RETAIL MARKET REPORT GEORGIA | 2015
Galleria Tbilisi Contents
Executive summary 3
Georgia Country Profile 4
Retail Market Fundamentals 6
Georgia Retail Market Overview 7
Tbilisi Retail Market Overview 8
Batumi Retail Market Overview 13
Kutaisi Retail Market Overview 17
Conclusions and Outlook 22
Appendix 1 - Success Story 23
Appendix 2 - property registration and construction permits 25
Appendix 3 - Primary Information Sources, Data Used for the Study, Definition and Assumptions 27
Disclaimer 29
Project Team 30
Colliers Global Stats at a Glance 31
Team Georgia at a Glance 32
2 Retail Market Report | Georgia | 2015 Executive summary
Retail trade represents one of the largest contributing sectors to The estimated prime retail yield in Tbilisi is 13% for shopping centres Georgia’s GDP. and 12% for street retail, which exceeds average CEE figures (8.6% and Retail trade is one of the largest sector in Georgian economy, providing 9.1%) significantly. 9.4% of country’s GDP in 2015 (preliminary data). The average y-o-y growth rate of the sector was 11% during 2009-2015. Together with Tbilisi’s retail spaces experienced significant occupier activity in wholesale trade, the entire sector creates around 15% of GDP and 2015. employs approximately 19% (143,187 persons in the fourth quarter of In 2015, there was a notable increase in Georgia’s retail stock. Almost 2015) of total employed persons in Georgia. 150 new stores were opened in East Point, including Carrefour (10,105 2 2 2 Along with the retail trade sector’s expansion, annual per capita retail m ), Zara (2,224 m ) and Elit Electronics (2,222 m ), which accounted expenditure has risen over the last decade. Per capita retail spending for a significant proportion of the leased space. After the opening of increased by 1.95 times from GEL 675 in 2006 to GEL 1,322 (around the new 5-screen, 740-seat cinema in Tbilisi, Cavea then added another USD 581) in 2015. This is low in comparison to the international market cinema in East Point, offering 10 screens and 1,580 seats and equipped and is reflected in its structure. For example, overall food expenditure with IMAX technology. remains very high (60% in 2015), although there is clear evidence that Among new entrants should be mentioned the first DIY hypermarket this percentage is decreasing (69% in 2006). Domino (11,114 m2) and the Lebowski Bowling Club (1,500 m2, 12 professional lanes). Both of them started operations in East Point. The Tbilisi remains Georgia’s top contributor to the growing retail space Spanish fashion brand Mango changed franchisee partners and re- supply of three main cities (Tbilisi, Batumi and Kutaisi). entered the market in 2015, opening two Tbilisi-based stores. Snap In 2015, Georgia’s supply of retail space (in Tbilisi, Batumi and Kutaisi) Fitness opened the first branch in Shopping @ Axis and has expansion 2 increased by 11%, exceeding 1,230,000 m . Despite the fact that the plans in 2016. Hard Rock Café also announced to enter the market next country’s retail landscape is still dominated by older, Soviet-era style year. stock, the total supply of modern shopping centre space increased from 16% to 25% last year and continues to rise. At 71,780 m2, the majority Opposite to Tbilisi, occupier demand Batumi and Kutaisi remains at the of this new space came from East Point, Georgia’s largest shopping very low level the mentioned fact causes the extremely high vacancy mall which opened in Tbilisi in the second half of 2015. rates of recently opened shopping centres in regional cities. According to announced future plans of retailers the tendency will be changed At 77%, the bulk of the supply is concentrated in Tbilisi, followed then during next two years. by Batumi (12%) and Kutaisi (11%). There are virtually no modern shopping centres outside of these cities and it is clear that Tbilisi will The highest rental rates were achieved in Tbilisi’s high streets. remain the major source of new supply over the next few years. The weighted average rent in high streets of Tbilisi equals USD 36 /m2, According to announced future projects, Georgia’s retail supply will rise exceeding the same figure in modern shopping centres and secondary by 166,432 m2 in 2016 and by 24,500 m2 in 2017. Hualing Mall (110,000 streets 2.25 and 1.7 times respectively. In 2015, the weighted average m2), Galleria Tbilisi (24,500 m2) and Gldani Central (22,452 m2) are the rent in Tbilisi decreased by 6.2% in secondary streets when compared largest announced projects in Tbilisi. Metro Atlas Georgia LLC will to 2014 and did not change significantly in high streets and modern launch the largest shopping centre in Batumi with 14,000 m2 of GLA in shopping centres. H2 2016. The average vacancy rate is higher in modern shopping centres (17%) Despite a robust development pipeline, Tbilisi remains far behind when compared to street retail locations (7%-8%). It is worth noting the CEE average for modern shopping centre space. that recently opened shopping centres are experiencing low vacancy The development pipeline suggests that Tbilisi’s shopping centre rates due to active leasing campaigns that start one to one and a half supply will almost double during the next four years - which will years before the opening date. When compared to 2014 figures, we see increase shopping centre stock per thousand inhabitants and exceed an improving picture, with vacancy rates decreasing in shopping the same level in Sofia. This new supply must be supported by centres and high streets by 5% and 4% respectively. economic growth and higher consumer spending to avoid declining Shopping centres in Kutaisi and Batumi are struggling with rents and increasing vacancy rates. extremely high vacancy rates. Prime rents in Tbilisi stand below the CEE average, while yields In 2015, the shopping centre supply in Kutaisi and Batumi increased by exceed average CEE figures significantly. 1.7 and 2.3 times (respectively) when compared to the same figures in The prime high street rent in Tbilisi is USD 56 /m2, which exceeds 2014. However, this increase was not followed by occupier demand, several Eastern European cities (Tallinn, Riga, Bratislava, Sofia, and and vacancy rates climbed to their peaks, hitting 48% in Kutaisi and Vilnius), but is 36% less than the average CEE figure. 51% in Batumi. In contrast, street retail vacancies remained low, and stood at 5% in Kutaisi and 9% in Batumi. The prime shopping centre rent in Tbilisi exceeds only Zagreb and equals USD 33 /m2, which is around half of the CEE average. The weighted average rents experienced little change in 2015, and ranged between USD 13-16 /m2 in Batumi and USD 11-13 /m2 in Kutaisi.
3 Retail Market Report | Georgia | 2015 Georgia – Country Profile Gudauri
Introduction 14.8% average seen last decade. It is worth noting that a large percentage Located at the crossroads of Europe and Asia, the country of Georgia of employed population are self-employed. Currently, 15.4% of the borders Turkey, Armenia, Azerbaijan and Russia. Georgia occupies an area working population are employed by Public sector, while 84.6% work in the of 69,700 square kilometres and is home to a population of 3.7 million non-public sector. In 2015, the three industrial sectors that employed the people. The country’s land borders run a length of 1,839 kilometres, while largest share of people were wholesale and retail trade, industry, and Black Sea coastline is 315 kilometres. There are two autonomous republics construction. and 71 municipalities (including 12 self-governing cities) in Georgia. Since emerging from the Soviet Union as an independent country in 1991, Economy Georgia has implemented large-scale reforms, leading to the country’s Focused on improving efficiency and overcoming expected difficulties, political and economic transformation. These changes have made clear the Georgia’s economy is structured to improve efficiency and overcome country’s choice to strengthen democracy and further their relationship difficulties, thus allowing the private sector to maintain inclusive growth. with the EU. The process of economic liberalization, backed by evident pro-Western Georgia has made business development within the country a top priority, leanings, has greatly improved the country’s competiveness for both through encouraging entrepreneurship and devising methods to attract export and investment opportunities. Georgia’s main trade partners include private investments to shifting tax incentives and making the country more Turkey, Russia, Azerbaijan, and China. attractive to the international business world. With its unique cultural Following institutional reforms designed to encourage and support heritage, highly diverse nature, and exuberant hospitality, Georgia’s entrepreneurship initiatives, Georgia’s economy has taken a giant leap tourism industry continues to grow and thrive, further bolstering economic forward in attracting new business. Over the past decade, the per capita growth. GDP increased by 2.45 times from $1,530 in 2005 to $3,743 in 2015 (at current prices). The estimated real GDP average growth equaled 2.3% for Government Q1 2016 and is forecasted to reach 3% by the end of the year. The ‘Ongoing The Georgian government shifted from a presidential to a parliamentary Country Partnership Strategy for Georgia’, developed through a republic after the October 2012 parliamentary elections. The president, collaborative effort by the World Bank Group, has further evolved to Giorgi Margvelashvili, is the head of state and supreme commander-in- ensure the effective use of public resources and increase income chief. Georgia’s parliament is located in Kutaisi City and acts as the opportunities. representative body of the country, exercising legislative power, and determining the principal directions of domestic and foreign policy. As an Tax system executive council of government ministers, the Cabinet of Georgia is Since the wave of institutional reforms, Georgia has embraced a low-tax headed by Giorgi Kvirikashvili who comes from the ruling Georgian Dream model, slashing the number of taxes and tax rates. Georgia now ranks Coalition. globally among the top ten countries with the lowest taxes and continues Based on accountability, citizen participation, technology, and innovation to bring its fiscal policies into further alignment with those of the EU. as its guiding values, today’s multi-party government continues to make Currently Georgia has concluded the Argument on the Avoidance of European and Euro-Atlantic integration a primary strategic objective. Double Taxation with 52 countries. According to the latest tax code changes, imported goods used in VAT-taxable operations will be exempt Legal System from VAT. Moreover, additional changes are planned by 2017, including the The Constitution, adopted in 1995, sets out the structure of the national removal of the profit tax for the reinvestment of funds. government as well as its powers and functions. The powers of government Georgia’s liberal tax code includes only six forms of taxes: are divided into three branches – the legislative, executive, and judicial. Profit Tax – 15% Georgia’s court system has three branches: Courts of First Instance (District Personal Income Tax – 20% or City Courts), Appellate Courts (Tbilisi Appellate Court available for Value Added Tax – 18% appeals from eastern Georgia, and the Kutaisi Appellate Court, available Import Tax – 0%, 5% or 12% for appeals from western Georgia) and the Supreme Court. Тhe Courts of Excise Tax – on a few selected goods the First Instance have jurisdiction over all civil, criminal, and administrative Property Tax – up to 1% cases. Decisions from the Courts of the First Instance may be appealed to Tax rate on dividends is defined as a 5% in Georgia. the Appellate Courts and, from there, to the Supreme Court. As an alternative to litigation, Georgian laws allow arbitration both in local as well Foreign Trade Overview as in international arbitration institutions. In 2015 Georgia exports (FOB) and imports (CIF) amounted to $2,204 mln The Constitutional Court of Georgia is the sole entity with constitutional and $7,729 mln, respectively. jurisdiction in Georgia. The top export destinations for Georgia are its neighboring countries as well as Bulgaria and China, totaling about 50% of Georgian exports. Major Population export commodities include mineral water, metals, and motor cars (mainly Georgia’s population was 3.72 million at the end of 2015, with a density of re-exported). Throughout the world Georgia is among the largest exporters 53.4 people per square kilometre and a regional average (in the Caucasus of hazelnuts, famous for their unique flavor, while the country’s wide range region) 95. Urban dwellers make up 57.2% of the total population though of natural wine products continue to grow in popularity in the Chinese, EU, the rate of urbanization is rising. Tbilisi, Georgia’s capital and the country’s and USA markets. largest city, is home to 30% of the total population, followed by Batumi Georgia’s main import partners are Turkey, Russia, and China, accounting and Kutaisi with 4.2% and 4%, respectively. Ethnic Georgians form 87% of for 33% of the country’s total imports. The primary imported goods include Georgia’s population. Other large ethnic groups in Georgia include the oil, pharmaceutical products, motor cars, electrical equipment, wheat, and Azeri (6%), Armenians (5%), and Russians (1%). sugar. Labor Market Overview Georgia’s labor force comprises approximately 2,021,500 people. The country’s economic activity rate has risen in recent years, reaching 67.8% in 2015. The current unemployment rate is 12%, which is lower than the
4 Retail Market Report | Georgia | 2015 Gudauri
Business and Investment Environment Infrastructure & Transport According to the ‘Heritage Foundation Index of Economic Freedom 2016’, Georgia’s Due to its access to important terrestrial and maritime transport routes, Georgia has economy is categorized as Mostly Free, ranking 23rd out of the 178 countries always been a key player in the transportation of cargo as well as natural gas and oil. measured. The significant improvements made to Georgia’s legislative framework Today, the three main pipelines are the Baku-Tbilisi-Ceyhan pipeline, the Baku- allowed entrepreneurship initiatives to reach new heights, encouraging domestic Supsa oil pipeline, and the South Caucasus gas pipeline. businesses and opening the door to foreign investors. Today, the country is With a capacity to export one million barrels of oil a day, the Baku-Tbilisi-Ceyhan exemplary in European and Central Asia due to the ease with which business can be (BTC) oil pipeline runs 443 km through Azerbaijan, 249 km through Georgia and conducted. It ranks 6th in the world for ‘Ease of Starting a Business’, 3rd for ‘Ease of 1,076 km through Turkey. Registering Property’, and 24th (14th in Europe and 1st in the region) for ‘Ease of The Baku-Supsa oil pipeline (the Western Route Export Pipeline, WREP) runs from Running a Business’. With no minimum capital requirements, it takes on two days to Azerbaijan to Georgia. The pipeline is 833 km long, with 375 km running through set up a new business following a quick and simple process. Foreign and local Georgia. Reconstruction of portions of the pipeline is scheduled in the near future. investors are treated equally in Georgia. The South Caucasus gas pipeline (SCP) has been operational since 2006, following Today there are four Free Industrial Zones (FIZ) in Georgia in the cities Tbilisi, Poti the route of the BTC crude oil pipeline project. The pipeline runs 691 km, with 443 and Kutaisi and several more is also planned to open including Kulevi FIZ. Two km in Azerbaijan and 248 km in Georgia. Expansion of the SCP is now underway, unique Free Tourism Zones in Anaklia and Kobuleti offers various advantages to and will eventually triple the gas volume exported through the pipeline. With the investors such as free land and ready infrastructure. annual capacity of 7 mln tons Supsa oil terminal is a storage for crude oil transported Aimed at the development of different sectors, the Georgian government has via the WREP. With higher annual capacity of 10 mln tons Kulevi oil terminal has implemented several large-scale projects. Launched in 2014, “Produce in Georgia” started functioning in 2018. is a successful state program that encourages entrepreneurship as it relates to the Launched in December 2015, the Iron Silk Road is listed among the 100 Best exportation of Georgian goods. Another interesting program which began this year Projects of Global Significance. Cargo trains will pass via Georgian transit, making is “Film in Georgia” which hopes to attract international film producers by cash the country the key link between the cheapest and shortest roads connecting rebate up to 25% on filming expenses. With the project “Host in Georgia” the local Europe and Asia. Trade relations between Georgia and China have deepened in Government provides financial and technical assistance including co-financing to recent years, and the Georgian railway received its first cargo train from China in entrepreneurs in hotel industry. The “Check in Georgia” program brings together late 2015. musical events with international stars, and promotes events dedicated to local The two main ports of Georgia are located in Poti and Batumi, though in order to products, all in an effort to increase tourism. In order to promote the development develop the transit potential currently underutilized, the new $2.5 bln Anaklia Deep of innovative ideas, The Development Center of High Technology and Innovation Sea port will be constructed till the year of 2020. Efforts will be made to increase its (Tech Park Georgia) opened this year. capacity to 40 mln tons in twelve years as the port is expected to become a trade According to the last Trade Policy Review produced in 2016 by the World Trade connection between Europe and Asia, and between China and Europe through the Organization (WTO), as evidenced by the progressive liberalization of its trade New Silk Road. regime, Georgia has undertaken an impressive range of successful reform With increasing passenger traffic and an expanding network, the Tbilisi initiatives. The country has been a member of the WTO since 2000. Currently, International Airport is the most efficient and secure cargo centre in the Caucasus Georgia is considering joining the expanded Information Technology Agreement, Region. Reconstruction of the main runway is currently underway and will be which would help the country attract further investment. FDI of USD 1.75 billion in completed in 2016. Two other international and one local airport are located in Georgia in 2014 was the highest indicator seen since 2008, however, this number Kutaisi, Batumi, and Mestia. The Central and Eastern Europe's biggest low-cost decreased by 11% in 2015. In H1 2016 FDI of USD 376 billion is 29% higher compared airline Wizz Air will place an airplane at Kutaisi International Airport on permanent to the same period of time of previous year (highest amount of to the same period basis in 2016. Wizz Air will conduct flights to 11 destinations in 8 European of time since 2008). countries, including Berlin, Munich, Sofia and Milan. Ukraine International Airlines Georgia has signed FTAs with CIS countries. Georgia benefits from the General and Pegasus Airlines also operate in Kutaisi Airport. Expanding its services, the Scheme of Preferences regulation, which lowers tariffs on goods exported from airport will offer new, affordable flights to several other European destinations. Georgia to the US, Canada, and Japan. As a result of negotiations with the European Several local airports including Mestia Airport and Natakhtari Airport are also Free Trade Association in 2016, Georgia was given duty free access to markets in presented in Georgia. Iceland, Liechtenstein, Norway, and Switzerland. FTA between the Republic of Georgia has also modernized its road infrastructure with some large projects, Turkey and Georgia entered into force in 2008. Currently, an FTA between Georgia including the current construction of a primary autobahn that will connect Tbilisi and China is also in negotiations and will be finalized by the end of 2016. and Georgia’s eastern regions to the seaports. The total length of Georgian Railroad The EU represents Georgia’s main trade partner. The Association Agreement (AA) is 2,084 km with an operational length of 1,146 km. Estimated to finish in 2017, the between the EU and Georgia, signed in 2014, was ratified by all EU countries in Baku-Tbilisi-Kars (BTK) railway will further enhance Georgia’s reputation and December 2015. The Deep and Comprehensive Free Trade Area (DCFTA) was set up capacity as a transit country. as a part of the AA and aims to gradually enhance Georgia’s trade and economic growth on its path toward integrating with the European economy. The DFCTA has Energy provided better opportunities for local businesses to trade with the EU and made The country is rich in terms of renewable energy resources and substantial coal foreign investment in Georgia much easier. For the period of 2014-2015 Georgia reserves, however, only about 25% of country’s total energy potential has been also benefits from the unilateral Generalized Scheme of Preferences (GSP). Under exploited thus far. There are approximately 26,000 rivers in Georgia out of which the current regulations, due to sustainable development and good more than 300 can contribute energy sector. governance Georgia qualifies for a special incentive (GSP+) that Georgia intends to become a regional leader in the sustainable/efficient energy provides advantageous access to the EU markets. market by 2030. The Government is actively investing in the sector in order to achieve energy security and to establish a fully competitive energy market. Georgia in International Rankings Water is Georgia’s most important natural resource. The country’s sizable hydroelectric capacity per capita (40 TWh) ranks as one of the best in the world. According to the Doing Business report, Georgia has been among The Top This extra capacity holds the promise of export growth and energy self-sufficiency Improvers since 2005 in the EE&CA and globally. Characterized as an efficiently- for the country. Currently, Georgia is focused on the development of small and driven economy, Georgia ranked 66th in 2015-2016 with the relative average score medium-sized hydroelectric power plants to make efficient use of the country’s of 4.2 on the Global Competitiveness Index, improving its position by 28 levels remarkably rich water resources and to maximize domestic potential. Large-scale when compared to their 2004-2005 ranking. projects that have been implemented recently include: Khudoni HPP with an The Transformation Index BTI shows that Georgia is up from 95th to 39th position installed capacity of 750 MW and an average projected annual generation 1,66 TWh; in Management Index Ranking and up from 79th to 45th position for Status Index Cascade of Oni HPPs with an installed capacity of 272 MW and an average projected Ranking during the period from 2003 to 2016. Democracy Status of the country has annual generation 1530 TWh; Cascade of Namakhvai HPPs with an installed also risen in recent years and ranks at 40th position for the period of 2016. The capacity of 450 MW and an average projected annual generation 1,6 TWh. country is ranked 48th among 168 counties and territories on the Corruption Perception Index, greatly outperforming its bordering countries. Fitch’s credit rating for Georgia was last reported at BB- with a stable outlook, and referred to 2016 as a challenging year for growth in Georgia. The report also revealed expectations that the country’s economy will grow 2.5% in 2016 and 4.2% in 2017.
5 Retail Market Report | Georgia | 2015 Retail Market Fundamentals Retail trade (million GEL) The retail trade sector (including motor vehicles and motorcycles) is one of Georgia’s largest and according to the 3,000 preliminary data it provided 9.4% of the country’s total GDP in 2,530 2,587 2,400 2015 (USD 12,071 million at basic prices). The entire retail and 2,500 2,192 wholesale trade sector accounts for around 15% of Georgia’s 2,010 national GDP, illustrating its importance to the country’s 2,000 1,679 1,399 economy. Employment in the sector is 143,187 (in the fourth 1,500 quarter of 2015), which is approximately 19% of all those employed, while the average y-o-y growth rate of the retail 1,000
trade sector in Georgia during 2009-2015 was 11%. 500
Along with the retail trade sector’s expansion, annual per capita 0 retail expenditure has risen over the last decade. Per capita 2009 2010 2011 2012 2013 2014 2015* retail spending increased by 1.95 times from GEL 675 in 2006 to GEL 1,322 (around USD 581) in 2015. This is low in comparison Source: National Statistics Office of Georgia, Colliers International Note: Retail trade incudes motor vehicles and motorcycles to the international market and is reflected in its structure. For * Preliminary data example, overall food expenditure remains very high (60% in 2015), although there is clear evidence that this percentage is Retail trade by Georgin regions 2014 decreasing (69% in 2006). With 77% of the share, Tbilisi dominates Georgia’s trade
economy, producing roughly 27.9% of the country’s GDP. Tbilisi Adjara and Imereti are other significant trade regions producing 77% 7% and 5% respectively. Tbilisi is the only region where annual per capita retail expenditure exceeds the country’s average figure (by 33%).
Other Regions 11% Adjara Imereti 7% 5%
Source: National Statistics Office of Georgia, Colliers International
GDP and annual retail expenditures per capita in Tbilisi (GEL)
1200 12,000
1000 10,000
800 8,000
600 6,000
400 4,000
200 2,000
0 - 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
GDP Per Capita (Current Prices GEL) RHS On food, beverages, tobacco
Other consumption expenditure On clothes, footwear and household goods
Source: National Statistics Office of Georgia, Colliers International Note: Per capita indicators of the 2015 are compiled in line with updated data from the 2014 general population census. Pre-census demographic data were used for the calculation of per capita indicators for the previous years. Recalculation of 2003-2014 per capita indicators will be produced in 2016 after the release of final 2014 population census data. * preliminary data
6 Retail Market Report | Georgia | 2015 Georgia Retail Market Overview Retail space supply in Georgia 2015 (thousand m2)
1,000
Supply 800 231
600 204
In 2015, the supply of retail space in Georgia (Tbilisi, Batumi Thousands 2 and Kutaisi cities) increased by 11%, exceeding 1,230,000 m . 400 127 The majority of this new supply came from East Point, 200 2 384 Georgia’s largest shopping mall at 71,780 m , which opened in 141 137 Tbilisi in the second half of 2015. The country’s retail - Tbilisi Batumi Kutaisi landscape is still dominated by bazaars (37%), followed by street retail (26%) and modern shopping centres (25%). The Bazaars Other Shopping Centres smallest share (12%) came from shopping centres with less Street retail Modern shopping centres than 5,000 m2 of GLA or shopping centres not operating under single management. It should be noted that the total share of Source: Colliers International modern shopping centre supply has increased gradually in the Note: The chart excludes owner occupied retail space. past few years. Shopping centres are classified according to the standard of International Council of Shopping Centres (ICSC). At 77%, the bulk of the supply (in Tbilisi, Batumi and Kutaisi) is Modern shopping centre supply pipeline (GLA concentrated in Tbilisi, followed then by Batumi (12%) and thousand m2) Kutaisi (11%). There are virtually no modern shopping centres
outside of these cities and it is clear that Tbilisi will remain the 600 major source of new supply over the next few years. 500 According to announced future projects, Georgia’s retail 59 59 400 47 2 2 47 supply will rise by 166,432 m in 2016 and by 24,500 m in Thousands 300 2 2 54 2017. Hualing Mall (110,000 m ), Galleria Tbilisi (24,500 m ) 18 2 200 31 363 388 and Gldani Central (22,452 m ) are the largest announced 8 100 231 projects in Tbilisi. Metro Atlas Georgia LLC will launch the 140 2 - largest shopping centre in Batumi with 14,000 m of GLA in H2 2014 2015 2016 F 2017 F 2016. Tbilisi Batumi Kutaisi
Occupier demand Source: Colliers International Note: Shopping centres are classified according to the standard of In 2015, there was a notable increase in Georgia’s retail stock. International Council of Shopping Centres (ICSC). Almost 150 new stores were opened in East Point, including Carrefour (10,105 m2), Zara (2,224 m2) and Elit Electronics Recent entrants (2015) 2 City Brand Category Space Location (2,222 m ), which accounted for a significant proportion of the Tbilisi Domino Household Goods 11,114 East Point leased space. After the opening of the new 5-screen, 740-seat Tbilisi Cavea Entertainment 3,825 East Point Tbilisi Focus Mocus Entertainment 3,099 East Point cinema in Tbilisi, Cavea then added another cinema in East Tbilisi Maxi Land Entertainment 2,300 Gldani Plaza Point, offering 10 screens and 1,580 seats and equipped with Tbilisi Lebowsky Entertainment 1,544 East Point Tbilisi Mango Fashion 1,380 East Point IMAX technology. Tbilisi Snap Fitness Lifestyle 1,120 Shopping @ Axis Major extensions (2015) Among those new to Georgia’s retail scene are Domino (the City Brand Category Space Location Tbilisi Carrefour Hyper/Supermarket 10,105 East Point first DIY hypermarket with 11,114 m2 space) and the Lebowski Tbilisi Furshet Hyper/Supermarket 2,288 Gldani Mall 2 Tbilisi Metromart Consumer Electronics 2,262 Gldani Plaza Bowling Club (1,500 m , 12 professional lanes). Both of them Tbilisi Zara Fashion 2,224 East Point were launched in East Point. The Spanish fashion brand Tbilisi Elit Electronics Consumer Electronics 2,222 East Point Tbilisi Cavea Entertainment 1,695 Tbilisi Mall Mango changed franchisee partners and re-entered the Tbilisi Furshet Hyper/Supermarket 1,630 Gldani Plaza market in 2015. The brand opening stores in Tbilisi Mall and Tbilisi LC Waikiki Fashion 1,586 East Point Tbilisi Metromart Consumer Electronics 1,544 East Point East Point. Snap Fitness opened the first branch in Shopping Kutaisi LC Waikiki Fashion 1,846 5 Tsispherkantseli Street Novita Capital Partners, Kutaisi Koton Fashion 1,662 @ Axis with an eye towards expansion during next year, while 14 Tamar Mephe Street the Hard Rock Café also announced to enter the market in Batumi Elit Electronics Consumer Electronics 2,788 94 Gorgiladze Street Batumi Randi (relocation) Furniture 2,454 Batumi Central 2016.
Source: Colliers International
7 Retail Market Report | Georgia | 2015 Tbilisi Retail Market Overview 2 Supply Retail space supply in Tbilisi (GLA m ) The total volume of retail floorspace in Tbilisi amounts to 2 Secondary 952,983 m . Bazaars and open markets occupy the largest streets, 148,547 , share (40%) of this stock. The overall market continues to 16% High streets, grow due to the opening of new and modern shopping centres 55,136 , 6% Bazaars, and, consequently, the share of space occupied by bazaars is Traditional 384,000 , 40% declining year-over-year. Tbilisi’s modern shopping centres shopping centres, 134,367 , 14% occupy 24% of the city’s floorspace. With the addition of Gldani Plaza (6,385 m2), Gldani Mall Modern shopping centres, (11,700 m2) and East Point (71,780 m2), Tbilisi’s shopping 230,933 , 24% centre supply increased by GLA 89,865 m2 in 2015. The first DIY supermarket, Domino, opened in East Point, occupying roughly 11,000 m2. This shopping concept has the potential to replace open markets in a variety of different locations Source: Colliers International throughout Tbilisi. Note: The chart excludes owner occupied retail space. Shopping centres are classified according to the standard of During the next two years, the new Hualing Mall, Gldani International Council of Shopping Centres (ICSC). Central and Galleria Tbilisi shopping centres will be opened, further increasing the city’s retail GLA by 68%, to a total of Modern shopping centre supply pipeline in Tbilisi (GLA thousand m2) 387,885 m2. It is worth noting that several other malls have been announced, but their opening dates have not been 450 specified. They are expected to reach completion within the 400 next three to four years. 350
Thousands 300 250 200 363 388 150 100 231 50 - 2015 2016 F 2017 F
Source: Colliers International
Upcoming Projects
Name Developer Address GLA m2 Completion Date Construction Status Project Type JSC Hualing international Varketili 3, near Hualing Mall 110,000 H2 2016 Under Construction Greenfield special economic zone Tbilisi Sea Gldani Central IG Development Georgia LLC 1 Khizabauri Street 22,452 H2 2016 Under Construction Greenfield Co-Investment Fund (Tbilisi Galleria Tbilisi 2/4 Rustaveli Avenue 24,500 H2 2017 Under Construction Brownfield Plaza LLC) Construction Temporarily Didube Mega Trade Didube Mega Trade LLC 2 T. Eristavi Street 10,146 N/A Greenfield Suspended Gldani Shopping Construction Temporarily JSC Cross Near Mukhiani Bazaar 6,938 N/A Greenfield Center Suspended Construction Temporarily Niba Delisi Delisi LLC Along Delisi station 16,000 N/A Greenfield Suspended Sum 190,036
Source: Colliers International
9 Retail Market Report | Georgia | 2015 Existing and upcoming shopping centres
6,400 Gldani Plaza Tbilisi Mall 69,566 11,700 Gldani Mall
Gldani Shopping Centre Goodwill 8,000 Akhmeteli Theatre 6,938
Sarajishvili” 22,452
Gldani Central Guramishvili” H2 2016
Grmagele”
10,146 DidubeDidube Mega Trade
Gotsiridze Niba Delisi 16,000
Delisi 20,000 Tbilisi Central Vazha-Pshavela
IG Mall 9,500 Technical Station Square University 110,000 8,600 Karvasla Hualing Mall 6,900 H2 2016
Marjanishvili Home Mart Rustaveli Merani 7,600 GTC 10,000 Liberty Square Avlabari
Galleria Tbilisi Varketili H2 2017 24,500 300 Aragveli Isani Tbilisi East Samgori 71,780 Point
Airport
Central Railway Station
GLA m2 Existing modern GLA m2 Upcoming Project shopping centre Completion Date Source: Developers, Operators/Property Managers, Colliers International
10 Retail Market Report | Georgia | 2015 Occupier Demand Modern shopping centres' floorspace by category in Tbilisi Fashion and Footwear holds the largest share of occupier Hyper/Supermark demand in shopping centres and it is the second category in et street retail. Tbilisi’s largest fashion retailers include Retail 25% General and Consumer Service Group Georgia and International Corporation ICR. They Electronics 3% 12% represent almost 60 different brands, including Zara, Massimo Catering and Enteratainment Dutti, Top Shop, Pull & Bear, Gap, Banana Republic, Aldo, Ecco, 11%
Geox, Tamaris and Obaïbi-Okaidi . The Fashion and Footwear Household and 2 Furniture category absorbed 15,125 m in 2015, of which 90% was leased Fashion and 11% in shopping centres and 10% in street retail spaces. The vast Footwear 35% Health and Beauty majority of take-up was by existing brands who were extending 1% their operations. Spanish brand Mango’s franchisee partner shift Lifestyle 2% may be considered a new entry to the market. Attracting new retailers and fashion brands remains one of the most significant Source: Colliers International challenges for shopping centre developers and management companies. Street retail floorspace by category in Tbilisi 25% and 11% of occupier demand in shopping centres and high streets is represented by the Hyper/Supermarket category. General & Service Among the core representatives of the category are 25% Catering & Enteratainment international and regional brands (Carrefour, Spar and Furshet), 20% as well as local supermarket chains (Goodwill, Smart, and Household & Fresco). Smaller Georgian grocery chains, such as Ori Nabiji and Hyper/Supermark Furniture et 5% Nikora (together with Nugeshi), have been growing aggressively 11% Consumer Health & Beauty during the last two years. The major expansion in this category Electronics 12% 2 3% in 2015 was recorded by Carrefour (10,105 m in East Point) and Fashion & 2 2 Footwear Furshet (2,288 m in Gldani Mall and 1,630 m in Gldani Plaza). 22% Lifestyle The third largest share of occupier floorspace (12%) in modern 2% shopping centres is held by the Consumer Electronics product category. In contrast, this category occupies an extremely low Source: Colliers International share in street retail (3%). The sector is dominated by local companies, such as Elit Electronics, AltaOkay, Metro Mart, Take up in 2015 (including renewals m2) Shopping Street Category Total Major Occupiers Smiley, Galaxy, etc. These companies represent major world Centres Retail brands such as Samsung, Sony, LG, Philips, Bosch, Siemens, Household & Furniture 18,410 16,446 1,964 Domino, Super, Belhouse Hyundai and Gorenje. In 2015, the category absorbed 15,125 m2. Catering & Enteratainment 17,809 14,014 3,795 Cavea, Focus Mocus, Lebowsky, Maxxi Land Hyper/Supermarket 15,527 14,255 1,272 Carrefour, Furshet The majority of the take-up was in shopping centres, in Fashion & Footwear 15,156 13,700 1,456 Zara, LC Waikiki, Mango, Koton, Defacto, particular at East Point, by Elit Electronics and Metromart. Consumer Electronics 11,210 10,849 361 Elite Electronics, Metromart The Catering and Entertainment category occupies 11% of the General & Service 7,092 2,547 4,545 Bank of Georgia Health & Beauty 2,028 1,071 957 Lutecia, GPC, Aversi, PSP floorspace in shopping centres and 20% in street retail. The Lifestyle 661 526 135 Puma, Timberland, Adidas, Nike category is dominated by international fast food chains such as Undefined 2,414 - 2,414 McDonald’s, Wendy’s, Dunkin Donuts, KFC, Subway and Total 90,307 73,407 16,900 Domino’s Pizza. After the opening of a new cinema in Tbilisi Mall (5 screens and 750 seats), Cavea added another one in East Source: Colliers International Point (10 screens and 1,580 seats, equipped with IMAX technology). The opening of Lebowski Bowling Club (1,500 m2, 12 professional lines) and the new kids centres – Focus Mocus (East Point) and Maxxi Land (Gldani Plaza) - are also notable additions to this category. The General and Service category occupies the largest share (25%) of occupier floorspace in street retail and 3% in shopping centres. The sector is mainly represented by Georgian Banks – Bank of Georgia, Liberty Bank, TBC Bank etc. The major expansion in this category was recorded by Bank of Georgia, which rented more than 2,200 m2 during 2015, the bulk of which was in street retail locations. In addition to the above mentioned sectors, drug stores should not be excluded from the ‘core occupier’ group of Tbilisi’s retail market. Aversi, PSP and GPC are the largest drug store chains in the city, with a combined total of more than 160 branches. In 2015, the category rented 2,028 m2, of which roughly 50% was in street retail locations. Major network expansion was recorded by perfume shop Lutecia and the above mentioned drug stores.
11 Retail Market Report | Georgia | 2015 Performance Indicators (7%-8%). When compared to 2014 figures, we see an The weighted average rent in high streets equals USD 36 improving picture, with vacancy rates decreasing in /m2, exceeding the same figure in modern shopping shopping centres and high streets by 5% and 4% centres and secondary streets 2.25 and 1.7 times respectively. The only shopping centre with a higher- respectively. In 2015, the weighted average rent than-average vacancy rate is Tbilisi Mall. It is worth decreased by 6.2% in secondary streets when compared noting that recently opened shopping centres are to 2014 and did not change significantly in high streets experiencing low vacancy rates due to active leasing and modern shopping centres. The highest weighted campaigns that start one to one and a half years before average rent was observed on Pekini Street (USD 43 /m2), the opening date. The lowest vacancy rate among and Rustaveli Avenue (USD 37 /m2). shopping streets is observed along the street fronting Varketili Metro Station (2%) and the highest are found on The average vacancy rate is higher in modern shopping Tsereteli/Tamar Mepe/Tsabadze Streets (12%). centres (17%) when compared to street retail locations
Weighted average retail rent in Tbilisi (USD /m2 Vacancy rate in Tbilisi net of VAT and service charge) $40 25% $35 20% $30 $36 $36 22% $25 15% 17% $20 $22 $21 10% $15 11% $16 $16 $10 8% 5% 7% 7% $5 $- 0% Modern shopping High streets Secondary streets Modern shopping High streets Secondary streets centres centres 2014 2015 2014 2015
Source: National Agency of Public Registry, Colliers International Source: Colliers International Note: Data excludes East Point figures The rent indicated in the 2014 report was calculated based on available listings.
12 Retail Market Report | Georgia | 2015 Batumi Retail Market Overview Batumi Retail Market Retail space supply in Batumi (GLA m2) Batumi is an administrative centre in the Adjara Region. The Batumi seaport is Georgia's main sea gateway and Batumi is now a quickly- growing tourist destination. The city has undergone dramatic changes and reforms which have significantly improved its Steet retail, worldwide image and made it more attractive to foreign investors. 79,293 , 57% Batumi’s hospitality market is developing with the increased flow of foreign visitors, businessmen and delegations helping to attracting Bazaars, well-known international hotel chains. The international airport 40,549 , 29% serves Batumi since 2007, which is capable of handling 600,000 Modern passengers a year. The total population of Batumi is around 155,000, shopping centres, with another 142,000 people located within a one hour drive. Other 18,456 , 14% shopping Supply centres, 0, 0% The total volume of leasable retail floor space in Batumi amounts to Source: Colliers International 138,298 m2 – 11% more than the in 2014. The retail supply is Modern shopping centre supply trend Batumi dominated by high street retail (57%), bazaars and open markets (GLA thousand m2) (29%). With the addition of Batumi Central (10,360 m2), Batumi’s shopping centre supply increased by 2.3 times and shopping centre 70 share of total retail space grew from 6% to 14%. 60 Old Batumi, Gorgiladze Street and Chavchavadze Avenue are the 50 city’s primary high streets, offering tourists various attractions, Thousands cafes, restaurants and fashion shops. The recently-opened Hilton 40 Batumi added around 3,000 m2 of retail space to the market, which is 30 47 attached to both residential and hotel developments. 20
With projects in the development pipeline, Batumi’s shopping centre 10 18 2 8 supply will increase by 2.6 times to 47,000 m of GLA. The largest - project will be Metro City, which will complete in the second half of 2014 2015 2016 F 2016 and will include a shopping centre with 14,000 m2 of GLA. Source: Colliers International Demand Retail floorspace by category in Batumi Demand for retail space in Batumi is mainly dominated by local non- brand tenants. As Batumi is a tourist-focused city, the Catering and Entertainment category occupies the largest proportion of retail General and Service floorspace (30%). McDonald’s is the only international occupier in 23% Catering and Enteratainment Batumi’s fast food market. 30% The second largest category is General and Service (23%), of which Hyper/Supermarket 4% the major representatives are Georgian banks. It should be noted Consumer Household and Electronics that a significant number of local companies rent retail spaces for use Furniture 14% 8% as offices. Fashion and Footwear The main fashion brands represented in Batumi are LC Waikiki, Naf- 18% Health and Beauty Naf, Puma, Nike, Giordano and several brands managed by ICR 3% (Shoes Gallery, Bata, Alcott, Obaïbi-Okaidi, Parfois etc.). In 2015, several Georgian designers opened shops on the high streets of Source: Colliers International Batumi. Modern supermarket chains, such as Goodwill, Smart and Foodmart Upcoming Projects Completion Project are operating in Batumi and have expansion plans in 2016. Name Address Developer GLA m2 Status Date Type
Other branded tenants include consumer electronics shops (Elit Sakhli Bulvarshi Under City Mall Era Street 88 9,600 H2 2016 Greenfield Electronics, Altaokay, Megatechnics, Techno Boom etc) and LLC Construction Lekh and Maria pharmaceutical companies (Aversi, PSP and GPC). JSC Metro Atlas Under Metro City Kachinski 14,000 H2 2016 Greenfield Georgia Construction The most notable lease transaction during 2015 was recorded by Elit Street N1 2 Patrioti- Pushkini Street Under Electronics (2,788 m ). The relocation of the Randi furniture shop Patrioti 2006 LLC 5,000 H2 2016 Greenfield (2,454 m2) to the recently-opened Batumi Central should also be 2006 18-20 Construction Sum 28,600 noted. Source: Colliers International
14 Retail Market Report | Georgia | 2015 Performance indicators Retail rents in Batumi range from USD 13-16 /m2. Old The average vacancy rate in shopping centres (58%) Batumi and Gorgiladze Street are the most prestigious significantly exceeds the same figure in street retail (9%). locations, where the highest rents are achieved (at USD 22- The opening of the Batumi Central shopping centre is the 23 /m2). In 2015, the weighted average rental rate decreased primary reason for this increase, as 71% of the centre by 7% in shopping centres and by 6% in street retail spaces. remains unoccupied.
Vacancy rate in Batumi Weighted average retail rent in Batumi (USD /m2 net of VAT and service charge) 60%
50% $20.0 51% 40% $15.0 $17.0 $15.9 30% $13.8 $10.0 $12.9 20% $5.0 10% 18% 9% 9% 0% $- Modern shopping centres Steet retail Modern shopping centres Steet retail
2014 2015 2014 2015
Source: Colliers International Source: National Agency of Public Registry , Colliers International Note: The rent indicated in the 2014 report was calculated based on available listings.
15 Retail Market Report | Georgia | 2015 Retail Map of Batumi
Black Sea
City Mall 9,600 8,096 (H2 2016) 10,360 Batumi Plaza Batumi Central 8.096 Patrioti-2006 5,000 (H2 2016)
Metro City (H2 2016) 14,000
Old Town, High Streets
Airport
Central Railway Station
GLA Existing Shopping m2 Centre
Upcoming Project GLA (Completion Date) m2 Main streets of the city
Sea Port
Source: Developers, Operators/Property Managers Colliers International
16 Retail Market Report | Georgia | 2015 Kutaisi Retail Market Overview
17 Kutaisi Retail Market Overview Retail space supply in Kutaisi (GLA m2) Kutaisi is Georgia’s third largest city, located in the centre of
the Imereti region on both banks of the River Rioni. The Steet retail, foundation of Kutaisi can be traced back more than 3,500 40,539 , 30% years. Since May 2012 it has been the seat of the country’s parliament. The construction of the Kopitnari International Bazaars, 35,000 , Airport (Kutaisi) was finished in September 2012, with a total 26% capacity of 600,000 passengers per year. Its opening was
marked by the launch of flights by the low-cost carrier (LCC) Modern shopping centres, 53,745 , Other shopping Wizz Air with direct flights from Kutaisi to Kiev, Budapest, 39% centres, 7,400 , 5% Vilnius, Warsaw and Katowice. Beginning in September 2016, Wizz Air will add seven direct flights from Kutaisi (Berlin, Munich, Dortmund, Milan, Thessaloniki, Larnaca and Sofia). Ukraine International Airlines and Pegasus Airlines also Source: Colliers International operate in Kutaisi Airport. Kutaisi’s total population is around 148,000, with another 400,000 persons living within an hour’s Modern shopping centre supply trend Kutaisi (GLA drive. thousand m2)
Supply 70 60
Kutaisi’s total leasable retail floorspace amounts to 136,684 50 m2 – 20% more than the same figure in 2014. With the Thousands 40 addition of Kutaisi Plaza (11,700 m2) and Capital Partners 30 59 LLC’s Novita (10,845 m2) in 2015, the total supply of modern 54 20 shopping centres increased from 27% to 39% of retail stock. 31 Despite this increase, the general quality of shopping centres 10 remains very low. It is common practice to sell individual retail - units within shopping centres, which reduces the 2014 2015 2016 F attractiveness of Kutaisi’s investment market. Kutaisi’s primary high streets include Chavchavadze Avenue, Source: Colliers International Gamsakhurdia, Rustaveli and Old Kutaisi streets. The future Retail floorspace by category in Kutaisi shopping centre pipeline in Kutaisi includes one project (New City) with a total GLA of around 5,380 m2. Catering and Enteratainment 13% Demand General and Service Household and Retail space demand in Kutaisi is dominated by local non- 21% Furniture 25% brand tenants (around 80%). The Household and Furniture category (25%) occupies the majority of the city’s retail Hyper/Supermarket 8% spaces, followed by the General and Service category (21%). Health and Consumer Beauty Electronics Fashion and 10% There are a limited number of international brands in the 7% Footwear 16% market. Several brands managed by ICR (including Obaïbi- Lifestyle Okaidi, Parfois, Bata and Alcott), recently opened LC Waikiki, 0% Koton and Flo are Kutaisi’s main fashion brands, while McDonald’s is Kutaisi’s only international fast food occupier. Source: Colliers International Other branded tenants include leading Georgian banks (Bank Upcoming Project of Georgia, TBC, Bank Republic Societe Generale, Liberty Completion Project Name Address Developer GLA m2 Status Bank), supermarkets (Smart, Nikora), consumer electronics Date Type
shops (Elit Electronics, Metro Mart, Altaokay, Megatechnics, 192 Tsereteli Under New City New City LLC 5380 H2 2016 Greenfield etc.), and pharmaceutical companies (Aversi, PSP, GPC and Street Construction Pharmadepot). Source: Colliers International
18 Retail Market Report | Georgia | 2015 Performance Indicators Retail rents in Kutaisi range between USD 11-13 /m2. Old The average vacancy rate in modern shopping centres (48%) Kutaisi is both the most prestigious and expensive retail exceeds that of street retail (5%) significantly. The only rental location. In 2015, the weighted average rent for shopping centres with lower-than-average vacancy rates are shopping centres decreased by 12% compared to 2014. In Grand Mall (4%) and Karvasla (3%). Vacancies in the contrast, the weighted average rent for street retail units remaining shopping centres, especially the recently opened increased by 3% y-on-y to USD 13.3 /m2. ones, are extremely high (47%-97%) and reducing them is a primary challenge for operators.
Weighted average retail rent in Kutaisi (USD /m2 Vacancy rate in Kutaisi net of VAT and service charge) 50%
$20.0 48% 40% $15.0 30% 32% $10.0 $12.7 $12.9 $13.3 $11.2 20% 18% $5.0 10% 5% $- 0% Modern shopping centres Steet retail Modern shopping centres Steet retail
2014 2015 2014 2015
Source: National Agency of Public Registry , Colliers International Source: Colliers International Note: The rent indicated in the 2014 report was calculated based on available listings.
19 Retail Market Report | Georgia | 2015 Retail Map of Kutaisi
Karvasla 10,200
10,845 New City 5,380 (2016) Novita
Iberia Star 6,500 7,000 11,700 Comfort 7,500 Kutaisi Plaza Grand Mall
Old Town, High Streets
Airport
Central Railway Station
GLA Existing Shopping Centre m2 Future Project GLA (Completion 2 m Date) Main streets of the city
Source: Developers, Operators/Property Managers Colliers International
20 Retail Market Report | Georgia | 2015 Tbilisi East Point Photo by Robbie RG Commercial
International Benchmark Georgia’s retail real estate investment market is still in the shopping centres and 12% for street retail, exceeding early stages of development. The acute shortage of average CEE figures significantly. modern shopping centre stock and the fact that most The development pipeline suggests that shopping centre developers retain ownership means that there have been supply will rise significantly in Tbilisi (by 1.8 times) and no large scale transactions. Batumi (by 2.5 times) during next four years. Kutaisi will The prime high street rental rate in Tbilisi is around USD 56 see no major changes in the same timeframe. By the end /m2 and the prime shopping centre rent is USD 33 /m2. of 2019, all three Georgian cities will stand at around the These figures are below the CEE average by 36% and 48% Sofia level by modern shopping centre stock per 1,000 respectively. inhabitants, which will be below than the same figure in other CEE cities. This new supply must be supported by The estimated prime retail yield in Tbilisi is 13% for economic growth and higher consumer spending to avoid declining rents and increasing vacancy rates.
Prime rents H2 2015 (USD /m2 per month net of Prime yields H2 2015 VAT and service charges) 14% 225 12% 13% 13%13% 200 12% 12% 175 207 10% 190 150 10% 8% 9% 9%9% 9% 125 8% 8% 8% 6% 7% 7% 7% 7%7% 7% 100 116 120 7%7% 7% 109 109 6% 75 98 100 4% 5% 6% 50 82 87 71 75 2% 4% 25 3650 4449 4535 4637 4644 5633 21 57 0 0%
Prime high street rent Prime shopping centre rent Prime high street yield Prime shopping centre yield
Source: Colliers International Source: Colliers International Note: * - estimated yield, ** - H1 2015 figure Existing and proposed modern shopping centre supply (m2 per 1,000 inhabitants) and household final consumption expenditure per capita (constant 2005 USD) 9,000 1,400
8,000 7,938 1,200 7,000 6,750 6,894 6,627 1,000 6,000 6,177 6,214 5,756 5,000 800
4,000 600 3,599 1,182 1,140 3,000 889 896 741 793 400 2,000 614 614 636 665 1,840 1,840 1,840 531 494 448 378 399 427 200 1,000 304 332 340 363 119 207 0 - Batumi Tbilisi Sofia Kutaisi Budapest Warsaw Zagreb Vilnius Riga Bratislava Tallinn
Modern SC (m2 per 1,000 inhabitants) RHS Modern SC (m2 per 1,000 inhabitants) proposed 2019 RHS Household final consumption expenditure per capita (constant 2005 USD) LHS
Source: World Bank, Colliers International Note: Warsaw - Agglomeration
21 Retail Market Report | Georgia | 2015 Tbilisi East Point
Conclusions & Outlook
Retail and wholesale trade account for 16.6% of Georgia’s modern shopping centres, 40% of Tbilisi’s retail stock national GDP and employs almost 150,000 people. Retail remains in bazaars and open markets. The market is trade grew, on average, 11% y-on-y between 2009 and 2015. continuing to evolve and while the space given over to Supported by a strengthening economy, per capita retail bazaars is reducing, it remains a challenge to convert spending has increased 1.85 times from GEL 675 in 2006 to traditional shopper habits to modern and, perhaps for many, GEL 1,332 (USD 581) in 2015. Tbilisi is the only region where less accessible facilities. annual per capital spending exceeds the country average. Kutaisi New retail supply in the main cities of Tbilisi, Batumi and Kutaisi increased by 11% (1.2m m2) in 2015 as a combination Kutaisi welcomed two new shopping centres in 2015 (Kutaisi of new shopping centres and extensions to existing centres Plaza and Novita) adding 22,500 m2 of modern stock. added to and improved the quality of the stock. 2015 saw a Shopping centres now represent 39% of retail floorspace in significant activity in the retail sector. East Point, Tbilisi the city. However, vacancy rates in modern shopping centres (71,780 m2) opened in the second half of 2015 and is are unacceptably high (48%) and rents in 2015 fell slightly. Georgia’s largest shopping mall. Anchored by Carrefour, the While the high streets in Kutaisi are trading well, with a centre brought almost 150 new units to the city and a vacancy rate of just 5%, the city needs time to absorb the number of international brands. recent new shopping centre openings and it is suggested that any further shopping centre proposals await a For a recognizable investment market to evolve, and rebalancing of the market to avoid overcapacity. certainly one that attracts international capital, new shopping centres must be retained as a single entity and Batumi owner/developers should be deterred from selling individual Batumi’s retail supply is still dominated by high street units piecemeal. shopping (57%) and bazaars and markets (29%). However, Tbilisi the opening of the Batumi Central shopping centre (10,360 m2) the modern retail stock has more than doubled to 14%. Tbilisi has the largest stock of modern shopping centre With a vacancy rate of 51% in modern shopping centres, the floorspace, with 231,000 m2 in 2015. This is expected to market is clearly struggling to absorb the extra capacity. It increase to 388,000 m2 by 2017 with three new shopping does raise a question mark over potential retailer demand centres in the pipeline. Vacancy rates in high streets fell to and the ability of Batumi to absorb the three shopping just 7% in 2015. Shopping centre vacancy rates have also centres due to complete in H2 2016. With vacancy rates fallen but, on average, remain relatively high at 17%. already high and rents under pressure, the addition of more Vacancy rates in new centres are much lower due to retail stock could result in further rental decline and aggressive marketing campaigns. Despite the addition on sustained high vacancy rates for the short to medium term.
22 Retail Market Report | Georgia | 2015 APPENDIX SUCCESS STORY Carrefour in Georgia
By opening a 13,000 m2 branch in 2012 in the Tbilisi Mall, Carrefour became Georgia’s first international hypermarket. This marked an important milestone not only for the hypermarket sector but for the entire country’s retail sector. Since then, the brand has extended operations and currently runs five different locations in Tbilisi, including two hypermarkets at different ends of the city and three supermarkets in various districts. Carrefour is the only retailer offering such a large mix of both food and non-food items under one roof. Today, stores offer approximately 35,000 items in their hypermarkets and 15,000 items in supermarkets. Carrefour has plans to open two new branches in Tbilisi (in the Gldani and Saburtalo districts) in 2016, and to extend into further regions in 2017.
Akhmeteli Theatre
Sarajishvili
Guramishvili
Grmagele
Didube
Gotsiridze
Medical Nadzaladevi Delisi University
Tsereteli
Vazha- Technical Pshavela University
Station Square
Rustaveli
Liberty Square Avlabari
300 Varketili Aragveli Isani
Samgori
24 Retail Market Report | Georgia | 2015 APPENDIX PROPERTY REGISTRATION AND CONSTRUCTION PERMITS Property Registration In the case the property being purchased from the state/municipality In Georgia, the National Agency of Public Registry is the state institution (privatization, auction or other form of purchase) the documents should responsible for the registration of property, registering both transfers be submitted directly to the Agency. between private entities and state-owned properties. In case of private transfer, the purchaser has two options: Times and fees for registration • 4 working days upon the submitting of documents (ordinary time) – • Via a notary – contract drafting and legalization by the notary and the day of submission of documents is not counted – GEL 50 subsequent registration. The notary assumes responsibility for the (registration fee per one property) + GEL 5 for certifying the content of the draft and its legalization. The presence of a translator document (GEL 5 per each document subject to submission) and his signature on the bilingual purchase document is required and the translator assumes responsibility for the authenticity of • 1 working day – GEL 150 + GEL 5 for certifying the document texts. Time for preparation of the bilingual document and its • On the day of submitting the agreement in the Agency – GEL 200 + legalization varies depending on the notary GEL 5 • Via the National Agency of Public Registry – direct submission of the purchase contract for legalization and registration. In this case, Times and fees for renewal of public registry information the bilingual purchase document is to be drafted directly by both Online parties or by their authorized representatives. The Agency’s • 1 working day – GEL 10 (USD 4.4) representative certifies the signatures and may provide • Same working day – GEL 40 (USD 17.6) recommendations if the document is not accurately drafted, but Justice House does not carry any responsibility for the validity or its content. • 1 working day – GEL 15 (USD 6.6) • The National Agency of Public Registry is represented in: a) Public • Same working day – GEL 50 (USD 22) Services Halls (Tbilisi, Gori, Kutaisi, Batumi, Ozurgeti, Mestia, Zugdidi, Rustavi, Marneuli, Gurjaani, Telavi, Kvareli and Akhaltsikhe) and b) regional departments of the National Agency of Public Registry (located in cities throughout the country).
Construction Permits Stage II 18 days for II and III class buildings For the purposes of construction, buildings are divided into five types: 20 days for all IV class buildings, for Gudauri, Bakuriani, Bakhmaro, Ureki- st 1 class buildings - no construction permit is required; Shekvetili recreation territories and for special regulatory zones on the 2nd class buildings - buildings with low risk factors; territory of Borjomi (excluding V class buildings), also for all buildings that 3rd class buildings - buildings with medium risk factors; require ecological expertise and for V class buildings 4th class buildings - buildings with high risk factors; Stage III 5th class buildings - buildings with very high risk factors. 5 days for II, III and IV class buildings The permit issuance process is divided into three stages: 10 days for V class buildings Stage I - Statement of urban construction terms; Exceptions: Stage II - Approval of architectural-construction project; The special terms for permission process: Stage III - Issuance of Construction Permit; Construction permits concerning: 2 State organs responsible for the issuance of permits: III class buildings with an intensity coefficient up to 1,500 p/m and for buildings with a height of up to the 14 meters that will be located on the Local self-governmental (municipal) organs - for II, III class buildings territories where urbanization regulatory plans do not exist and are within the municipal territory (at stages I and II) except from Gudauri, organized according to land use or which are organized according to the Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for perspective development regulatory plans on the territory of Tbilisi - the special regulatory zones on the territory of Borjomi. permission process may involve II and III stages only Local self-governmental (municipal) organs - for IV class buildings (at The simplified permit procedure may involve just two stages and the stages I and II) with the participation of corresponding state organs permit is issued in the second stage. Local self-governmental (municipal) organs - for II, III and IV class The terms for the simplified procedure are as follows: buildings (at III stage) independently (including Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special Stage I - 12 days for II and III class buildings regulatory zones on the territory of Borjomi) 15 days for all IV and V class buildings, for Gudauri, Bakuriani, Bakhmaro, Tbilisi City Hall - for II, III and IV class buildings in Tbilisi Municipality (at all Ureki-Shekvetili recreation territories and for special regulatory zones on stages) independently the territory of Borjomi, also for all buildings that require ecological expertise. Corresponding local organs of Adjara Autonomous Republic and Abkhazia Autonomous Republic - for II, III and IV class (at all stages) on the territory Stage II (issue of permit) - 20 days for all classes of the Autonomous Republics Permission fees Local self-governmental (municipal) organs - II, III and IV class buildings The municipal organs determine the permission fees though the (at stages I and II) for Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili maximum limits are envisaged by the Law: recreation territories and for special regulatory zones on the territory of For all territory of Georgia - 1 (one) GEL (USD 0.4) p/m 2 of construction Borjomi - with the participation of the Ministry of Economy and territory Sustainable Development. 2 Ministry of Economy and Sustainable Development - for V class buildings For construction of industrial buildings - 5 (five) GEL (USD 2.2) p/m of construction territory Ordinary terms per each stage (working days): Stage I Exceptions: 12 days for II and III class buildings Investors seeking the construction of hotels in free tourism zones and 15 days for all IV class buildings, for Gudauri, Bakuriani, Bakhmaro, Ureki- investing not less than 1,000,000 (one million) GEL (USD 440,494) per Shekvetili recreation territories and for special regulatory zones on the each hotel are exempted from paying the permission fee. territory of Borjomi (excluding V class buildings), also for all buildings that require ecological expertise 30 days for V class buildings
26 Retail Market Report | Georgia | 2015 APPENDIX PRIMARY INFORMATION SOURCES, DATA USED FOR THE STUDY, DEFINITION AND ASSUMPTIONS Primary Information Sources based on the information obtained from the National Agency of Public Registry. In those cases, where the mentioned information was not available, In the process of preparing the research, we were guided by the information we were guided by the information provided by GREMIC (Georgian Real Estate provided by property managers, owners, developers, governmental and Investments Management Company). institutions (The National Agency of Public Registry, the National Statistics Office of Georgia, the National Bank of Georgia, the Ministry of Economy and The Weighted Average Rent: Are calculated based on registered lease Sustainable Development of Georgia, City Halls). Information from Colliers transactions in the National Agency of Public Registry, unless otherwise 2 International EMEA office was used for benchmarking. The following web- indicated, and weighted by the space. All rents are calculated in USD /m per portals is also used: month net of VAT and service charges. Turnover based rents are calculated according to the information provided by retailers and/or property managers. www.geostat.ge Vacancy rate: is calculated as ratio of total vacant stock to total stock within www.nbg.ge the specified area. www.gnta.ge Prime Rent: Prime Headline Rent represents the top open-market tier of rent www.tas.ge that could be expected to be paid by an in-line tenant in a shopping centre for www.worldbank.com a unit of standard size commensurate with demand (typically 250 m²), of the www.cia.gov highest quality and specification (Grade A) in the best shopping centre in the market at the survey date. Prime Headline Rent should reflect the level at which relevant transactions are being completed in the market at the time but Definition and Assumptions need not be exactly identical to any of them, particularly if deal flow is very DCFTA: Deep and Comprehensive Free Trade Agreement limited or made up of unusual one-off deals. If there are no relevant transactions during the survey period, the quoted figure will be more EMEA: Europe, Middle East and Africa hypothetical, based on expert opinion of market conditions, but the same FDI: Foreign Direct Investment criteria on building size and specification will still apply. The rent should be IMF: International Monetary Fund quoted excluding service charges and taxes, and should not reflect tenant GDP: Gross Domestic Product incentives. GEL: Georgian Lari Prime Yield: The yield an investor is prepared to pay to buy a Grade A building, fully-let to high quality tenants at an open market rental value in a prime GLA: Gross leasable area shopping centre. Lease terms should be commensurate with the market e.g. 2 m : Square metre typically 5 years +. The size of the building should also be commensurate with USD: The United States Dollar the local market. Gross Yield is considered in calculations. Gross Yeld = First VAT: Value Added Tax years' passing rent (i.e. net effective rent) / Property Price (irrespective of y-o-y: year over year transaction costs). RHS: Right Hand Side High Streets in Tbilisi: Pekini Avenue, Rustaveli Avenue, Chavchavadze Avenue and Aghmashenebeli Avenue with Marjanishvili Street are considered as high LHS: Left Hand Side streets. Secondary Streets in Tbilisi: Paliashvili Street, Abashidze Street, Kostava Modern Shopping Centres: The term used in this report - ‘Modern Shopping Street, Vazha-Pshavela Avenue, Kazbegi Avenue, Tsereteli Avenue, Tamar Centres’ coincides the term ‘Traditional Shopping Centre’, defined by the Mephe Street, Tsabadze Street, Leselidze Street, Pushkini Street , surrounding International Council of Shopping Centre. of Akhmeteli Metro Station and surrounding of Varketili Metro Station are Gross Leasable Area of Bazaars: Gross Leasable Area of bazaars is calculated considered as secondary streets. using GIS program by measuring floorspace on cadastral maps and deducting Street Retail in Batumi: Chavchavadze Avenue, Pushkini Street, Gorgiladze 10%. Street, Streets located in historical part of Batumi and retail space adjacent to Gross Leasable Area of Street Retail: Gross Leasable Area of street retail is Hilton Batumi are considered in Batumi street retail figures. calculated using GIS program by measuring ground floor space on cadastral Street Retail in Kutaisi: Chavchavadze Avenue, Gamsakhurdia Street, Rustaveli map and deducting 60%. Street and Streets located in historical part of Kutaisi are considered in Kutaisi Gross Leasable Area of Shopping Centres: Gross Leasable Area of shopping street retail figures. centres is calculated based on information provided by property managers, developers and owners, as well as by the National Agency of Public Registry. Shopping centre Karvasla comprises only 0 and 1 levels of the property. Retail floorspace by categories: Retail floorspace by categories was calculated
28 Retail Market Report | Georgia | 2015 Disclaimer
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29 Retail Market Report | Georgia | 2015 Project Team
Mark Charlton Zurab Kananashvili Head of Research & Forecasting Head of Valuation & Advisory United Kingdom Georgia
Nikoloz Kevkhishvili MRICS Ramaz Sharabidze Manager | Valuation & Advisory Team Leader | Research & Georgia Forecasting Georgia
Mariam Benashvili Eliso Burkishvili Research Analyst Junior Research Analyst Georgia Georgia
30 Retail Market Report | Georgia | 2015 COLLIERS GLOBAL STATS AT A GLANCE
554 $2.5 United States 153 OFFICES BN REVENUE Canada 31 Latin America 24 66 $112 Asia-Pacific 231 EMEA 112 COUNTRIES BN TOTAL TRANSACTION VALUE 6 185m CONTINENTS SQUARE METERS MANAGED 16,000 >80,000 EMPLOYEES LEASE/SALE TRANSACTIONS TEAM GEORGIA AT A GLANCE 22 15 PROFESSIONALS YEARS IN INDUSTRY 53 2.7 PROJECTS COMPLETED MILLION SQUARE METERS DEVELOPED $1.5 $310 BILLION SALES MILLION FUNDS RAISED GENERATED 150 9,500 MARKET & ADVISORY REPORTS VALUATIONS CONDUCTED
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