.) of future projects. Construction expense
Total development cost of warehouse premises in Tbilisi is calculated for dry storages per sqm. The mentioned figure is USD 667 per sqm for A class warehouse buildings, USD 478 for B class and USD 285 per sqm for C class. The highest share of development cost comes to construction expenses, which is followed by the land cost.
Warehouse development costs A Class B Class C Class (USD/per sqm net of VAT) Construction Expense 400 60% 280 59% 200 70% Marketing & Leasing 13 2% 4 1% 2 1% Professional Services 40 6% 22 5% 12 4% Site and area improvements 214 32% 171 36% 71 25% Total Development Cost 667 100% 478 100% 285 100%
62 TBILISI | REAL ESTATE MARKET REPORT 2014 Entertainment Industry Investment Indicators
Profitability index Entertainment industry includes several segments, which consists of private and public sectors. The information is not available/confidential on the specific markets to make reliable analysis of investment indicators. Due to this fact Colliers International was unable to conduct such analysis. Past/future project investment volume The information is not available/confidential on the specific markets to make reliable analysis of investment indicators. Due to this fact Colliers International was unable to conduct such analysis. Specifications/services The industry comprises various segments providing diversity of entertainment services. Market is dominated by the companies offering customers high quality service and unique experience. They swiftly react to the market changes and create new entertainment opportunities. New project trend The majority of planned entertainment projects is Greenfield. The Tbilisi Opera House it the brownfield project planned to launch in 2015. During the recent years several brownfield projects has also been completed in Tbilisi, such as sports complex Arena, which offers sports services professionals as well as amateurs. Operating profit margin The information is not available/confidential on the specific markets to make reliable analysis of investment indicators. Due to this fact Colliers International was unable to conduct such analysis. Construction expense
The information is not available/confidential on the specific markets to make reliable analysis of investment indicators. Due to this fact Colliers International was unable to conduct such analysis.
63 TBILISI | REAL ESTATE MARKET REPORT 2014 Disclaimer
This document has been prepared by Colliers International for general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/or its licensor(s). ©2014. All rights reserved.
64 TBILISI | REAL ESTATE MARKET REPORT 2014 Project team
Mark Charlton Nikoloz Kevkhishvili MRICS Head of Research & Head of Valuation and Forecasting Advisory United Kingdom Georgia
Roger Hobkinson Ramaz Sharabidze Director Research Analyst Ireland Georgia
Bruno Berretta Mariam Benashvili Senior Research Analyst Junior Research Analyst EMEA Georgia
Zurab Kananashvili Nino Jashi Director of Professional Junior Research Analyst Services Georgia Georgia
65 TBILISI | REAL ESTATE MARKET REPORT 2014 485 offices in 64 countries on 6 continents
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67 TBILISI | REAL ESTATE MARKET REPORT 2014