Hotel Market in | 2019

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Photo: Sheraton Grand Metekhi Palace Photo: Radisson Blu Iveria Hotel Tbilisi CONTENTS

Executive Summary 3 Appendix 1 - Real Estate Registration 90 and Construction Permits Country Profile 4 Appendix 2 - Primary Information Sources, International Rankings 6 data used for the study and definitions 94

Economic Overview 7 Disclaimer 96

Tourism Overview 14 Project Team 97

Tbilisi Hotel Market Overview 26 Colliers Global Stats at a Glance 98

Batumi Hotel Market Overview 39

Kutaisi Hotel Market Overview 52

Seaside Resorts Hotel Market Overview 57

Mountain Resorts Hotel Market Overview 64

Spa and Wellness Hotel Market Overview 78

Destination Hotel Market Overview 86

Conclusions 89

Colliers International Georgia 2 EXECUTIVE SUMMARY

Tourism In 2019, International Hotels Performed Well In 2019, the number of Georgia’s international inbound travelers grew by 7% year-over-year from The occupancy rate for Batumi’s internationally- 7.2 million to 7.6 million. Tourist arrivals increased branded hotels has maintained its stability at 65%, by 7% from 2018 to 2019, reaching 5.1 million while the figure in local upscale and middle-class visitors. hotels declined by 7%. RevPAR in local upscale and midscale hotels remained stable at USD 27, Hotel Supply Trend while the figure in international hotels has merely The hotel industry in Georgia comprises decreased by 2.6%. The ADR at internationally approximately 33,460 rooms. The supply is branded hotels decreased slightly by 3%. In expected to increase roughly by 7K new rooms by contrast, the ADR at local upscale and middle-class 2024. hotels grew by 14% . Tbilisi and Batumi – Main Suppliers of Hotel Rooms Overall, the occupancy rates at Tbilisi’s hotels decreased across all classes in 2019. International The supply of Tbilisi and Batumi hotel rooms has and local upscale &midscale hotels held an increased significantly during the past few years. In occupancy rate of 62%. The ADR and RevPAR in all 2019, the total number of hotel rooms in Tbilisi segments dramatically declined compared to 2018. increased by 23%, amounting to 12,430 units. Batumi’s supply rose to 6,341 rooms, reflecting a Spa and destination resort hotels are characterised 13% increase. Taking the pipeline into with their high-performance indicators. The total consideration, these two cities will remain occupancy rate at spa resorts was 49% in 2019, Georgia’s top suppliers over the next five years. while that of destination hotels was 57%. The ADR at spa resorts stands at USD 68, while the same International Operators Continue to Expand in figure at destination hotels amounts to USD 85. Georgia Georgian ski resorts have hosted more than Substantial growth of the Georgian hotel market is 550,000 visitors during the 2017-2018 winter expected during the next few years. Several major season. Among other ski resorts, hotels international brands will open hotels in not only recorded the highest occupancy rate (48%) in 2019. Tbilisi and Batumi, but also in , and Georgia’s While Gudauri has the highest ADR at USD 83. Ski seaside and mountain resorts. The first resorts are characterised by increasing internationally-known midscale brand, Best competitiveness of the Airbnb market, reflected in Western, already opened a 45-room hotel in the substantial growth of its revenue. Kutaisi. Another international brand, Ramada Encore, is expected to open a hotel in Kutaisi in 2021, adding another 124 rooms. Internationally-branded hotels have not entered Batumi’s hotel market since 2017. But the number of international hotel rooms is expected to grow by 1,600 units by 2024. Today, internationally-branded hotel rooms represent 21% of Tbilisi’s total supply. There are 18 international hotels in the current pipeline with a total investment volume of approximately USD 700 million.

Photo: The Biltmore Hotel Tbilisi

Colliers International Georgia 3 COUNTRY PROFILE

Background At the crossroads of Europe and Asia, Georgia POPULATION AREA borders Turkey, , Azerbaijan, and . The country occupies an area of 69,700 square kilometers (sq km) and is home to a population of 3.7 million 2 people. The country’s land borders run a length of 3.7mln 69.7K km 1,839 kilometers (km), while the coastline is 315 km. CAPITAL CITY OF GEORGIA TBILISI

During last two decades, Georgia has implemented OFFICIAL LANGUAGE GEORGIAN large-scale reforms that have led to political and economic transformation. It has strengthened its CURRENCY GEORGIAN LARI (GEL) democracy and furthered its relationship with the GDP PER CAPITA, 2019* USD 4,763 European Union (EU). The Association Agreement with EU was signed and ratified in 2014. Georgia has REAL GDP GROWTH RATE, 2019 5.1% also made business development within the country a UNEMPLOYMENT RATE, 2019 11.6% top priority through encouraging entrepreneurship, attracting private investments, and shifting tax AVERAGE MONTHLY SALARY, 2019* USD 567.9 incentives, thereby positioning itself as an attractive option to the international business world. LIFE EXPECTANCY, 2018 74 years With its unique cultural heritage and exuberant Source: Geostat (preliminary data) hospitality, Georgia’s tourism industry continues to grow and thrive, further bolstering economic growth. Government Georgia is a parliamentary republic. Parliamentary elections are held every four years. In 2018, Georgia’s parliament relocated to Tbilisi from Kutaisi. It acts as the representative body for the country, exercising legislative power and developing domestic and foreign policy. As an executive council of government ministers, Georgia’s cabinet is headed by Giorgi Gakharia, a member of the majority ‘ Party.’ Based on accountability, citizen participation, technology, and innovation as its guiding values, today’s government continues to make European and Euro-Atlantic integration a primary strategic objective.

Colliers International Georgia 4 Legal Framework Tax Climate

The Georgian Constitution, adopted in 1995, lays out To stimulate investments and boost economic the structure of the national government and defines growth, developing an attractive tax system is one of its authority and function. Georgia’s court system has the main goals of the Georgian government. With three branches: the Courts of First Instance (District or only six flat-rate taxes (Personal Income Tax – 20%, City Courts), the Appellate Courts, and the Supreme VAT – 18%, Profit Tax – 15%, Import Tax – 0%, 5%, or Court. The Courts of First Instance have jurisdiction 12%, Excise Tax – on a few selected goods, and over all civil, criminal, and administrative cases. Property Tax – up to 1%) and the Estonian tax model Decisions from the Courts of First Instance may be implemented in 2017 that exempts undistributed appealed at the Appellate Courts and further earnings from profit tax, has made Georgia one of appealed at the Supreme Court. the most competitive places to invest in. Georgia’s liberal trade regimes include: “Double Taxation As an alternative to litigation, Georgian laws allow Avoidance” 56 countries and the DCFTA with the EU arbitration both in local as well as international (since 2014). arbitration institutions. Georgia is a member of the International Centre for Settlement of Investment In January 2019, a new pension fund system was Disputes (ICSID). The in Georgia launched in Georgia that is compulsory for every provides customers with state services, including hired person under the age of 40. For self-employed business registration and property registration people and those above the age of 40, engagement through the ‘one-stop-shop’ principle that ensures in the system is optional. The methodology of the efficient service delivery. reform is a 2+2+2 scheme, meaning that employer, employee, and government transfer 2% of the gross volume of the employee’s income on a personal account.

Colliers International Georgia 5 International Rankings

Georgia has improved its status as a free economy EASE OF DOING BUSINESS thanks to its fiscal policy, regulatory efficiency, and open market policies. According to the World Bank’s Doing Business report 2020, Georgia ranks 7th for “ease of doing business” among 190 economies, 2nd for “ease of starting a business”, and 5th for “ease of registering property”. In 2019, Fitch Ratings upgraded Georgia's Long-Term Foreign-Currency Issuer Default Rating from 'BB-' to 'BB' with a stable outlook. As Fitch explains, it was due to the country maintaining a resilient economy during the regional shocks in 2018 and adds that Georgia ranks above the current medians of 'BB' category peers. Standard & Poor’s also raised Georgia’s ranking from ‘BB-’ to ‘BB’, while Moody’s credit rating for Georgia remains at ‘Ba2’. Registering a new business takes a maximum of two Source: World Bank, Colliers International days and requires no minimum capital requirements. GLOBAL COMPETITIVENESS INDEX According to the ‘Heritage Foundation Index of Economic Freedom 2020,’ Georgia’s economy is categorized as Mostly Free, ranking 12th across 180 countries.

Georgia remains the least corrupt country in the region. According to Transparency International, Georgia is the top performer among the Eastern European and Central Asian countries.

Foreign investors in Georgia are guaranteed equal rights to those of Georgian citizens. After payment of taxes, foreign investors are entitled to repatriate the Source: World Bank, Colliers International earnings (income) gained from investments and other funds abroad. Property Ownership & Non-agricultural Lands In Georgia, property rights are recognized and protected by the Law. An owner has the right to possess, use and dispose of his or her property. The rights of individual owners to possess, use and dispose of land are regulated by the land legislation. There is no restriction on non-agricultural land ownership in Georgia. According to the Heritage Foundation Index, Georgia has substantial improvement in property rights in 2020 and is 21% above the world average.

THE WORLD CORRUPTION RANKING

Georgia 44 Belarus Romania 66 Bulgaria Armenia 70 74 77 Turkey 91

Moldova Ukraine Azerbaijan 120 126 126

Source: World Bank, Colliers International

Colliers International Georgia 6 ECONOMIC OVERVIEW

Gross Domestic Product In 2019, according to the preliminary data of Geostat, GDP AT CONSTANT PRICES BY YEARS (GEL, BLN) the gross domestic product of Georgia reached an all-time high of GEL 40.4 billion. Despite the political and economic difficulties at the edge of the 2nd and rd 40.4 3 quarters of 2019, the real GDP growth reached its 38.4 36.6 maximum after 2015 at 5.1%, well above the 33.9 34.9 (Russia, Azerbaijan, Armenia, Georgia) region average of 3.7%. As of 2019, according to the Ministry of Finance of Georgia, the ratio of total government debt to nominal GDP is 40.6%, well below the euro area average (86.4% - 2019 Q2). During the last eight years (up to and including 2018), the budget deficit has 2015 2016 2017 2018 2019 remained under 4%. As of 2018, the budget deficit constitutes only 2.9% of the nominal GDP. Source: Geostat, Colliers International

Fast-growing Sectors Despite the political and economic difficulties at the edge of the 2nd and 3rd quarters, strong growth in the professional, scientific and technical activities Georgia has recorded the highest (26% YoY), administrative and support activities (20% real GDP growth of 5.1% since 2012. YoY) and information and communication (19% YoY), as well as art and entertainment (19% YoY) sectors contributed positively to the real GDP growth.

REAL GDP GROWTH (%) GDP STRUCTURE Georgia Caucasus

5.1 4.8 4.8

3.0 2.9 3.7 3.5 13% 3.3

Trade Public Administration 1.3 Real Estate Financial Activities Industry Accommodation 0.1 Transport & Communication Education 2015 2016 2017 2018 2019 Construction Health & Social Work Agriculture Other

Source: Geostat, Colliers International Source: Geostat, Colliers International

Colliers International Georgia 7 Exports The main exporting partners for the country in 2019 MAIN EXPORT COUNTRIES, 2019 (MLN,USD) were Russia, Azerbaijan, Armenia, Bulgaria, and Ukraine. In 2019, based on the preliminary data, total exports grew by 12% YoY. This figure is significantly 498 497 lower compared to the previous years, when the 412 growth rate was above 20%. The increase in exports to EU countries was also 12% YoY and represented 22% of the total exports. For CIS countries, it grew by 284 245 228 20% YoY, making up 53% of total exports. 202 178 132 The high volatility and depreciation

of the Georgian national currency is Azerbaijan Bulgaria Turkey one of the main challenges in Russia Ukraine Romania recent years. Armenia China USA Source: Geostat, Colliers International

Currency Fluctuations Depreciation and high volatility of the Georgian national currency was one of the main issues of the first half of 2019, seeing it reach a peak in August when, after the effects of flight ban from Russia were fully realized, 1 USD was exchanged for 2.97 GEL. However, as the negative expectations eventually dissipated following intervention by the National Bank of Georgia in the FX market, and the fundamental macroeconomic indicators showed a positive trend, the GEL quickly strengthened and at the end of 2019, 1 USD was traded for 2.82 GEL. CURRENCY FLUCTUATIONS (LCU vs. USD) Azerbaijan Armenia Ukraine 100% Georgia Russia Turkey

80%

60%

40%

20%

0% 2015 2016 2017 2018 2019

-20%

Source: Geostat, Colliers International

Colliers International Georgia 8 Unemployment Rate Georgia’s labor force comprises approximately UNEMPLOYMENT RATE IN GEORGIA (%) 1,911,200 people. The unemployment rate is 11.6%, which is the lowest it has been for more than a decade. Since 2013, the unemployment rate in urban areas has declined by approximately 10%; however, the flat trend in rural areas indicates the fact that the main cities of Georgia remain the gravitational centre for businesses and are more attractive places to 14.1% 14.0% 13.9% 12.7% invest in. The distribution of hired people in the labor 11.6% force for Tbilisi and rest of the country is significantly different. Remittances In 2019, the total number of 2015 2016 2017 2018 2019

remittances amounted to USD 1.73 Source: Geostat, Colliers International billion, reflecting a 10% growth compared to 2018. REMITTANCES (USD), 2015-2019

The main source markets are Russia (25%), 2.0 25% (14%), Greece (11%), USA (10%), Israel (9%), and 20% Turkey (6%). 20% 1.5 14% 15%

1.0 10% Inflation 10% Billion (USD) Billion 7% The annual inflation rate in 2019 was 4.2% (IMF 0.5 estimate). The main source of inflationary pressure on 5% prices was the depreciation of the nominal currency. 1.08 1.15 1.39 1.58 1.73 As a result, the monetary committee of the central 0.0 0% bank raised the monetary policy rate from 6.5% 2015 2016 2017 2018 2019 (September) to 9.0% (December). It is expected that Remittances Growth y-o-y during the year, the refinancing rate will decrease as Source: National Bank of Georgia, Colliers mid-term inflation expectations become positive. International

CONSUMER PRICE INDEX (INFLATION, %) Headline Inflation Core Inflation

6.9 6.4 6.4 6.1 6.0

4.6 4.3 3.9 4.1

2.8 2.5 4.7 4.3 4.4 2.3 2.2 4.4 3.6 3.3 3.4 2.8 3.0

1.8 1.7 1.7 1.4

Jan 2017 Apr 2017 Jul 2017 Oct 2017 Jan 2018 Apr 2018 Jul 2018 Oct 2018 Jan 2019 Apr 2019 Jul 2019 Oct 2019 Jan 2020

Source: Geostat, Colliers International

Colliers International Georgia 9 FOREIGN DIRECT INVESTMENT (FDI)

According to the preliminary estimates of Geostat, in FDI INFLOWS BY YEARS (MLN, USD) 2019, the volume of FDI increased by a modest 0.2% (amounting to USD 1,268 million) compared to the 1,963 previous year, while dramatically decreased 1,729 compared to 2017. Among the reasons for the 1,650 decline may be the completion of magistral gas 1,265 1,268 pipeline project, the transfer of several enterprises to the ownership of Georgian residents, as well as the reduction of non-resident direct investors liabilities. The , Turkey, and Ireland were the main investors, with shares of 19.5%, 18.7%, and 10.5%, respectively. As for the sectoral distribution, 2015 2016 2017 2018 2019 20.6% of total FDI was invested in the financial sector, Source: Geostat, Colliers International while the second and the third were the energy and sectors with 15.4% and 13.4%, FDI BY SECTORS (MLN, USD) respectively. 262 In 2019, unlike other sectors, FDI in real estate 253 experienced a significant decrease and recorded a negative figure. The first quarter of 2019 was 194 171 particularly remarkable in terms of decline as the 158 number stood at USD -125 million. The most likely 118 117 reason for such a sharp decline in 2019 was the fact that companies moved to ownership by residents, from non-residents. 14 14 -32 In 2019, Financial, Energy & Manufacturing were the key sectors Financial Transport & Communication that attracted around 50% of total Energy Health & Social Work FDI. In 2020-23, around USD 1 billion Mining & Manufacturing Agriculture is expected to be invested in the Hotels & Restaurants Real Estate Construction Other construction of hydroelectric power stations. Source: Geostat, Colliers International

Colliers International Georgia 10 Covid-19 Effects & Economic Outlook

Exposure Of Economic Sectors Towards Covid-19

Georgia’s economic sectors are exposed to the crisis on different scales. The Hotels, Food & Beverage and Entertainment sectors are highly exposed; however, in total, their share in the GDP amounts to 10%. Trade (14%) and Construction & Development (8.6%) have a relatively larger share in the GDP, yet both fall into the category of highly exposed sectors.

GROSS DOMESTIC PRODUCT, COVID-19 IMPACT ON SECTORS (2019)

Very Exposed Exposed Partially Exposed

Neutral/Limited Impact More positive, than negative

Other Sectors Professional, Scientific & 6.7% Technical Services 2.9% Information & Wholesale & Retail Communication Trade 3.0% 14.4%

Arts, Entertainment & Recreation 3.2%

Health & Social Work Activities Real Estate 4.3% Activities 11.5% Education 4.5%

Accommodation & Food Service Activities 4.8%

Manufacturing Financial & Insurance Activities 10.1% 5.4%

Transportation & Storage Construction 6.5% 8.6%

Public Administration & Defence Agricalture, Forestry 6.8% & Fishery 7.2%

Source: Geostat, Colliers International

Colliers International Georgia 11 2,084 5 km

AMBROLAUR I AIRPORTS RAILWAY

1,603 5,298 km km

INTERNATIONAL INTERNAL ROADS STATE ROADS TRANSPORT & LOGISTICS INFRASTRUCTURE

While already contributing roughly 9% to the Georgia has 1,603 km of international roads, 5,298 country’s Gross Domestic Product (GDP), Georgia’s km of internal state roads, and 2,084 km of railway manufacturing sector is poised to provide further lines. Construction of Georgia’s central highway is significant investment opportunities. Greenfield one of the top priorities in the government’s investments are expected to rise in the export- infrastructure rehabilitation program. Since 2005, oriented manufacturing sectors, for which access to most of the country’s significant roads for the European market would be attractive. Together international trade have been upgraded or are now with international and local experts, Georgia’s under reconstruction. government is performing a deep analysis of the competitive sectors, and seeking new ways to Sea Port is the largest port in Georgia. Currently stimulate foreign investment, attract new technology serving as the European gateway for international and know-how, and create high value-add trade in Georgia, Armenia, and Azerbaijan, it is production in the country. ideally located to become a future hub for trade with central Asia. Together with the Georgian From the transport and logistics perspective, government, the Chinese conglomerate CEFC China Georgia can serve as a gateway for foreign Energy group recently signed a cooperative companies interested in the Caucasus/CIS region agreement regarding the construction of a Common due to its geographic location and open business Market Zone in Poti that will actively promote the environment. Georgia is uniquely positioned to export of advanced technologies, production capitalize on the increasing trade flows between capacity, and products from China to countries in Europe, the Caspian Region, Central Asia, and China. the Eurasian region, and build a new Eurasian land With a transport system that functions as a key link bridge that will function as an economic corridor in the historic “Silk Road,” it offers the shortest route between China, Central Asia, and Western Asia. between the Black and Caspian seas. Georgia’s five airports are located in various regions, In October 2017, leaders of Georgia, Azerbaijan, and with the largest - operated by TAV Airports - in Turkey officially opened the -Tbilisi- (BTK) Tbilisi. The airport opened in December railway as a part of Iron Silk Road project. The 826- 2016; it serves smaller aircraft with a 30-50 kilometer (km) / 513-mile line has the capacity to passenger capacity. Georgia’s additional airports are transport one million passengers and 6.5 million in Batumi, Mestia, and Kutaisi. tons of freight per year. The project will deepen trade relations between Georgia and China, making A recent governmental initiative regarding the the country a primary link between Europe and Asia. establishment of logistic centres in Tbilisi and Kutaisi Additionally, the government is investing heavily in created substantial interest from investors. Along road infrastructure, including highways and local with several Georgian companies, applications from roads. It is believed that long-term growth will stem companies registered in China, Switzerland, Turkey, from Georgia’s role as a transit state for pipelines. and others were received. The anticipated Three pipelines currently exist: development of infrastructure and manufacturing in Georgia, combined with its increasingly recognized • The Baku-Supsa pipeline; strategic location at the crossroads of Europe and • The Baku-Tbilisi-Ceyhan oil pipeline; Asia, will open up opportunities for modern • The South Caucasus pipeline (operated by industrial and logistics real estate investments. BP).

Colliers International Georgia 12 The Influence of Covid-19 on Foreign Direct Investments

LARGEST DIRECT INVESTOR COUNTRIES According to the national statistics (USD,MILLIONS), 2019* office, in 2019 the foreign direct investments (FDI) slightly increased by 0.2% and amounted to USD 1,267.7 UNITED KINGDOM 247.8 million. Around 50% of the investments are coming in from the UK, Turkey and Ireland (preliminary TURKEY 236.5 data, Geostat). The way these countries tackle the spread of Novel Coronavirus, and their investing IRELAND 132.7 strategy, will be critical for the inflow of future investment in Georgia. USA 99.0 The crisis of 2008-2009 had a negative impact on direct foreign PANAMA 78.1 NETHERLANDS 52.9 investment inflows in Georgia, RUSSIA 40.4 recording a 60% decrease compared CHINA 50.5 to the previous year. JAPAN 39.2

Source: Geostat, Colliers International FOREIGN DIRECT INVESTMENT BY LARGEST SECTORS IN THE ECONOMY, 2019*

Agriculture, Mining & Forestry and Quarrying Fishing 5.4% In 2019, (preliminary data) Other Sectors 1.1% 18.5% Manufacturing investments were made in the 8.1% given sectors: Finance (20.6%), Electricity, Gas, Steam and Air Conditioning supply (15.3%), and Hotels & Restaurants Electricity, Gas, Steam and Air (12.4%). Hotels & Restaurants Conditioning Supply and Construction sectors fall 15.3% into the very exposed and Financial exposed category, respectively. Sector 20.6% In the period of isolation, it is expected that investments in Construction Hotels & Restaurants and 9.3% Construction sectors will dramatically decrease.

Transport and Hotels and Communications Restaurants 9.2% 12.4%

Very Exposed Exposed Partially Exposed Neutral Other

Note: *Preliminary data Source: Geostat, Colliers International

Colliers International Georgia 13 TOURISM OVERVIEW

Tourism in Georgia

In 2019, the number of international traveller trips INTERNATIONAL ARRIVALS BY YEARS (MLN) grew by 7.8% YoY from 8.7 mln to 9.4 mln, of which 83% were international visitor trips (7.7 mln.). The number of tourist arrivals increased by 8.3%, constituting 65.7% (5.1 mln) of the total number of 5.1 international visits, while same-day trips stood at 4.8 about 34.2%. 4.1 3.0 3.3 Citizens of 98 countries can travel to Georgia without a visa and stay up to one full year. In addition, foreigners who hold a visa/residence permit of 50 5.2 5.3 6.4 7.2 7.7 countries can enjoy visa-free travel to Georgia. 2015 2016 2017 2018 2019 Visitors who need to obtain a visa can take advantage of the e-visa portal to get a short-term visa. International arrivals Tourist arrivals Simplified travel and visa-free regimes build on the strong growth of inbound tourism. Source: Geostat, Colliers International Road travel remains the main means of transport for INTERNATIONAL ARRIVALS BY TYPES OF VISIT (MLN) international arrivals due to the large share of travellers from neighbouring countries in the total number of visitors. In 2019, this increased by 8.7%, 2.6 representing 74.8% of the total. Air travel, the second 2.4 most popular choice among travellers, increased 2.4 modestly by 2.3%, and constituted 23.7% of the total. 2.2 2.0 5.1 4.1 4.8 3.0 3.3 In 2019, the number of international arrivals as well as the number of 2015 2016 2017 2018 2019 tourists increased by modest 7%. Tourist arrivals Same-day visit

Source: Geostat, Colliers International

Colliers International Georgia 14 Source Markets In 2019, the number of tourist arrivals amounted to SHARE OF MAIN SOURCE MARKETS 5.1 million. Most tourist visits originated from Russia (23%), Azerbaijan (19%), Turkey (13%), EU countries (12%), and Armenia (11%). Despite difficulties related 13% to US sanctions on Iran, the country remained in the 23% list of top 15 countries of international visitors. Remarkably, in recent years, Georgia has become more attractive to the western Europeans, as the 12% number of visits from EU countries increased by 21.9%. July and August remained the most popular months for visiting Georgia. 1% 4% 5.1 From July 8, 2019 Russia has banned direct flights to Georgia due to extended street protests. After the 4% MLN 19% flight bans the number of international visits by Russian citizens decreased by 20.6% in Q3 2019, 11% when compared to Q3 2018. The annual figure 13% marked an insignificant 0.6% decline. However, the strong growth of the number of tourists visits from Israel (31%), Ukraine (20%), Armenia (12%) mitigated Russia Armenia Iran the shock and the total annual number of tourist visits increased by 6.8%. Azerbaijan Ukraine EU Turkey Israel Other

NUMBER OF TOURIST VISITS FROM RUSSIA IN Q3 Source: Geostat, Colliers International 2019 vs. Q3 2018 (THOUSAND)

Even though the number of tourist 20.6% visits dropped by 20.6% in Q3 2019 456 362 due to flight bans from Russia, the annual figure marked an insignificant decline. Q3 2018 Q3 2019

Source: Geostat, Colliers International

Colliers International Georgia 15 Map Of Top 15 Source Markets

DYNAMICS OF INTERNATIONAL TRIPS FROM TOP 15 SOURCE MARKETS (THOUSAND) Georgia’s tourism market is sourced COUNTRY 2015 2016 2017 2018 2019 dominantly by neighbouring countries Azerbaijan 1,156 1,076 1,302 1,425 1,527 (71% of tourist trips in 2019). However, Russia 763 849 1,135 1,405 1,472 there’s significant increases shown from Armenia 1,192 1,152 1,287 1,269 1,365 other non-neighbouring countries. Turkey 1,074 988 1,007 1,099 1,157 Ukraine 127 152 170 177 208 DISTRIBUTION OF INTERNATIONAL TRIPS FROM Israel 55 85 115 157 205 NEIGHBOURING AND NON-NEIGHBOURING Iran 22 130 283 291 142 COUNTRIES Kazakhstan 31 41 47 59 104 20.4% 24.6% 27.0% 27.9% 28.6% Germany 30 33 43 64 89 Poland 39 42 49 67 88 Saudi Arabia 8 18 46 52 75 79.6% Belarus 26 33 42 60 66 75.4% 73.0% 72.1% 71.4% India 8 26 43 51 55 China 7 11 18 32 48 USA 25 27 34 42 47 2015 2016 2017 2018 2019 Neighbouring countries Non-neighbouring countries

Source: GNTA, Colliers International Source: Geostat, Colliers International

Colliers International Georgia 16 Economic Impact of Tourism The tourism industry accounted for 8.1% of Georgia’s STRUCTURE OF TOURISM VALUE ADDED, 2019 economy in 2019. The same year, tourism value added (USD) grew by 16.9% YoY and amounted to USD 1.3 billion 3% (GEL 3.53 billion). Tourism value added reflects the economic activity generated by industries such as 22% hotels, food and beverage (F&B), travel agencies, airlines and other transportation services. The transport 38% category, which represents 38% of the total value added, grew by 20% YoY. The F&B industry grew by 23%, while the travel agencies and the accommodation 1.3 categories increased by 17% and 11%, respectively. Travel industry supported 123 million jobs in 2018. BLN Revenues from inbound tourism have been growing rapidly over the past five years. In 2018, revenues rose by 17% YoY and amounted to USD 3.22 billion. The 37% volume of foreign card operations by international travellers has also grown - by 3.7%, hitting 2.14 billion Transport Food & Beverage GEL in 2018. Spending volume is expected to increase Accommodation Travel Agencies as Georgia continues to attract travellers with higher Source: GNTA, Colliers International holiday budgets. TOURISM REVENUE BY YEARS (USD, BLN) EXPENDITURES PER TOURIST VISITS BY YEAR (USD) 2019 3.27

658 665 677 645 644 2018 3.22

2017 2.70

2016 2.17

2015 1.94 2015 2016 2017 2018 2019

Source: GNTA, Colliers International Source: GNTA, Colliers International

TOURISM VALUE ADDED AND SHARE IN GDP BY YEARS (USD, BLN)

8.1% 7.6% 7.1% 6.7% 6.9%

0.86 0.83 1.03 1.19 1.27

2015 2016 2017 2018 2019

Tourism value added Share in GDP

Source: GNTA, Colliers International

Colliers International Georgia 17 Types of Tourism

Winter tourism is becoming ever more popular. HOTEL INDUSTRY REVENUES (USD, MLN) The Mestia-Hatsvali cableway construction was completed in 2017. Goderdzi ski resort in and Tetnuldi ski resort in Mestia both opened in recent years. Two cableways were 363 added to Goderdzi resort and in 2023, the 331 world championship in freestyle ski and 288 snowboarding is set to be held in . 241 Three new ski lifts are to be built for the event. 202 Wine tourism, adventure tourism and spa and wellness tourism are under development. In 2019, wine tourism grew further with 46 newly built cellars and small enterprises. In , near the village of Kisiskhevi, a wine village was built by Schuchmann Wines Georgia, consisting 2015 2016 2017 2018 2019 of 10 cottages with 15 more to be built in 2020.

Georgia hosted the 18th World Federation of Source: Geostat, Colliers International Tourist Guide Associations (WFTGA) international convention in Tbilisi from January 17 to January 25, 2019. The convention brought together 300 tourist guides and representatives Hotel industry revenues are growing from around 70 countries and contributed to in line with the tourism trend in raising awareness about tourism in Georgia and will further contribute to the development of Georgia. the tourism industry in the future.

Colliers International Georgia 18 Benchmarking

In 2019, tourist arrivals in Georgia has increased by INTERNATIONAL TOURIST ARRIVALS (24+ HOURS) 6.3%. Among benchmark countries Bulgaria and Y-O-Y GROWTH RATE (%) BY BENCHMARK Estonia experienced the highest annual growth rate COUNTRIES, 2019/2018 in 2019 amounted to 4.5% and 3.2%, respectively. Israel and Turkey had the negative growth rate in 2019 amounted to 1.2% and 2.4%, respectively. 6.3% Among benchmark destinations, international tourist receipts were the highest in Turkey (USD 4.5% 36.5 billion), followed by Israel and Bulgaria with USD 8.16 billion and 5.07 billion, respectively. 3.2%

1.4% Georgia has the fastest growth in arrivals, and the revenue per tourist Georgia Bulgaria Estonia Romania Israel Turkey visit is on par with the benchmark -1.2% countries, except for Israel. -2.4% Source: Worldbank, Geostat, Colliers International

INTERNATIONAL TOURISM RECEIPTS (BLN) AND EXPENDITURE PER TOURIST TRIPS (USD) BY BENCHAMRK COUNTRIES, 2019

2,005

818 698 641 545

274 2.33 36.5 8.16 5.07 3.27 3.26

Turkey Israel Bulgaria Georgia Romania Estonia

International tourism reciepts(USD/billion) 2018 Expenditure per tourist

Source: Worldbank, GNTA, Colliers International

Colliers International Georgia 19 Travel Purposes The number of guests in hotels has had a positive PURPOSE OF TOURIST VISITS IN GEORGIA, trend over the past four years. Out of 2.8 mln hotel 2019 guests in 2018, 1.9 mln were international travellers. 1% 2% 74% of these were leisure travellers, 13% visited Georgia for business purposes and only 1% for health 4% tourism. 12% Out of 5.1 million tourist trips, 56% were made for leisure-recreation and shopping purposes, 25% for visiting families and relatives, and about 12% for business purposes. Its notable that business visits 5.1 have increasing trend, the figure grows with an 56% average of 9% annually. On average, the typical 25% tourist spent 6.2 nights in Georgia. MLN

AVERAGE LENGTH OF STAY IN GEORGIA (NIGHTS)

6.6 Leisure & Shopping Transit 6.3 6.3 6.2 Visiting Friends/family Health & Medical Care Business Other

Source: Geostat, Colliers International

During last five years, the number of business trips is growing on average 2016 2017 2018 2019 by 9% annually.

Source: Geostat, Colliers International

Colliers International Georgia 20 Domestic Tourism

In 2019, Georgian residents took a total of 14.3 PURPOSE OF VISITS IN GEORGIA 2019 mln domestic trips. 44.7% of those visits included at least one overnight stay, with an average trip 4% length of 1.97 nights. 5% Visiting Friends 9% The majority of domestic trips made by Georgian & Family residents were made with the intention of visiting Leisure & Shopping friends and relatives (51%). The second and third 9% Visiting second most frequent purposes were leisure & shopping 14.3 51% home and visiting a second home, respectively. Adjara Health & Medical was the third most visited region in 2019: since it Care is located next to the Black Sea, it was the most MLN Business popular holiday, leisure, and recreation 22% Other destination. Domestic tourism is a significant part of Georgia’s economic activity. In 2018, domestic travel Source: Geostat, Colliers International spending accounted for 71.2% of direct Travel & Tourism GDP. Total expenditure by domestic SHARE OF TOTAL EXPENDITURE (USD), 2018 visitors amounted to c. USD 792 million (over 2 bln GEL). The majority, more than 852 mln GEL, 1.5% was spent on shopping, followed by food and 5% drinks (400 million GEL) and transportation (305 mln GEL). Since 87.1% of domestic visitors 19.4% preferred to stay at a friend’s, relative’s, or their 33.5% Shopping own homes, spending on accommodation Food & Beverage accounted for only 5% of the total expenditure 792 Transportation (over 86 mln GEL). Other Accommodation 775,838 local travellers stayed in hotels in 2018, MLN Cultural & Entertainment 58% of them for leisure and 28% for business 17.6% service purposes. Hotels in Tbilisi received 255,354 local guests, while hotels in Batumi and Kutaisi hosted 23% 222,556 and 53,935 Georgian guests, respectively.

Source: Geostat, Colliers International

Colliers International Georgia 21 Visa Liberalisation Georgia, especially those who are looking for a low budget trip. This also increases demand on local The government continues to make European and hotels and other hospitality facilities and incentivises Euro-Atlantic integration a primary strategic native businesses to develop to meet the objective. Since March 2017, the EU-Georgia visa expectations and requirements of European liberalisation agreement has allowed to customers. access visa-free travel to the Schengen zone. This has led to the increased inflow as well as outflow of The visa free regime with Europe will potentially visitors from Georgia. contribute to the development of the tourism industry in Georgia in the future. However, as this First of all, less bureaucracy, simplified travelling industry has suffered in all countries due to the procedures and decreased costs have made it much current COVID-19 crisis, the future remains uncertain easier for natives to visit Europe more frequently for and it is hard to foresee the prospects of this sector. different purposes like travelling, education, business, healthcare, etc. The free movement of Host in Georgia people, along with free trade with the EU, brings significant economic benefits. Georgian SME owners, In 2016, the Government of Georgia launched the who before needed to go through long and ‘Host in Georgia’ program to develop the hospitality complicated procedures to obtain a visa, are now industry in the country. The program encourages able to travel to European countries to explore new entrepreneurs to build hotels in all regions of markets, attend international exhibitions, find Georgia, except Tbilisi and Batumi, by providing partners, and gain experience. This leads to new them with financial and technical support. Under the jobs, more developed business processes, improved Host in Georgia program, the government subsidizes quality of production and a better environment for a 10% interest rate for loans in GEL and 8% for loans attracting investors into the country. in USD/EUR for the first two years. In addition, the collateral guarantee for 50% of the total loan Increased demand on travelling has spurred the amount is provided in the first four years. The number of passengers at Georgian airports, which maximum loan amount can be GEL 5 million in case has attracted different airlines to open flights in new of an International Franchise/Management Contract, directions. In 2019, Ryanair, a relatively low budget and GEL 2 million otherwise. In case of international Irish airline company, entered the Georgian market. brand hotels, the government also co-finances The increased flow of passengers from neighboring franchising and management agreement fees of up countries has also created an opportunity especially to GEL 0.3 million annually for the first two years. for Kutaisi airport to become an air hub. The entry of new airlines creates new jobs and contributes to the The Host in Georgia program has been very performance of travel agencies and other local successful in developing the hotel industry in hospitality businesses. Georgia, and the Georgian government has already supported the development of 80 new hotels under As the new destinations abroad become easily the program, with a total investment volume of GEL accessible for the Georgians due to the visa 225 mln. As a result, more than 2,200 rooms will be liberalisation, this raises the competitiveness and added to the Georgian hotel market. The new hotels encourages local providers to improve the quality of are being built in various towns, including Bakuriani, their hospitality services. Moreover, better Gudauri, Kazbegi, Gonio, , and Tskaltubo. relationships with Europe as a result of the visa liberalisation reform has improved the image of the country and attracted more international tourists to

Colliers International Georgia 22 Air Travel

Airlines carried 1.97 million international travellers NUMBER OF INTERNATIONAL TRAVELLERS in 2019, up by 1.3% from 2018. Tbilisi International RECEIVED IN AIRPORTS, 2018-2019 (THOUSAND) Airport once again received the largest number of 3% travellers – 1.5 mln depicting a 3% decrease YoY. Decline of travellers in Tbilisi airport was caused 2018 2019 by flight bans from Russia as the number of 1,551 1,498 international travelers received in airports from this country decreased by 24% YoY. The number of travellers in Kutaisi Airport increased significantly by 43%. The main contributors were Ukraine and Poland. 55% of the travellers were received from these countries. Batumi Airport was 43% 7% also up from 262 K to 279 K international 197 travellers, which represents a 7 % increase. 138 261 279 In 2019, there were 50 international and two domestic airlines operating on the Georgian Tbilisi Kutaisi Batumi market. Wizz Air Hungary is the largest company operating on the Georgian market. It offers flights Source: GNTA, Colliers International to up to 39 destinations. In 2019, it provided NUMBER OF INTERNATIONAL TRAVELLERS service for 825,290 passengers (16% of the total RECEIVED IN AIRPORTS FROM RUSSIA , 2018-2019 trips). The second largest company is Turkish (THOUSAND) Airlines, with 572,181 passengers and 11.1% of the market share. This is followed by Georgian Airways, Ural Airlines, Fly Dubai, and Ukraine 24% International Airlines. In 2018, one Georgian, My Way Airlines, and nine international companies 530 404 appeared on the market. Additionally, in 2019, Ryanair, one of the Europe’s low-cost and most popular airlines, also entered Georgia, offering 2018 2019 two routes from Tbilisi and two from Kutaisi. Source: Geostat, Colliers International

Colliers International Georgia 23 Map Of Direct Flights From Georgia

MAIN FLIGHT ROUTES

Duration Duration Duration Origin Destination Origin Destination Origin Destination (hours) (hours) (hours)

Tbilisi Baku 1.0 Tbilisi 3.1 Tbilisi Kuwait 2.1

Tbilisi Tehran 1.7 Tbilisi St. Petersburg 3.1 Tbilisi Bahrain 2.5

Tbilisi Istanbul 2.0 Tbilisi 3.2 Tbilisi Astana 3.1

Tbilisi Tel Aviv 2.1 Kutaisi 3.3 Tbilisi Aktau 1.2

Tbilisi Kiev 2.2 Tbilisi 3.4 Tbilisi Doha 2.7

Tbilisi 2.4 Tbilisi Almaty 3.5 Tbilisi 2.2

Tbilisi 2.6 Tbilisi 3.6 Tbilisi 4.6

Tbilisi 2.6 Kutaisi Milan 3.8 Tbilisi Tashkent 2.8

Kutaisi 2.8 Tbilisi 4.2 Tbilisi 1.6

Kutaisi 2.9 Tbilisi Urumqi 4.5 Kutaisi 4.2

Tbilisi Dubai 2.9 Tbilisi 4.6 Kutaisi Prague 3.2

Tbilisi 3.0 Batumi Istanbul 1.7 Kutaisi 3.3

Tbilisi 0.39 Batumi Kiev 2.0 Kutaisi Riga 3.0

Tbilisi 4.2 Tbilisi Paris 4.4 Kutaisi Thessaloniki 2.4

Tbilisi Beijing 7.4 Tbilisi Bologna 3.6 Batumi Minsk 2.5

Tbilisi 2.5 Tbilisi Milan 3.8 Batumi Moscow 2.3

Source: www.flighttime-calculator.com

Colliers International Georgia 24 The Reliance of The Georgian Economy on Tourism

The reliance of the Georgian economy on tourism same category, and the recovery period will be has increased significantly in the last couple of years. extensive. In 2019, tourism made up 8.1% of the Gross Georgia mainly receives tourists from its neighboring Domestic Product of Georgia. countries. Leading countries by the number of Domestic tourism has a small role in the sector tourists in Georgia are Russia, Turkey, Armenia, overall and takes up a mere 27% (percent of local Azerbaijan, Ukraine, and the EU countries tourists in the total number of tourists staying at collectively. In order to make an accurate estimate of hotel-type accommodations). With these numbers, future visitors to Georgia, the spread of the virus in Georgia appears in the lower right corner of the said countries must be taken into consideration, as graph (close to Greece). It is expected that the crisis when these countries will be able to stop the spread will have a significant effect on the hotel industry of the virus. and the economy in general for countries in the

DOMESTIC TOURISM RELATIVE TO TOURISM AS A PERCENTAGE OF THE ECONOMY, 2019

Significant impact on the hotel industry Significant impact on the hotel industry and economy, prolonged recovery and economy, gradual recovery Significant impact on the hotel industry Significant impact on the hotel industry but but less on the economy, slow recovery less on the economy, faster recovery

Source: Colliers International

Colliers International Georgia 25 Tbilisi Hotel Market Overview

Photo: Panorama Freedom Square Supply

Tbilisi’s hotel market provides the largest share of EXISTING HOTEL ROOM SUPPLY BY YEARS hotel rooms in Georgia. In 2019, the existing supply consisted of 541 hotels, with a total of 12,430 rooms. The largest share, 41% of rooms, are categorized as economy/budget, while 38% fall in to the local 5,119 upscale and middle segment, 13% into the 3,888 international midscale segment, with only 8% of the 4,744 total room supply categorized as international 5,222 upscale. 4,046 4,728 The total supply of rooms increased by 22% in 2019 4,251 2,820 when compared to 2018. However, the tourism sector 2,335 2,348 suffered due to the ban on flights to Georgia from 1,573 1,423 Russia in July 2019. Until 2017, there were only three 972 972 1,091 376 590 590 632 1,010 international upscale hotels in Tbilisi: the Radisson Blu Iveria, Tbilisi Marriott and the Biltmore hotel. In 2018, 2015 2016 2017 2018 2019 the Sheraton Grand Tbilisi Metekhi Palace, Wyndham Local Economy/Budget Class Local Upscale and Middle Class Grand Tbilisi, and Stamba Hotel entered the market. International Midscale Class International Upscale Class Together, these hotels provide 5% of the city’s total Source: Colliers International room supply. Nine more international upscale brands, EXISTING SUPPLY BY YEARS among them Hilton, Marriot Autograph Collection, Radisson Red, and Tbilisi Hyatt, are expected to open 27,165 during the next few years, adding 706 hotel rooms to 22,661 the capital’s stock. 21,319 18,329 International midscale hotels provide 13% of the 14,692 city’s hotel room supply. Eight hotels are categorized 12,430 10,107 in this segment, consisting of Courtyard Tbilisi, 8,360 9,466 Rooms Hotel Tbilisi, Holiday Inn Tbilisi, and Mercure 6,656 Tbilisi . Five hotels are expected to open in 287 352 379 426 541 this segment over the next three years, including Park 2015 2016 2017 2018 2019 Inn by Radisson, Swissotel, Hilton Garden Inn, Number of Hotels Number of rooms Number of beds Wyndham Garden and Ramada Tbilisi (Melikishvili). Together, they will add 655 rooms to the supply. Source: Colliers International Looking ahead, 18 international hotels are scheduled to open during the next three years, which will result The stock of international hotel in around 3,296 new rooms joining Tbilisi’s stock. rooms is expected to double by 2023.

EXISTING AND FUTURE SUPPLY OF INTERNATIONALLY-BRANDED HOTELS 38 36 12,165 31 11,535 10,231

20 18 15 6,256 5,539 5,879 11 5,266 9 10 4,256 4,602 3,451 3,190 2,979 2,760 2,583 2,055 1,348 1,562 1,681

2015 2016 2017 2018 2019 2020 2021 2022 2023

Number of Hotels Number of rooms Number of beds Source: Colliers International

Colliers International Georgia 27 MAP OF EXISTING AND UPCOMING INTERNATIONAL HOTELS

Majority of upcoming announced hotels are situated out of central hotel cluster. In particular, Vake district features three major hotel developments.

EXISTING INTERNATIONAL HOTELS

Capacity of # of # Operator Location Owner Conference Class Rooms Rooms

1 Radisson Blu Iveria 1 Square JSC New Hotel 249 645 Upscale Sheraton Grand Tbilisi Metechi Ras Al Khaima Investments 2 16 Street 220 2,472 Upscale Palace Authority Georgia 3 Wyndham Grand Tbilisi 3 Gudiashvili Street City M 158 350 Upscale

4 Tbilisi Marriott 13 Avenue GMT Hotels 127 427 Upscale

5 The Biltmore Hotel 29 Shota Rustaveli Avenue Dabi Group Georgia 214 1,104 Upscale

6 Stamba Hotel 14 Street City Loft 42 230 Upscale

7 Holiday Inn Tbilisi 1 26 May Square Adjara+ 270 712 Midscale Hotels & Preferences Hualing Joseph Pilsudski Avenue, Tbilisi 8 Hualing Group 246 1,410 Midscale Tbilisi Sea 9 Ibis Tbilisi Stadium 178 Aghmashenebeli Avenue Stadium Hotel 150 - Midscale

10 Moxy Tbilisi by Marriott Saarbrucken Square GMT Hotels 130 - Midscale

11 Ibis Styles Tbilisi Center 4 G.Tabidze Street MaQro Construction 119 - Midscale MaQro Construction 12 Mercure Tbilisi Old Town 9 Vakhtang Gorgasali Street 108 65 Midscale

13 Courtyard Tbilisi 4 Freedom Square GMT Hotels 118 662 Midscale

14 Citadines City Centre Tbilisi 4 Freedom Square Amtel Properties Georgia 66 - Midscale

15 Rooms Hotel Tbilisi 14 Merab Kostava Street City Loft 125 818 Midscale

16 Ramada Encore 15 Kazbegi Avenue M2 152 145 Midscale

17 Best Western Tbilisi Art Hotel 11 Apakidze Street Tifli Development 45 222 Midscale

18 Best Western Tbilisi City Center 92 Vasil Barnovi Street Bani 2007 44 - Midscale

Colliers International Georgia 28 PIPELINE OF INTERNATIONALLY-BRANDED HOTELS

# of Opening Construction Investment # Developer Operator/brand Location Class Rooms Year Type Volume

Axis/Georgian Co- AccorHotels/ Pullman 37-39 Chavchavadze 1 226 2020 Upscale Greenfield Investment Fund Hotels & Resorts Avenue

Georgian Co- Panorama Freedom 2 Freedom Square 220 2021 Upscale Greenfield Investment Fund Square

Paragraph Hotel Georgian Co- & Convention 3 Sololaki Hills 208 2022 Upscale Greenfield Investment Fund Center/ Panorama Sololaki

4 Granat Georgia Hilton Tbilisi 41 Kostava Street 206 2021 Upscale Brownfield

Radisson Blu 5 Silk Road Group LLC 31 Rustaveli Avenue 180 2023 Upscale Brownfield Telegraph

Georgian Co- Paragraph Golf & Spa 6 Tabori Mount 176 2022 Upscale Greenfield Investment Fund Resort

Rustaveli Property 7 Tbilisi Hyatt 30 Rustaveli Avenue 170 2022 Upscale Greenfield LLC 44 Agmashenebeli 8 Telegraph LLC Radisson Red 110 2021 Upscale Brownfield Avenue Hotels 22 Zaal Dumbadze USD 900 mln 9 M2 Residence 99 2021 Upscale Greenfield Tbilisi Street (incl.VAT) 10 Beta Group Ibis Budget Tbilisi 14 Uznadze Street 227 2022 Midscale Brownfield

LLC Block- 11 Park Inn by Radisson 10 Chanturia Street 200 2021 Midscale Brownfield Investment 64 Chavchavadze 12 Redix Hilton Garden Inn 170 2020 Midscale Greenfield Avenue Hilton Garden Inn 13 KIT 2016 17 Ialbuzi Street 161 2021 Midscale Greenfield Tbilisi Riverside 49G Chavchavadze 14 Alliance Group Wyndham Garden 160 2023 Midscale Greenfield Avenue 15 Beta Group Ibis Budget Vera 22 Akhvlediani Street 158 2021 Midscale Brownfield

16 Archi Group Ibis 22 Gulua Street 156 2022 Midscale Greenfield

16 Macro Construction Swissotel 3 Virsaladze Street 145 2021 Midscale Greenfield

17 M2 Residence Ramada Tbilisi 10 Melikishvilis Street 125 2021 Midscale Greenfield Simetria/Capitol 18 Holiday Inn Express 4 Street 121 2021 Midscale Greenfield Investment Group LLC Block- Louvre Hotels 19 2A 300 Aragveli Street 78 2021 Midscale Greenfield Investment Group/Golden Tulip

Colliers International Georgia 29 Photo: Wyndham Grand Tbilisi

Demand

The number of tourists in Tbilisi usually follows the BREAKDOWN OF HOTEL GUESTS BY trend of the whole Georgia. Despite the decreased PURPOSE OF VISIT, 2016-2018 number of Russian tourists due to flight bans, there was no significant decline in the annual 17% 11% 15% tourist inflow. Georgia managed to partially substitute it with a significant increase in demand 22% 15% from non-neighbouring countries, as well as with 25% internal tourism. Travellers from Russia, Turkey, Iran, and Azerbaijan 67% 70% comprise the majority of Tbilisi’s hotel guest 58% numbers. The number of guests in Tbilisi hotels increased by 7% year-on-year (y-o-y) in 2018, with 70% of those guests visiting Tbilisi for leisure and 15% in town on business. 15% of hotel guests are 2016 2017 2018 locals and 85% international visitors. Tbilisi’s hotels Leisure & Recreation Business Other hosted around 1,743,000 guests in 2018. Source: Geostat Ministers of tourism from several dozens of countries will gather in Tbilisi in September 2020 to discuss the future prospects of the tourism industry at a ministerial under the aegis of the United Nations World Tourism Organisation (UNWTO).

Colliers International Georgia 30 Performance Indicators

The hotels’ market has witnessed a decreasing stability yet, also reduces the average indicators of trend in all main performance indicators during past international upscale hotels. few years. The main reason for this downward The average daily rate (ADR) in Tbilisi decreased in going trend is not only the increased supply of 2019 in all segments. As Georgian Lari critically hotels since 2017, but the strengthening depreciated against USD Dollar in 2019, the ADR in competition of Airbnb as well. USD terms significantly changed. A substantial Occupancy rate recorded a decrease in all segments decrease (13% y-o-y) was recorded in International in Tbilisi after 2017 due to the abovementioned Upscale class hotels. reasons. Additional cause of the sharp decline in the occupancy rate in 2019 could also be the flight bans from Russia, which negatively affected tourism Among different classes, international upscale industry. Relatively to other hotel segments, hotels suffered from the sharpest fall in international upscale, as well as local upscale and performance indicators in 2019, supposedly midscale hotels experienced the higher occupancy rate in 2019 amounting to 62% each. The fact that due to increased supply by 60%. Sheraton Grand Metekhi Palace has not reached a

ADR (USD, excl. VAT) 2015-2019

177 175 175 2015 2016 2017 2018 2019 161 152

118 112 108 104 94 77 79 72 72 61 57 43 39 36 39

International Upscale Class International Midscale Class Local Upscale and Middle Class Local Economy/Budget Class

Source: STR Global, Colliers International

OCCUPANCY RATE (%) 2015-2019 2015 2016 2017 2018 2019

70% 68% 70% 69% 68% 69% 68% 65% 64% 64% 64% 62% 60% 62% 62% 57% 55% 54% 48% 46%

International Upscale Class International Midscale Class Local Upscale and Middle Class Local Economy/Budget Class

Source: STR Global, Colliers International

Colliers International Georgia 31 Performance Indicators

Revenue per available room (RevPAR) experienced in 2019. It is followed by the local upscale class with significant decline in 2019 in all segments of hotels, USD 38 and local budget class with USD 18, both which is caused by the increased competition all declining by 23% and 25%, respectively. segments, combined with the decreased inflow of tourists due to the flight bans from Russia. In 2019, a substantial decrease was seen in The figure for International upscale class hotels RevPAR across all hotel classes ranging from stands at USD 94, decreasing by significant 22%. International midscale class also recorded the 15% up to 25%. decline in the REVPAR by 15%, standing at USD 57

REVPAR (USD, excl. VAT) 2015-2019 2015 2016 2017 2018 2019

121 123 120 113

94

77 71 74 67 57 53 47 46 49 38 27 22 24 19 18

International Upscale Class International Midscale Class Local Upscale and Middle Class Local Economy/Budget Class

Source: STR Global, Colliers International

Colliers International Georgia 32 Photo: Airbnb Listing, Tbilisi

Airbnb Market in Tbilisi

The daily rental, home-sharing platform Airbnb, MONTHLY AVERAGE NUMBER OF ACTIVE LISTINGS offering around 7 million listings in more than 100 K AND BOOKED PROPERTIES BY YEARS cities, operates in 220+ countries and regions. Since its launch in early 2008, the website has grown 6,658 rapidly in popularity among tourists and domestic travelers all around the world. As of 2019, the platform has more than 750 million guest arrivals. 3,732 In Georgia, the rental platform was launched in early 2017. Even though it was a novelty for locals, by the 2,020 end of the year, the platform had around 6,319 active listings. The figure impressively grew in 2018, 6,319 10,248 14,418 with 62% more listings, amounting to a 10 K monthly average. 2017 2018 2019 Relatively to 2018, in 2019 the number of properties Active listings Booked Properties listed on Airbnb also saw a substantial growth by Source: AirDna 41% from 10,248 to 14,418 average monthly listings. However, this is 2.2x higher than the average number of booked properties (that is 6,658 in 2019). MARKET REVENUE BY YEARS (USD) The median ADR of entire homes in Tbilisi has seen a slight decline during past 3 years, standing at USD 33 35,174,352 in 2019. The market revenue of Airbnb has been 55% characterised by a steadily increasing trend over the past few years, having grown by 55% from 2018 to 81% 2019. This trend reveals the fact that Airbnb is 22,747,078 successfully competing with local budget hotels and gradually taking up a larger portion of their 12,548,464 consumers.

The Airbnb market is impressively competing 2017 2018 2019 with hotels, almost tripling its total market 2017 2018 2019 revenue since 2017. Source: AirDna

Colliers International Georgia 33 Photo: Airbnb Listing, Tbilisi

Airbnb Market in Tbilisi In 2019 there was a dramatic growth in the BOOKED NIGHTS BY ACCOMMODATION number of booked nights on Airbnb. It increased TYPE, 2019 by 52% to 841,799 in total, out of which the 0.3% majority (90%) comprised the bookings of entire 10% homes and only 10% was a booking of a private room. BOOKED NIGHTS BY YEARS 842K

52% 841,799 89.7% 92% 552,231 Entire Home Private Room Shared Room

287,295 Source: AirDna

2017 2018 2019 The number of booked nights witnessed a substantial 52% growth in 2019. Source: AirDna

Colliers International Georgia 34 MEDIAN AVERAGE DAILY RATE (USD) BY MONTH, 2017-2019

39 40 40 40 40 39 39 39 38 38 37 36 35 35 36 36 36 35 35 35 34 33 34 33 33 34 32 31 32 31 31 32

29 30

Jul-17 Jul-18 Jul-19

Jan-18 Jan-19

Jun-17 Jun-18 Jun-19

Oct-17 Oct-18 Oct-19

Apr-17 Apr-18 Apr-19

Feb-17 Feb-18 Feb-19

Sep-17 Sep-18 Sep-19

Dec-18 Dec-17 Dec-19

Mar-17 Mar-18 Mar-19

Aug-17 Aug-18 Aug-19

Nov-17 Nov-18 Nov-19

May-17 May-18 May-19

ADR 50th.p

* Includes only entire home properties

Source: AirDna

WEIGHTED AVERAGE MEDIAN ADR (USD) BY YEARS, 2017-2019

38 35 33 The median ADR has experienced a decreasing trend for the last three years, while the supply has substantially increased.

2017 2018 2019

* Includes only entire home properties

Source: AirDna

MEDIAN OCCUPANCY RATE (%), 2017-2019

66% 67% 60% 57% 58% 57% 55% 54% 64% 55% 53% 52% 50% 50% 50% 50% 50% 48% 48% 45% 39% 40% 37% 38% 37% 35% 32% 32% 29% 29% 28% 26% 26% 23%

19%

Jul-19 Jul-17 Jul-18

Jan-18 Jan-19

Jun-17 Jun-18 Jun-19

Oct-17 Oct-18 Oct-19

Apr-19 Apr-17 Apr-18

Feb-18 Feb-17 Feb-19

Sep-18 Sep-17 Sep-19

Dec-18 Dec-17 Dec-19

Mar-17 Mar-18 Mar-19

Aug-17 Aug-18 Aug-19

Nov-17 Nov-18 Nov-19

May-19 May-17 May-18

Median Occupancy Rate

* Includes only entire home properties

Source: AirDna

Colliers International Georgia 35 Photo: Fabrika Hostel & Suites

Hostels in Tbilisi Thanks to its warm hospitality, long history, captivating PERFORMANCE INDICATORS urban scenery and dynamic nightlife, Tbilisi has (USD, excl. VAT, %), 2018-2019 established itself as an attractive destination among international backpackers, and the quality of Tbilisi hostels has been increasing in response to the growing demand for this market. A number of thematic and 9.3 9.4 more social experience-based hostels have made an 61% appearance so far on the capital’s hostel market. 49% There are five main clusters in Tbilisi that attract a 5.7 considerable amount of tourists. The largest, the Old 4.6 Tbilisi-Sololaki cluster, concentrates up to 60 hostels. Second comes the Mtatsminda-Vera cluster, which houses about 45 hostels. The remaining three clusters, Avlabari, Chughureti and Vake-Saburtalo, comprise around 60 hostels in total. 2018 2019

The average daily bed rate in Tbilisi hostels, as well as ADBR RevPab Occupancy Rate

revenue per available bed, has been characterised with Source: Colliers International a stable trend for the last two years. However, the occupancy rate experienced a significant 12% decrease in 2019.

Colliers International Georgia 36 THEMATIC HOSTELS IN TBILISI

Wine, Khinkali & Rock n Roll Hostel

“Wine, Khinkali & Rock n Roll” hit the market in September 2018. The traditional Georgian motifs, mixed with a 70s rock theme, grabbed the attention of tourists immediately. In addition to the original interior, the hostel serves vegan and gluten-free breakfasts. This one-of-a-kind hostel also offers film screenings, board games and music nights.

Hotel & Hostel Pin

Hostel Pin has been set up in an old building on Lermontov Street, near Liberty Square. The hostel is famous for its exceptional, contemporary décor, warm atmosphere and convenient location. It has three private rooms and one dorm with 6 beds. The hostel offers group tours throughout Georgia and bicycle and car rental services.

LANDMARK HOSTELS IN TBILISI

Fabrika Hostel & Suites

Located in a former sewing factory, Fabrika is a combination of a hostel, a multiuse artistic area and a place for socialization. As the largest hostel in Tbilisi, it attracts tourists from all over the world. With 354 beds in total, Fabrika comprises 94 private and 39 dormitory rooms. By offering restaurants, cafes, bars, boutique shops, and rooftop film screenings, Fabrika creates an exceptional atmosphere for locals and tourists.

Pushkin 10 Hostel

Located in a heart of the city, Pushkin 10 hostel attracts tourists with its great location and proximity to Tbilisi’s major facilities. This hostel offers guest a free breakfast, musical instruments and karaoke facilities. Operating since 2015, Pushkin 10 is one of the most popular hostels with tourists.

Colliers International Georgia 37 Photo: Stamba Hotel

Benchmarking

On the one hand, Tbilisi has better performance AVERAGE DAILY RATE (ADR), USD, 2019 indicators in terms of ADR and REVPAR than for Vilnius and Budapest for Internationally branded hotels and local upscale/middle class hotels. The 105 average ADR for those cities is USD 69 – 16% 97 less than the same figure in Tbilisi. 83 82 On the other hand, the occupancy rate in Tbilisi 72 66 is lower than in the selected Central and Eastern European cities. The average occupancy rate in those cities is 17% higher than the same figure in Tbilisi.

* Performance indicators of Internationally-branded hotels and local upscale and middle-class hotels were analyzed in case of Tbilisi, to Prague Bucharest Warsaw Tbilisi Vilnius Budapest present comparable data. Source: Colliers EMEA

OCCUPANCY RATE, 2019 REVPAR, USD, 2019

82% 76% 77 73% 71% 70 64% 62% 60 51 46 40

Prague Budapest Warsaw Bucharest Vilnius Tbilisi Prague Bucharest Warsaw Tbilisi Vilnius Budapest

Source: Colliers EMEA Source: Colliers EMEA

Colliers International Georgia 38 Batumi Hotel Market Overview

Photo: Batumi Centropolis By Alliance Group International Tourism in Batumi

In 2019, the number of international traveller trips NUMBER OF INTERNATIONAL TOURIST TRIPS IN to Batumi increased by 8% from 2 mln in 2018 to BATUMI, THOUSAND 2.2 mln, of which 66% were international tourist arrivals and remaining 34% were same-day visit arrivals. In 2017, the average length of stay in Batumi was 5.3 nights. However, over the last years the average number of nights spent in the city has slowly but steadily decreased reaching 4.7 nights in 2019. Batumi is especially popular amongst neighboring countries. Turkey, Russia, Azerbaijan and Ukraine 1,039 1,215 1,278 1,445 are clearly top source markets of international trips to Batumi. The recent slight decline in trips 2016 2017 2018 2019 from Russia (-9%) can be attributed to the flight Source: Geostat, Colliers International ban in 2019, whereas, significant decline in flights from Iran (-45%) can be related to the recent visa AVERAGE LENGTH OF STAY BY YEARS (NIGHTS) restrictions. Individuals from European countries are also actively starting to travel to Batumi. In 5.3 2019 the number of international trips from EU 4.8 4.9 4.7 countries has increased by 43% from 104.7 thousand in 2018 to 149.9 thousand. July, August and September proved to be the most popular months for travelling to Batumi.

2016 2017 2018 2019

Source: Geostat, Colliers International

PURPOSE OF TOURIST VISITS IN ADJARA, DYNAMICS OF INTERNATIONAL TRIPS FROM TOP THOUSAND MARKETS SOURCE TO BATUMI, THOUSANDS

37 39 Country 2017 % 2018 % 2019 82 37 86 150 101 141 99 Turkey 317.4 +20% 379.9 +10% 418.2 Russia 288.2 +10% 318 -9% 314.9

Azerbaijan 87.7 +23% 108.0 -9% 97.4

1,108 1,165 1,099 Ukraine 78.9 -3% 75.9 +26% 95.9 Israel 49.2 +42% 70.0 +30% 91.0

Iran 60.9 -42% 35.3 -45% 19.1

EU Countries 111.5 -6% 104.7 +43% 149.9 2017 2018 H1 2019 Other 220.9 -15% 185.9 +39% 258.5 Countries Leisure & Recreation Visiting Friends/family Total 1,214.8 +5% 1,277.6 +13% 1,444.8 Business Other

Source: Geostat, Colliers International Source: Geostat, Colliers International

Colliers International Georgia 40 Domestic Tourism in Batumi

In 2019, the number of trips by Georgian NUMBER OF DOMESTIC TOURIST TRIPS IN BATUMI, citizens to Batumi increased by 9% from 426.3 THOUSAND thousand in 2018 to 467.3 thousand, of which 66% were same-day visits and remaining 34% 155.1 156.2 were tourist trips. 146.3 The average statistical figure of nights spent by Georgian citizens domestically travelling to Batumi has slowly but steadily increased over the past three years, reaching 4.8 nights in 2019.

2017 2018 2019

Source: Geostat, Colliers International

AVERAGE LENGTH OF STAY BY YEARS (NIGHTS)

4.8 4.2 4.4

2017 2018 2019

Source: Geostat, Colliers International

Colliers International Georgia 41 Supply

Currently, there are 185 hotels operating in EXISTING HOTEL ROOM SUPPLY BY YEARS Batumi, offering guests 6,341 hotel rooms. In 2017, three internationally-branded hotels - the Euphoria Hotel Batumi, Wyndham, and Best 3,582 Western - opened in Batumi, adding another 611 2,913 rooms to Batumi’s stock. Together with Radisson, 2,713 2,433 Sheraton, Hilton, and Divan Suites, these additions bring Batumi’s internationally-branded hotel 2,103 1,199 1,421 1,466 count to six. The majority of the new supply is 1,019 clustered in the upscale segment. 1,598 new 849 530 530 530 65 480 internationally branded hotel rooms are 617 617 763 763 763 anticipated to be added to the room supply by 2024. Currently, 20% of the total supply is 2015 2016 2017 2018 2019 internationally-branded rooms, 23% is local International Upscale Class International Midscale Class upscale and middle class, and 56% is Local Upscale and Middle Class Local Economy/Budget Class economy/budget class. Source: Colliers International Batumi has a large supply of aparthotels. Orbi Group is the main operator of privately owned EXISTING SUPPLY OF HOTELS BY YEARS aparthotels in Batumi, with a major project, Twin Towers, which added around 4,000 apartments to 14,174 the city’s stock. During the season, the occupancy 12,457 11,685 of aparthotels stands at around 80%, while the 9,983 prices vary between USD 100-200. 7,940 5,627 6,341 4,549 5,205 3,634 112 136 147 152 185 According to the current hotel pipeline of Batumi, the supply of international hotel 2015 2016 2017 2018 2019 rooms is expected to increase by 123% in Number of Hotels Number of Rooms next four years. Number of Beds

Source: Colliers International

EXISTING AND FUTURE SUPPLY OF INTERNATIONALLY- BRANDED HOTELS 4,416 4,196

3,636

2,891 2,891 2,679 2,679 2,679 2,711 2,364 2,232 1,988

1,331 1,293 1,293 1,293 1,097 682 4 5 7 7 7 9 13 15 16

2015 2016 2017 2018 2019 2020 2021 2023 2024 Number of Hotels Number of Rooms Number of Beds Source: Colliers International

Colliers International Georgia 42 MAP OF EXISTING AND UPCOMING INTERNATIONALLY-BRANDED HOTELS

EXISTING INTERNATIONALLY-BRANDED HOTELS

Capacity of # of Opening # Operator/brand Location Class Conference Rooms Year Rooms 1 Euphoria Batumi Hotel 1 Lech and Maria Kaczynski Street 415 Midscale 2016 1,270

2 Hilton Batumi 40 Rustaveli Street 247 Upscale 2015 750

3 Sheraton Batumi 28 Rustaveli Street 202 Upscale 2010 994

4 Radisson Blu Iveria Batumi 1 Ninoshvili Street 168 Upscale 2011 644

5 Wyndham Batumi 33 Memed Avenue 146 Upscale 2017 637

6 Divan Suites Batumi 8 Z. Gamsakhurdia Street 65 Upscale 2014 50

7 Best Western Plus Batumi 92 Khimshiashvili Street 50 Midscale 2017 200

PIPELINE OF INTERNATIONALLY-BRANDED HOTELS

# of Opening Construction Investment # Developer Operator/brand Location Rooms Year Type Volume 3 Lech and Maria 1 AR Meridians Novotel Living 103 2021 Greenfield Kaczynski Str. 3 Lech and Maria 2 AR Meridians Ibis styles 123 2021 Greenfield Kaczynski Str. Courtyard by 9 Sherif Khimshiashvili 3 Alliance Group 150 2021 Greenfield Marriott/Alliance Palace Street 4 RED-CO Le Meridien Batumi Batumi Boulevard 105 2020 Greenfield USD 470 mln (incl.VAT) 5 Adog Georgia Swissotel 8 Gogebashvili Street 187 2023 Greenfield 6 Adjara Group Rooms Hotel 10 Gogebashvili Streeet 170 N/A Greenfield 7 Alliance Group Marriott/ Alliance Privilege Rustaveli Avenue 160 2023 Greenfield 8 DAR BUILDING Ramada Plaza 8 Shartava Street N/A 2021 Greenfield 9 Alliance City Hyatt Khimsmhiashvili Street 180 2026 Greenfield

Colliers International Georgia 43 Photo: Batumi

Demand Travellers from Israel, Turkey, Russia, and Ukraine BREAKDOWN OF HOTEL GUESTS BY make up the majority of Batumi’s hotel guest PURPOSE OF VISIT, 2016-2018 numbers. High-end hotels and a broad range of leisure activities are boosting visitation levels. The number of non-resident guests in Batumi hotels 10% 11% 5% increased by 6% y-o-y in 2018, with 83% of those 13% guests visiting Batumi for leisure and 13% in town on business. 31% of hotel guests are locals and 69% international visitors. Batumi’s hotels hosted around 711,000 guests in 2018. 90% 89% 83% In addition to its offerings, Batumi’s many annual cultural events, such as the Batumi International Art House Film Festival, the Black Sea Jazz festival, Batumi Music Fest, and popular street art festival, also work to drive 2016 2017 2018 substantial leisure hotel demand. Batumi’s hotels also cater to a substantial Leisure & Recreation Business Other

commercial demand, as the city hosts a number Source: Geostat of large corporate events and conferences and several international exhibitions.

Colliers International Georgia 44 Performance indicators

Relatively to Tbilisi, the trends of different The Average Daily Rate (ADR) in Batumi’s hotels has performance indicators of Batumi have been been slightly reducing in recent years due to the volatile during past several years. increased supply and competitiveness. ADR for international brands declined by around 4% each Batumi hotel occupancy rates in 2019 varied year from 2016 to 2019. It should be noted that between 32% to 65% depending on the hotel local upscale and middle-class hotels experienced segment. Occupancy rate of internationally- substantial decrease of 36% between 2017 and branded hotels has recorded an increasing 2018, and growth of 13% again in 2019. Local tendency over last 5 years and regardless of the budget/economy hotels ADR was USD 28 in 2019, hampering factors in the summer of 2019, they fluctuating since 2015. It decreased by 24% enjoyed the highest 65% for both - 2018 and 2019 compared to 2018. years. Unlike this, the occupancy rate of local upscale and middle-class hotels has been increasing since 2016 but decreased by 7 percentage points to 44% in 2019. Local Internationally-branded hotels in Batumi budget/economy class hotels have shown a have performed relatively well, keeping the fluctuating occupancy rates, amounting to 32% in occupancy rate at it highest historic level. 2019.

ADR IN BATUMI, (USD, excl. VAT) 2015-2019

2015 2016 2017 2018 2019 101 94 91 88 86 85 84 83

60 53

39 35 38 37 28

International Brands Local upscale and middle class Local budget/economy class

Source: STR Global, Colliers International

OCCUPANCY RATE (%) IN BATUMI 2015-2019

2015 2016 2017 2018 2019

65% 65%

54% 52% 50% 51% 45% 43% 43% 44% 37% 35% 33% 31% 32%

International Brands Local upscale and middle class Local budget/economy class

Source: STR Global, Colliers International

Colliers International Georgia 45 Performance indicators Revenue per available room (RevPAR) in internationally- branded hotels had been increasing until 2018, but showed a 3.5% decrease in 2019, amounting to USD 55. In contrast with Tbilisi, RevPAR in RevPAR of local upscale and middle-class segments international and local was moderately going upwards until 2017 but declined by 34% in 2018 and stands almost unchanged since upscale/midscale class hotels in then. As for the local budget/economy class, this Batumi has maintained its stability. segment was relatively stable, however it reported a 31% fall in 2019, showing a RevPAR of USD 9.

REVPAR IN BATUMI, (USD, excl. VAT) 2015-2019

2015 2016 2017 2018 2019 57 55

49 50 46 41 36 37

27 27

13 13 12 13 9

International Brands Local upscale and middle class Local budget/economy class Source: STR Global, Colliers International

Colliers International Georgia 46 Photo: Airbnb Listing, Batumi

Airbnb Market in Batumi

In comparison to 2018, in 2019, the number of THE MONTHLY AVERAGE NUMBER OF ACTIVE active listings on Airbnb grew by 32%, from 7,637 LISTINGS AND BOOKED PROPERTIES BY YEARS to 10,091. Even though the number of booked properties almost doubled to 2,925 in 2019, it still 2,925 substantially falls behind the active listings. Among entire homes, average ADR of top- performing properties (95th percentile, 128 properties) stood at USD 94 in 2019, that is 2.9x 1,498 higher than the median ADR of USD 33. 923 The median ADR of entire homes in Batumi has seen a slight decline during past 3 years, standing 5,386 7,637 10,091 at USD 36 in 2019. Like Tbilisi, Batumi’s market revenue of Airbnb is characterised by an 2017 2018 2019 increasing trend, having grown sharply by 60% Active Listings Booked Properties from 2017 to 2018, and by 55% from 2018 to Source: AirDna 2019. And just as in Tbilisi, Airbnb is becoming a strong competitor for local budget hotels in Batumi. THE MARKET REVENUE BY YEARS (USD)

14,427,637 55% Monthly average number of active listings on Airbnb significantly exceeds the supply of hotel rooms, becoming 60% 9,309,417 more and more competitive on the market. 5,821,701

2017 2018 2019

Source: AirDna

Colliers International Georgia 47 Photo: Batumi

Airbnb Market in Batumi The total number of booked nights on AIRBNB BOOKED NIGHTS BY ACCOMMODATION Airbnb in 2019 was 341,272, which has TYPE, 2019 increased sharply by 58% since 2018. The majority (91%) of them comprises the bookings of entire homes. And only 9% was 9% a booking of a private room.

The number of booked nights on Airbnb has increased sharply by 341,272 58% in 2019.

91% BOOKED NIGHTS BY YEARS

Entire Home Private Room Shared Room 341,272

Source: AirDna

215,789

129,577

2017 2018 2019

Source: AirDna

Colliers International Georgia 48 MEDIAN AVERAGE DAILY RATE (USD) BY MONTH, 2017-2019

48 45 45 44 40 39 39 39 40 34 35 37 35 35 34 33 32 31 31 32 30 32 30 30 29 29 29 28 30 30

26 26 28 26 25

Jul-19 Jul-17 Jul-18

Jan-18 Jan-19

Jun-17 Jun-18 Jun-19

Oct-18 Oct-17 Oct-19

Apr-19 Apr-17 Apr-18

Feb-17 Feb-18 Feb-19

Sep-17 Sep-18 Sep-19

Dec-17 Dec-18 Dec-19

Mar-17 Mar-18 Mar-19

Aug-17 Aug-18 Aug-19

Nov-17 Nov-18 Nov-19

May-17 May-18 May-19

* Includes only entire home properties

Source: AirDna

THE WEIGHTED AVERAGE MEDIAN ADR (USD) BY YEARS, 2017-2019

42 39 36 Similarly to Tbilisi, the Airbnb market in Batumi has a diminishing trend of the median average daily rate.

2017 2018 2019

* Includes only entire home properties Source: AirDna MEDIAN OCCUPANCY RATE (%), 2017-2019

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

0%

Jul-17 Jul-18 Jul-19

Jan-18 Jan-19

Jun-17 Jun-18 Jun-19

Oct-17 Oct-18 Oct-19

Apr-19 Apr-17 Apr-18

Feb-17 Feb-18 Feb-19

Sep-17 Sep-18 Sep-19

Dec-17 Dec-18 Dec-19

Mar-17 Mar-18 Mar-19

Aug-17 Aug-18 Aug-19

Nov-17 Nov-18 Nov-19

May-17 May-18 May-19

Median Occupancy

* Includes only entire home properties Source: AirDna

Colliers International Georgia 49 Photo: Hostel M55 Batumi

Hostels in Batumi

As in Tbilisi, in response to the growing demand PERFORMANCE INDICATORS from the international backpackers’ segment, (USD excl. VAT, %), 2018-2019 several hostels have appeared on the market of Batumi over the past few years. Despite this, the 65% occupancy rate experienced a sharp 27% decrease 6.6 and stood at 38% in 2019. 5.8 5.0 The average daily rate has also reduced, though 38% by just 1 unit, to USD 6, while the revenue per available room decreased significantly from USD 5 to USD 2 in 2019. 2.2

2018 2019

ADR RevPar Occupancy Rate

Source: Colliers International

Colliers International Georgia 50 Photo: Stamba Hotel

Benchmarking

On the one hand, Batumi has better AVERAGE DAILY RATE (ADR), USD, 2019 performance indicators in terms of ADR than Vilnius and Budapest for Internationally branded hotels and local upscale/middle class 105 97 hotels. The average ADR for those cities is USD 69 – 7% less than the same figure in Tbilisi. 83 74 72 On the other hand, the occupancy rate, as well 66 as revenue per available room in Batumi is lower than in the selected Central and Eastern European cities.

* Performance indicators of Internationally-branded hotels and local upscale and middle-class hotels were analyzed in case of Batumi, to Prague Bucharest Warsaw Batumi Vilnius Budapest present comparable data. Source: Colliers EMEA

OCCUPANCY RATE, 2019 REVPAR, USD, 2019

82% 76% 77 73% 71% 70 64% 60 54% 46 40 40

Prague Budapest Warsaw Bucharest Vilnius Batumi Prague Bucharest Warsaw Vilnius Budapest Batumi

Source: Colliers EMEA Source: Colliers EMEA

Colliers International Georgia 51 Kutaisi Hotel Market Overview

Photo: Kutaisi Ramada Hotel MAP OF EXISTING AND UPCOMING HOTELS

Best Western Ramada Kutaisi

West Tower Boutique Hotel Bagrati 1003 Hotel Argo

Lux Palace Hotel

Supply

The Kutaisi hotel market consists of 88 hotels with 1,227 EXISTING HOTEL ROOM SUPPLY BY YEARS rooms. The number of hotel rooms grew by 5% y-o-y. Economy/budget hotels supply 72% of the total rooms, while local midscale class hotels hold 24% of the total rooms and the remaining 4% is held by international midscale class hotels.

The first internationally-branded 3-star hotel in the city, 883 Best Western Kutaisi, opened in 2017, adding 45 rooms 854 to the available stock. Another international brand, Ramada, is expected to open in Kutaisi in 2021. It will 647 add another 124 rooms to the overall number of 647 accommodations. 467 EXISTING SUPPLY BY YEARS 264 299 177 149 149 2,750 2,612 45 45 45 2015 2016 2017 2018 2019 1,969 1,799 International Midscale Local Midscale Budget Source: Colliers International 1,420 1,163 1,227 796 869 Kutaisi hotel market is dominated by local 616 budget hotels. However, the planned 40 52 54 81 88 opening of Ramada in 2021 will increase 2015 2016 2017 2018 2019 the stock of international hotel rooms. Number of Hotels Number of Rooms Number of Beds Source: Colliers International

Colliers International Georgia 53 Photo: Best Western Kutaisi

Demand From 2017 to 2018, the number of hotel guests BREAKDOWN OF HOTEL GUESTS BY in Kutaisi grew at an annual growth rate of 26%. PURPOSE OF VISIT, 2016-2018 63% of Kutaisi’s hotel guests are leisure travelers, while 21% travel to the city on business. 44% of 11% 11% 16% hotel guests are locals and 56% international visitors. Kutaisi’s hotels hosted over 123,000 28% 31% 21% visitors in 2018. The share of guests with business purposes decreased in 2018 from 31% to 21%, while the share of leisure travelers increased by 5 62% 58% 63% percentage points.

2016 2017 2018 Leisure & Recreation Business Other

Source: Geostat

Colliers International Georgia 54 Photo: Hotel Solomon, Kutaisi

Performance Indicators

As of 2019, hotels in the midscale class recorded ADR IN KUTAISI (USD, excl. VAT) 2015-2019 a 59% occupancy rate, while the same figure for budget class hotels stood at 48%. Compared to 59 56 2018, the figure increased for midscale hotels by 55 55 50 6 percentage points, while for budget hotels it did not change. The occupancy rate has fluctuated over the last 5 years and there have been no apparent trends of decrease or increase. 29 25 26 23 25 The average daily rate (ADR) stands at USD 50 for midscale and USD 25 for budget class hotels. Since 2015, the figure has varied between USD 50-59 for midscale class and USD 23-29 for Midscale Budget budget class hotels. Compared to 2018, a relatively significant decline (9%) was recorded in 2015 2016 2017 2018 2019 midscale class hotels. Source: Colliers International The revenue per available room (RevPAR) has been stable in the last two years, and currently The ADR of midscale class hotels has decreased stands at USD 30 for midscale and USD 12 for by 10% in 2019, while the occupancy rate saw budget class hotels. an increase of 6 percentage points.

REVPAR IN KUTAISI (USD excl. VAT), 2015-2019 OCCUPANCY RATE IN KUTAISI (%), 2015-2019

36 61% 59% 54% 29 29 30 53% 51% 49% 26 47% 47% 48% 48%

14 12 12 12 12

Midscale Budget Midscale Budget

2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

Source: Colliers International Source: Colliers International

Colliers International Georgia 55 Photo: Hostel Black Tomato Kutaisi

Hostels in Kutaisi

Compared to Tbilisi, the market of hostels is PERFORMANCE INDICATORS not very developed in Kutaisi. The number of (USD excl. VAT, %), 2018-2019 hostels increased slightly from 2018 to 2019,

but the occupancy rate saw a 9% decrease 51% and stood at 42% in 2019. 4.8 42% The average daily rate, as well as the revenue 4.6 per available room, have been characterised with a stable trend for the last two years: USD 2.5 5 and USD 2, respectively. 1.9

2018 2019

ADR RevPar Occupancy Rate

Colliers International Georgia 56 Seaside Hotel Market Overview

Photo: Mtsvane Kontskhi Photo: Castello Mare Hotel & Wellness Resort

Georgia’s Black Sea coast encompasses the towns of and Sarpi are located near Batumi, towards the , Gonio, Kvariati, Sarpi, , , , Georgian-Turkish border. These resort towns attract Shekvetili, and Grigoleti. Tourists visit these seaside visitors looking for an escape from urban life, while resort towns during the summer months from June remaining close enough to vibrant Batumi that they through September, arriving primarily from Russia, can enjoy a variety of entertainment options. Turkey, Armenia, and Azerbaijan. In addition, locals Ureki is a coastal town in the region, situated are visiting in increasing numbers. between Grigoleti to the north, and Shekvetili to the Following Batumi, Kobuleti is the second most south. Unlike many areas on the Black Sea, Ureki’s popular resort and summer destination on the beaches are sandy. Though coastal, sandy resorts like Georgian Black Sea coast. Kobuleti and Chakvi are Ureki, Grigoleti and Shekvetili are quieter and more the most occupied seaside resorts. Gonio, Kvariati, relaxing tourist destinations.

Supply The seaside resort hotels market consists of 484 EXISTING SUPPLY OF HOTEL MARKET BY YEARS hotels with 13,116 rooms. Since 2018, the number of hotel rooms in Georgian seaside resorts has 31,607 increased by 8.5%. 29,104 The internationally renowned Autograph Collection, a luxury hotel chain owned by Marriott 22,915 International, opened the Paragraph Resort & Spa 19,902 in Shekvetili in the spring of 2018. The Paragraph 16,075 offers 220 rooms (accommodating over 500 guests) 13,116 and includes a spa and wellness centre, restaurants, 12,094 9,605 conference halls, and other facilities typically 8,674 7,017 provided by high-class hotels. 237 296 310 439 484

2015 2016 2017 2018 2019

Number of Hotels Number of Rooms Number of Beds

Source: Colliers International

Colliers International Georgia 58 Seaside Destinations In Georgia

PIPELINE OF INTERNATIONAL AND LOCAL BRANDED HOTELS

# of Opening Construction Investment # Developer Operator/brand Location Class Rooms Year Type Volume

Georgian Co- 1 Paragraph Resort Ganmukhuri 130 2023 Upscale Greenfield Investment Fund USD 164 mln Tourism Development 2 Wellness Resort & Spa Mtsvane Kontskhi 120 2022 N/A Greenfield (incl.VAT) Fund

3 Red-co Bamboo Beach Resort Tsikhisdziri 119 2021 N/A Greenfield

Colliers International Georgia 59 Photo: Anaklia Bridge

Demand The newly-built, 10,000-seat Black Sea Arena BREAKDOWN OF HOTEL GUESTS BY concert hall is located in Shekvetili. This popular PURPOSE OF VISIT, 2016-2018 venue hosted several events throughout the 2019 summer season. Shekvetili’s Tsitsinatela 3% 2% 5% amusement park offers guests a blend of unique 8% 15% rollercoaster rides and family-friendly activities. 9% Operational from June to September, Tsitsinatela attracts more than 300,000 seasonal visitors, who come from the various seaside resorts. 90% 93% Anaklia is a relatively new seaside resort, which 76% hosts the international GEM Fest music festival, making it a go-to destination for electronic music lovers. Aside from leisure-related guests, hotels in Anaklia host a substantial number of corporate events. 2016 2017 2018 In 2018, 76% of hotel guests were leisure travelers, and 9% of them visited seaside resorts Leisure & Recreation Business Other for business purposes. The share of leisure Source: Geostat travelers significantly deceased when compared to 2017, while the figure for business purposes increased.

Colliers International Georgia 60 Photo: Georgia Palace Hotel & Spa Kobuleti

Performance Indicators Since most seaside resorts are highly seasonal, the ADR (USD, excl. VAT), 2016-2019 annual occupancy rates tend to be relatively low (varying from 30% to 35%). In 2019, the highest annual occupancy rate was 60 recorded in Anaklia, amounting to 32%. This was 58 51 followed by Gonio, Kvariati and Sarpi with a rate of 47 26%. Bordering nearby villages in Turkey, Sarpi and Gonio have the potential to strengthen their shoulder seasons, drawing a substantial number of Turkish visitors. In the 2019 summer season, Anaklia recorded the highest ADR among the seaside resorts at USD 39, 2016 2017 2018 2019 followed by Kobuleti and Chakvi amounting to USD

38 each. The ADR slightly decreased in 2019 in Source: Colliers International seaside resorts. Regarding revenue per available room, Anaklia keeps the leading position at USD 13, followed by Kobuleti and Chakvi at USD 8. Although there is a strong demand growth in Seaside resorts have not experienced a seaside resorts, a large supply of residential and sharp fluctuation in the occupancy levels apart-hotels is putting pressure on the hotel market. for the last four years. However, as a result of active marketing campaigns promoting the Adjara region, and the development of infrastructure in Ureki and Shekvetili, we expect improvement in the performance indicators.

REVPAR (USD, excl. VAT), 2016-2019 OCCUPANCY RATE (%), 2016-2019

35% 36% 20 20 33% 33% 18 15

2016 2017 2018 2019 2016 2017 2018 2019

Source: Colliers International Source: Colliers International

Colliers International Georgia 61 ADR IN SEASIDE RESORTS (USD, excl. VAT), 2015-2019 2015 2016 2017 2018 2019

59 55 54 48 50 45 46 43 43 44 41 37 39 38 33 31 31 30 28 24

Gonio; Kvariati; Sarpi Ureki; Shekvetili; Grigoleti Anaklia Kobuleti; Chakvi

Source:, Colliers International

OCCUPANCY RATE IN SEASIDE RESORTS (%), 2015-2019

2015 2016 2017 2018 2019

34% 32% 32% 30% 31% 30% 30% 28% 29% 27% 28% 26% 26% 24% 25% 25% 23% 23% 21% 20%

Gonio; Kvariati; Sarpi Ureki; Shekvetili; Grigoleti Anaklia Kobuleti; Chakvi

Source: Colliers International

REVPAR IN SEASIDE RESORTS (USD, excl. VAT), 2015-2019

2015 2016 2017 2018 2019

17

15 15 14 14 14 13 13 13 12 12 10 8 8 8 7 7 8 7 7

Gonio; Kvariati; Sarpi Ureki; Shekvetili; Grigoleti Anaklia Kobuleti; Chakvi

Source: Colliers International

Colliers International Georgia 62 Photo: Poti, Aerial View

Performance Indicators in Poti Touristic facilities are not very developed in Poti, PERFORMANCE INDICATORS IN POTI therefore it does not usually attract many (USD, excl. VAT, %), 2018-2019 tourists. However, this city is a transport hub, as Poti Sea Port is the largest port in Georgia. The occupancy rate has been stable for the past 46% 45% two years, decreasing slightly from 46% to 45% 27 in 2019. Poti recorded an increase in the ADR by 7 units 20 and reached USD 27 in 2019. Revenue per available room has also seen an 12 increase, from USD 9 to USD 12 in 2018-2019. 9 High occupancy of Poti relatively to other seaside resorts could be due to the fact that other destinations are highly seasonal, but Poti 2018 2019 maintains activity year-round because of the ADR RevPAR Occupancy seaport. Besides, there are very few hotels available in this city. This creates the possibility Source: Colliers International for the development of infrastructure. Thus, an improvement of the performance indicators could be expected in the future.

Colliers International Georgia 63 Mountain Hotel Market Overview

Photo: Gudauri Ski Resort Mountain Resorts in Georgia During the past few years, Georgian ski resorts have December 2015. The resort can accommodate up to been opening up to a global audience, improving 7,000 tourists at a time, offering guests 8 kilometres infrastructure, and designing resort masterplans with of ski tracks and two lifts. Goderdzi’s location makes the goal of hosting world championship alpine it a great year-round mountain resort. For the events. 2017/18 ski season, two new lifts (a 200-metre-long stirrup and an 80-metre-long platter lift), along with Gudauri is Georgia’s most popular ski resort. Located a new snowmobile track, were added to Goderdzi’s only 120 kilometers from Tbilisi in the Greater skiing infrastructure. Additionally, a new cafe, fast , the resort is well-known for its food restaurant, and ski centre were opened in great off-piste skiing and ski mountaineering, Goderdzi for the 2017/18 season. drawing visitors from as far away as Russia, Poland, Germany, and Israel. In 2018, the number of guests Bakhmaro, the country’s highest alpine resort, is in Gudauri amounted to 340,600. located 2,000 metres above sea level in the Guria region. The resort is best known for its natural Located in south-eastern Georgia and at an altitude beauty and exceptional views. Proximity to both the of 1,800 metres, Bakuriani comprises of the Kokhta Black Sea and dry mountain air makes the Bakhmaro and Didveli ski bases, providing guests with a total of climate truly unique and beneficial for people who twelve ski runs that vary in length and difficulty. suffer from respiratory problems. Although the During the 2018-2019 season, Bakuriani hosted resort is seasonally busy from June to September, 136,185 visitors, reflecting a 20% rise y-o-y. Although Bakhmaro has great potential to be a popular year- Bakuriani is primarily a winter destination, it attracts round tourist destination. Currently, however, its a considerable number of summer visitors and is a hotel market supply is limited and comprises of popular family resort. In 2017, the renovated guesthouses and a single hotel named ‘Bakhmaro’. -Bakuriani railway line was re-opened, taking The government plans to improve infrastructure for tourists from Borjomi to Bakuriani twice a day. In both summer and winter use and is currently 2017, the new Kokhta-Mitarbi resort was connected developing a masterplan. to the Bakuriani ski area. The resort was developed using both private and public funding and an initial Orbi Group has planned to construct a USD 150 mln investment. multifunctional complex in Bakhmaro. The company plans to invest more than 100 million GEL in the The town of Mestia is located high in the mountains project, which includes the building of a hotel in the Svaneti region. It is a popular spot for visitors complex, conference hall, sports fields, restaurants, to stay in while skiing at the nearby Hatsvali and cafes, spa and sports centers, indoor and outdoor Tetnuldi ski resorts. In 2018, 82,200 guests visited pools, etc. All these will allow the resort to serve Mestia, depicting a 36% decline when compared to more than 300,000 tourists annually, which is 20 2017. In 2017, Mestia was connected to Hatsvali by a times more than what it is now. The stock of hotel new ski lift that provides easier and more rooms will increase from 120 to 800 and the comfortable access to the resort. construction process will be completed by 2021. Development of the Goderdzi Mountain resort began in 2011, before opening for business in

Colliers International Georgia 65 Photo: Goderdzi Resort

Supply The total number of hotels in the mountain resorts EXISTING SUPPLY BY YEARS stands at 282, with 4,143 rooms. Since 2015, the supply of hotel rooms in Georgian ski resorts (Gudauri, Mestia, Bakuriani) has been increasing. There was a sharp 96% increase in the number of 10,374 hotels between 2017 and 2018, while this number increased by 29% from 2018 to 2019. 8,654 Goderdzi resort suffers from a shortage in accommodation, with only a few cottages currently 6,066 on offer. There are seven projects in the pipeline 5,230 which are going to be completed in 2020-2022. 4,143 3,628 3,559 Aparthotels have become a popular 2,699 2,219 accommodation. In Bakuriani, Mgzavrebi is the 1,417 largest operator, while Orbi Group is also 52 94 111 218 282 represented on the market. Hotel Crystal is also among large suppliers of the market, with 108 2015 2016 2017 2018 2019 rooms. Furthermore, Simetria by Marriot International, with 116 rooms, is set for completion Number of Hotels Number of Rooms Number of Beds by 2022. Source: Colliers International Marco Polo is the largest hotel in Gudauri, offering 123 rooms. Moreover, Red-Co, with 157 rooms by Radisson Blu, is expected to open by 2022. Rooms Hotel Kazbegi, with its 155 rooms, is the most famous and attractive destination for travelers with a relatively higher budget. In Mestia, Hotel Tetnuldi and Hotel Banguriani are the largest suppliers, with 50 and 36 rooms, respectively.

Colliers International Georgia 66 Photo: Juta

Performance Indicators

Mestia witnessed a 9.5% increase in RevPAR, while ADR (USD, excl. VAT), 2019 occupancy rate jumped 4 points from 53% to 48% 83 in 2019. However, the ADR rate grew by 23% and currently stands at USD 48.

Bakuriani recorded the lowest occupancy rate 53 among ski resorts. The ADR and RevPAR 48 increased by 15% and 10%, respectively. In recent years, the strong growth of apart-hotels in Bakuriani has worked to put pressure on the market.

Gudauri experienced a decrease in occupancy rate Mestia Bakuriani Gudauri in 2019, by 8%, while the ADR has been stable for the last two years at USD 83. RevPAR decreased Source: Colliers International by 14%. Although strong supply growth may have an impact on performance over the next few OCCUPANCY RATE (%) 2019 years, we expect Gudauri to remain one of the strongest ski resorts in Georgia, able to absorb 48% the new supply with increasing demand. 43% 41%

Mestia Bakuriani Gudauri

Source: Colliers International The average daily rate in mountain resorts has increased in REVPAR (USD, excl. VAT), 2019 2019, while the occupancy rate 36 has slightly dropped.

23 22

Mestia Bakuriani Gudauri

Source: Colliers International

Colliers International Georgia 67 ADR IN SKI RESORTS (USD, excl. VAT), 2015-2019 2015 2016 2017 2018 2019

83 83

71 69 67 64 61 59 57 55 53 46 48 46 39

Mestia Bakuriani Gudauri

Source: Colliers International

OCCUPANCY RATE IN SKI RESORTS (ANNUAL, %), 2015-2019

2015 2016 2017 2018 2019

53% 52% 51% 51% 51% 48% 48% 46% 47% 43% 43% 43% 41% 40% 39%

Mestia Bakuriani Gudauri

Source: Colliers International

REVPAR IN SKI RESORTS (USD, excl. VAT), 2015-2019

2015 2016 2017 2018 2019

42

37 36 33 30 30 27 26 26 26 23 22 20 21 20

Mestia Bakuriani Gudauri Source: Colliers International

Colliers International Georgia 68 Photo: Rooms Hotel, Kazbegi

Stepantsminda (Kazbegi) , formerly known as Kazbegi, is best NUMBER OF VISITORS IN KAZBEGI NATIONAL known for its scenic surroundings and magnificent PARK, 2018-2019 views. Located next to Gudauri in the - 2018 2019 Mtianeti region in the mountains, Stepantsminda has become an increasingly 174,520 popular destination among tourists, offering visitors an array of outdoor activities, including mountain climbing, horseback riding, paragliding, 195,228 and visits to Gergeti Trinity church. In two decades, a big village has grown into a sprawling town, with Source: Geostat guesthouses and hotels everywhere and tourists arriving by the busload in the summer months. In ADR IN KAZBEGI (USD, excl. VAT), 2017-2019 recent years, the number of hotels and guesthouses in Stepantsminda has increased with the rise in tourism. 93 89 85 Performance Indicators The occupancy rate in Stepantsminda was 52% in 2019. The ADR decreased by 8.6% to USD 85. The RevPAR in Stepantsminda hotels decreased by 13.7%. A new upscale hotel - Step Inn Kazbegi - is planned to open in 2020 in Stepantsminda, adding 2017 2018 2019 20 rooms to the accommodation stock. Source: Colliers International

REVPAR IN KAZBEGI (USD, excl. VAT), 2017-2019 OCCUPANCY RATE (%) IN KAZBEGI HOTELS, 2017-2019

51 54% 54% 48 52% 44

2017 2018 2019 2017 2018 2019

Source: Colliers International Source: Colliers International

Colliers International Georgia 69 Photo: Shaori Lake, Racha

Racha In 2019, the stock of hotel rooms in Racha PERFORMANCE INDICATORS IN RACHA amounted to 324 units, reflecting a 12% increase (USD, excl. VAT, %) 2018-2019 when compared to the previous year. The number of beds grew by 10% to account for 763 units in 19% 19% 2019. The occupancy rate in Racha has been stable for the last two years and stands at 19%. The average daily rate experienced a slight 195,228 decrease, from USD 33 in 2018 to USD 32 in 2019. Revenue per available room has also been stable 33 6 32 6 over the last two years at USD 6. 2018 2019

ADR RevPAR Occupancy

Source: Colliers International

Colliers International Georgia 70 Photo: Tusheti National Park

Tusheti

In 2019, the stock of accommodation facilities in PERFORMANCE INDICATORS IN TUSHETI Tusheti amounted to 192 rooms, reflecting a (USD, excl. VAT, %) 2018-2019 65% increase when compared to the previous year. The number of beds accounted for 512 units in 2019, 1.7x more compared to 2018. 15% In 2019, Tusheti experienced a slight decrease in occupancy rate, from 15% to 13%. The ADR has been stable in the last two years, increasing by just one unit from USD 28 to USD 13% 29 195,228 Tusheti recorded a minor decrease in revenue 28 4.3 29 3.8 per available room, from an already low USD 4.3 to USD 3.8. 2018 2019

ADR RevPAR Occupancy

Source: Colliers International

Colliers International Georgia 71 Photo: The Valley Bakuriani

Airbnb Market in Bakuriani

In Bakuriani, compared to 2018, in 2019 there MONTHLY AVERAGE NUMBER OF ACTIVE was a sharp increase (60%) in the number of LISTINGS AND BOOKED PROPERTIES IN active listings on Airbnb, amounting to 856 BAKURIANI, 2017-2019 856 listings. The number of booked properties have also increased from 119 to 300 in 2019, 300 but the demand on the Airbnb market is still 536 much lower than the supply. Considering the sharp increase in the active listings and booked nights, it is no surprise 256 119 that the market revenue of Airbnb in Bakuriani has grown by almost 111% from 52 2018 to 2019 and accounted for USD 1.6 million. 2017 2018 2019 In 2019, the median average daily rate of entire homes in Bakuriani stands at USD 51, Active Listings Booked Properties depicting a 14% drop when compared to the Source: AirDna previous year. MARKET REVENUE BY YEARS (USD), 2017-2019

The growth rate of market 1,612,330 revenue outperforms annual 111% increase in monthly average number of active listings. 169% 765,483

284,404

2017 2018 2019

2017 2018 2019

Source: AirDna

Colliers International Georgia 72 Photo: Airbnb Listing, Bakuriani

Airbnb Market in Bakuriani

The total number of booked nights on AIRBNB BOOKED NIGHTS IN BAKURIANI BY Airbnb in 2019 was 26,256, increasing by ACCOMMODATION TYPE, 2019 134% relatively to 2018. Out of them the bookings of entire homes account for 87%. And the bookings of private rooms comprise 13% only 13%.

AIRBNB BOOKED NIGHTS IN BAKURIANI BY YEARS 26,256

26,256 134%

87%

160% 11,234 Entire Home Private Room

Source: AirDna 4,326

2017 2018 2019 In 2019, the number of booked

Source: AirDna nights has grown six times when compared to 2017.

Colliers International Georgia 73 MEDIAN AVERAGE DAILY RATE (USD) BY MONTH, 2017-2019

80 80

70 69 69 70 65 60 54 55 56 50 49 49 46 48 46 48 46 43 45 41 45 44 43 42 42 40 40 40 40 40

39 35

Jul-17 Jul-18 Jul-19

Jan-18 Jan-19

Jun-17 Jun-18 Jun-19

Oct-17 Oct-18 Oct-19

Apr-17 Apr-18 Apr-19

Feb-18 Feb-19

Sep-17 Sep-18 Sep-19

Dec-19 Dec-17 Dec-18

Mar-17 Mar-18 Mar-19

Aug-17 Aug-18 Aug-19

Nov-17 Nov-18 Nov-19

May-18 May-17 May-19

* Includes only entire home properties

Source: AirDna

THE MEDIAN ADR (USD) BY YEARS, 2017- 2019

60 59 51

In 2019, a sharply increased supply of apartments in Bakuriani resulted in a 14% decline in the median average daily rate.

2017 2018 2019

* Includes only entire home properties

Source: AirDna

MEDIAN OCCUPANCY RATE (%) IN BAKURIANI, 2017- 2019

53% 48% 46% 43% 35% 30% 26% 26% 27% 27% 19% 16% 18% 16% 13% 13% 14% 13%13% 13% 15% 10% 10% 7% 7% 7% 7% 7% 7%

6% 6% 6% 6% 4%

Jul-17 Jul-18 Jul-19

Jan-18 Jan-19

Jun-17 Jun-18 Jun-19

Oct-17 Oct-18 Oct-19

Apr-17 Apr-18 Apr-19

Feb-18 Feb-19

Sep-17 Sep-18 Sep-19

Dec-17 Dec-18 Dec-19

Mar-17 Mar-18 Mar-19

Aug-17 Aug-18 Aug-19

Nov-17 Nov-18 Nov-19

May-17 May-18 May-19

Median Occupancy Rate

* Includes only entire home properties Source: AirDna

Colliers International Georgia 74 Photo: Gudauri Loft

Airbnb Market in Gudauri As for Gudauri, the number of active listings on THE MONTHLY AVERAGE NUMBER OF ACTIVE Airbnb has been relatively stable during the past LISTINGS AND BOOKED PROPERTIES IN few years, growing by 10% from 2018 to 2019. The GUDAURI, 2017-2019 average number of booked properties have also 71 increased from 48 to 71, but it is still half as much as the listings. Airbnb market in Gudauri is characterised with 48 incredibly high-performance indicators. In 2019, 39 the median annual average daily rate accounts for USD 100. Because of the small sample of observations, it is challenging to make a reliable conclusion about the prices. On one hand, the high 123 133 146 prices could be related to the fact that mainly large-sized apartments are listed and booked. On 2017 2018 2019 the other hand, the market is relatively Listings Booked Properties undeveloped and there is a low competition in this Source: AirDna resort. Besides, during non-season period very few apartments are listed and booked, which results in MARKET REVENUE IN GUDAURI BY YEARS high booking prices relatively to the hotel market. (USD), 2017-2019 It is also noteworthy that the vast majority of customers are international guests. 15% The revenue from booked apartments in Gudauri has slightly increased if compared to other cities. 763,170 The annual growth rate accounted for 15% from 77% 660,439 USD 660,439 in 2018 to USD 763,170 in 2019.

373,121 Due to seasonality and an undeveloped market, the lowest growth rate of the revenue is observed in Gudauri. 2017 2018 2019 Source: AirDna

Colliers International Georgia 75 Photo: Atrium Gudauri

Airbnb Market in Gudauri

The total number of booked nights on Airbnb AIRBNB BOOKED NIGHTS IN GUDAURI BY in 2019 was 6,883, showing the slight growth ACCOMMODATION TYPE, 2019 by 9%. Bookings of entire homes account for 81% of this amount. And the bookings of private rooms comprise only 19%. 19%

AIRBNB BOOKED NIGHTS IN GUDAURI BY YEARS

9% 6,883 6,883 6,324 60%

3,938 81%

Entire Home Private Room 2017 2018 2019

Source: AirDna Source: AirDna

Colliers International Georgia 76 MEDIAN AVERAGE DAILY RATE (USD) BY MONTH, 2017-2019

200 180 160 140 120 100 80 60 40 20

0

Jul-17 Jul-18 Jul-19

Jan-18 Jan-19

Jun-17 Jun-18 Jun-19

Oct-17 Oct-18 Oct-19

Apr-17 Apr-18 Apr-19

Feb-18 Feb-19

Sep-17 Sep-18 Sep-19

Dec-17 Dec-18 Dec-19

Mar-17 Mar-18 Mar-19

Aug-17 Aug-18 Aug-19

Nov-17 Nov-18 Nov-19

May-17 May-18 May-19

* Includes only entire home properties

Source: AirDna

THE WEIGHTED AVERAGE MEDIAN ADR (USD) BY YEARS, 2017-2019

100 95 98 A slight increase was observed in the median ADR. However, due to small sample of observations, making a reliable conclusion about the prices is a challenge.

2017 2018 2019

* Includes only entire home properties

Source: AirDna

MEDIAN OCCUPANCY RATE (%) IN GUDAURI, 2017-2019

70% 68% 67% 61%

44% 45% 39% 40% 36% 36% 32% 25% 20% 17% 19% 17% 13% 13% 13% 10% 10% 10% 10% 10% 10% 7% 6% 8% 3% 3% 3% 4%

3% 3%

Jul-17 Jul-18 Jul-19

Jan-18 Jan-19

Jun-17 Jun-18 Jun-19

Oct-17 Oct-18 Oct-19

Apr-17 Apr-18 Apr-19

Feb-17 Feb-18 Feb-19

Sep-17 Sep-18 Sep-19

Dec-17 Dec-18 Dec-19

Mar-17 Mar-18 Mar-19

Aug-17 Aug-18 Aug-19

Nov-17 Nov-18 Nov-19

May-18 May-17 May-19

Median Occupancy Rate

* Includes only entire home properties Source: AirDna

Colliers International Georgia 77 Spa & Wellness Hotel Market Overview

Photo: Bioli Medical Wellness Resort Photo: Borjomi Palace Spa Hotel Resort

Supply

During the past few years, there has been a In , there is only one big hotel, Abastumani steady increase in the supply of Spa & Wellness Residence, with 28 rooms; however, the internationally in the hotel market in Georgia. The total supply renowned Paragraph Wellness Resort & Spa is set to of Spa & Wellness hotels for 2019 was 65, with open there in 2022, which will add 162 rooms to the 1,694 rooms and 4,175 beds. market. Tskaltubo Spa Resort is the biggest hotel EXISTING SUPPLY BY YEARS (opened in 2012) in Tskaltubo, supplying 140 rooms to the market. It is followed by Tskaltubo 4,175 Plaza (opened in 2014) offering 75 rooms. 3,974 Sairme Hotels & Resorts, with 156 rooms, and 3,057 international hotel Best Western, offering 81 2,848 rooms, are the largest suppliers in Sairme. Borjomi Palace Health and Spa Centre with 164 rooms, and Borjomi Health and Spa Center 1,584 1,694 with 151 rooms, are the most famous local 1,472 1,182 1,258 hotels, while Crown Plaza is an international hotel that offers 101 rooms. Another 590 international hotel, Best Western with 62 rooms, 28 13 33 55 65 is going to be opened by the end of 2020. 2015 2016 2017 2018 2019 In Racha, Hotel Racha is the biggest hotel, providing 60 rooms, while Sunset Shovi offers 30 Number of Hotels Number of Rooms Number of Beds rooms. Source: Colliers International

Colliers International Georgia 79 Photo: Tskaltubo Plaza Hotel

Tskaltubo Tskaltubo is Georgia’s best-known spa destination. Aside from leisure-related guests, hotels in Located in the region, it neighbors Kutaisi, Tskaltubo host a substantial amount of commercial Georgia’s second largest city. This beautiful spot has business that stems from the corporate and been a resort town since the Soviet era, when the industrial companies located in and around Kutaisi town was one of Georgia’s most popular spa and Tskaltubo. Many hotel guests arrive via the resorts, receiving more than 100,000 visitors Kutaisi International Airport, located 18 kilometres annually. south of the centre of Tskaltubo. The resort is best known for its radon mineral In 2019, 64,908 visitors stayed in hotels in Tskaltubo. springs, which run between 33-35 degrees Celsius. There is an increasing visitor inflow every year. The Because of the water’s natural warmth, heating is total supply of hotel rooms in Tskaltubo is not required, and the springs are preserved. approximately 400. In 2019, the occupancy rate of hotels in Tskaltubo was 47%. The ADR amounted Tskaltubo is considered a good place for various USD 43 and the RevPAR equalled USD 20. treatment options. Its specific water composition strengthens the immune system, regulates blood The main destinations in Tskaltubo that attract pressure, assists in cell regeneration, and reduces numerous visitors each year are the Prometheus inflammation. Because of the unique properties of Cave and Sataplia. Okatse Canyon, located in the radon gas, Tskaltubo’s springs are used in region near Tskaltubo, is another attraction complementary healing processes for various for travellers. diseases, including cardiovascular, locomotor, PERFORMANCE INDICATORS IN TSKALTUBO nervous, gynecological, and skin diseases. (USD, excl. VAT, %), 2017-2019 Tskaltubo’s therapeutic rehabilitation centres are equipped with modern medical equipment and 49% 47% offer services such as mineral water baths, hydro massages, physiotherapy, and more. 38% 43 43 Healthcare tourism has grown significantly in 33 Tskaltubo over the last decade since the opening of 21 20 the first hotels and guesthouses. Visitors coming to experience Tskaltubo’s mineral waters and springs 13 represent the majority of leisure hotel demand, including those found at the health and wellness 2017 2018 2019 spas. ADR RevPAR Occupancy Source: Colliers International

Colliers International Georgia 80 Photo: Crowne Plaza Borjomi

Borjomi Borjomi is a leisure and spa resort town in south- PERFORMANCE INDICATORS IN BORJOMI central Georgia. Situated in the northwestern part of (USD, excl. VAT, %), 2017-2019 the Samtskhe-Javakheti region, the town is nestled in the picturesque on the eastern edge of the Borjomi- National Park. 62% 59% Borjomi is among the most magnificant places in 55% the country, with a unique climate and enchanting 98 91 natural landscape. It is famous for its mineral water 88 industry (which is one of Georgia’s primary exports), the Romanov Summer Palace in Likani, and the Borjomi-Kharagauli National Park. Borjomi mineral 58 water is particularly well-known in former Soviet 56 Union countries. 48 The town is a popular year-round vacation destination for both local and international guests. It is a convenient landing spot for those interested in visiting the Borjomi-Kharagauli National Park, which received around 64,358 visitors in 2019. It is 2017 2018 2019 also a midway-point for those travelling to Vardzia. In 2019, the occupancy rate of hotels in Borjomi was ADR RevPAR Occupancy Rate 62%. The ADR was USD 91, and the RevPAR was Source: Colliers International USD 56.

Colliers International Georgia 81 Photo: Paragraph Hotel (upcoming project)

Abastumani

The village of Abastumani, located on the PERFORMANCE INDICATORS IN ABASTUMANI southern slopes of Meskheti range, close to (USD, excl. VAT, %), 2018-2019 Borjomi, is a spa resort famous for its special climate. Abastumani is frequently divided into 32% two main parts, the village of Abastumani 29% and the upper region where the Observatory 34 33 is located. A cable car connects the two areas. The air in Abastumani is thought to have the ability to prevent pulmonary disease. People 11 visit the small town to treat different types of 10 tuberculosis, chronic bronchitis and mild forms of bronchial asthma and other 2018 2019 illnesses. Even for those in good health, Abastumani is a great destination for ADR RevPAR Occ outdoor activities in the Borjomi-Kharagauli Source: Colliers International National Park. Despite its great potential as a spa Abastumani is rebranded and destination, Abastumani’s hotel market redeveloped at a highest standard supply is comprised mainly of guesthouses and small cottages. The area’s four hotels - with 1,000+ hotel rooms in the current Abastumani Residence, Hotel Iveria, Hotel pipeline. Kapa, and Green Hotel - provide only 56 rooms and 158 beds altogether. As a result, Abastumani is currently under construction, with six high-class hotels in the pipeline: Paragraph, Crowne Plaza, Rooms, Radisson, and two Redix Group hotels, including eight medium and small hotels.

Colliers International Georgia 82 Photo: Best Western Sairme Resort

Sairme

The health and spa resort Sairme is located to the PERFORMANCE INDICATORS IN SAIRME south of Kutaisi, administratively belonging to the (USD, excl. VAT, %), 2018-2019 municipality of . This unique location offers healing springs, an ecologically clean environment, 47% and beautiful nature. Sairme is placed in a 57 subtropical mountainous area and is the only resort 52 where four different therapeutic and one thermo 37% spring emerge, able to treat several illnesses. The Sairme resort has a thermal bath. The spa and wellness center of Sairme was renovated and is equipped with modern machines, offering a variety 27 of relaxation procedures. 20 After the rehabilitation of the new Sairme Resort, the complex is represented by three hotels, with 156 rooms, where it is possible to place more than 500 person at the same time. Sairme resort boasts 2018 2019 international standard hotels, guesthouses and budget accommodations, including international ADR RevPAR Occupancy

hotel Best Western with 81 rooms and 200 beds in Source: Colliers International total.

Colliers International Georgia 83 Photo: Simetria Shovi (upcoming project)

Utsera & Shovi Utsera and Shovi are spa and wellness resorts PERFORMANCE INDICATORS IN UTSERA & located in Upper Racha, offering guests a total of 44 SHOVI (USD, excl. VAT, %), 2018-2019 mineral springs well-known for their unique restorative properties. These villages are known for their alpine climate, pine forests and abundance of 44 mineral springs. They are surrounded by forests that 43 occupy over 25 K hectares, and snowcapped mountains. The mineral waters of Utsera and Shovi are used both as baths and for drinking. Because Utsera and 13% 14% Shovi also have coniferous forests, visitors are also able to reap the therapeutic benefits of the climate. Villages are connected by a road crossing the central part of the Caucasus mountain range. The two towns have the potential to be attractive 6 6 destinations for outdoor activities such as mountain 2018 2019 climbing, hiking, and rafting, though with only three hotels – the Sunset Shovi, Pansionati Mamisoni, and ADR RevPAR Occ Rachuli Sakhli – the town cannot meet a large tourist demand. Source: Colliers International The area’s two hotels - Sunset Shovi and Hotel Racha - provide 95 rooms and 220 beds altogether. Over the last year, performance indicators in Utsera and Shovi have slightly changed.

Colliers International Georgia 84 Photo: Bioli Medical Wellness Resort

Bioli Medical Wellness Resort Bioli Wellness Resort is situated in the recreation area of Kojori, which offers wellness procedures. The 5-star resort was opened in 2016, with 14 guestrooms. Visitors can enjoy a multitude of activities, including hiking, fitness and yoga classes, billiard and table tennis. Bioli can improve health and prevent different types of diseases based on modern medical theory. The location of the resort allows guests to have procedures and spend time in a convenient environment.

Akhtala Akhtala is another one of Georgia’s key spa destinations. Located in , Akhtala is famous for its volcanic mud baths rich in biologically active elements and used in the treatment of various skin diseases, infertility problems, bone and joint diseases, and peripheral nervous system diseases. Because of its unique mud offerings, the resort has the potential to be very attractive to both domestic and foreign tourists. Currently, however, the Akhtala Sanatorium is the resort’s only hotel and is under renovation, set to be completed by 2023.

Colliers International Georgia 85 Destination Hotel Market Overview

Photo: Chateau Mere, Kakheti Photo: Lopota Lake Resort, Napareuli

Destination Hotels The destination hotels market of Georgia EXISTING SUPPLY BY YEARS comprises eleven hotels (with 853 rooms and 1,838 beds) mainly located in the Kakheti and 1,838 Samtskhe-Javakheti region. Lopota Lake Resort & Spa, Ambassadori Kachreti Golf Resort and Radisson Collection 1,276 Hotel, Tsinandali Estate Georgia are the largest suppliers, with a total number of 491 rooms. 853 790 790 790 In 2018, the number of rooms increased by 239 608 units as a result of the expansion of Lopota Lake Resort & Spa, Ambasadori Kachreti Golf 369 369 369 Resort and Lake Resort. 9 9 9 9 11

Regarding destination hotels, 2019 was quite 2015 2016 2017 2018 2019 an active year for Tsinandali Resort, as two large suppliers, Radisson Collection Hotel, Number of Hotels Number of Rooms Number of Beds Tsinandali Estate Georgia, and Park Hotel Tsinandali opened and the stock of rooms Source: Colliers International increased by 194 units. In 2019, the stock of rooms in Kvareli Eden, Chateau Mere Hotel, Schuchmann Wines Chateau & SPA increased by a total of 51 units.

Colliers International Georgia 87 Photo: Kvareli Lake Resort, Kakheti

Performance Indicators In 2019, the occupancy rate of these hotels was ADR (USD, excl. VAT), 2015-2019 57%. The figure has grown by 3 percentage points since 2017. 101 100 101 The ADR of the destination hotels stands at USD 88 85, depicting a 3.4% decline when compared to 85 2018. the average daily rate significantly dropped from USD 101 in 2017 to USD 88 in 2018. The revenue per available room in destination hotels accounts for USD 49. Over the last two years, the figure has been characterised by a stable trend, with the exception of 2017, when the 2015 2016 2017 2018 2019 number decreased by from USD 54 to USD 49, depicting a 9% decline. Source: Colliers International

REVPAR (USD, excl. VAT), 2015-2019 OCCUPANCY RATE (%), 2015-2019

57% 57% 54 53 53 52% 53% 54% 50 49

2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

Source: Colliers International Source: Colliers International

Colliers International Georgia 88 CONCLUSIONS & OUTLOOK

In 2019, the global hotel industry saw $550 billion In line with Tbilisi and Batumi, the Airbnb market is in rooms revenues, which was a record and up 2.5% peaking up in ski resorts as well. The increased on the prior year. European hospitality market popularity of aparthotels in Gudauri and Bakuriani experienced a turning point in 2019, as supply has been a driving factor for significant growth of growth increased across numerous markets. competition and improved performance of Airbnb. However, demand growth (1.8%) continued to outpace supply growth (1.4%). As a result, Spa and destination resorts’ hotel market is quite occupancy rose marginally by 0.4%, ADR increased attractive with its high-performance indicators. It is more notably by 1.8%, and RevPAR increased by important to note that the fascinating potential 2.2%. Despite risks from Brexit and the increase of growth of Abastumani is expected in the next few alternative accommodation, Europe remained years. This resort is rebranded and redeveloped at resistant and recorded 72.2% occupancy in 2019. the highest standard with 1,000+ hotel rooms in Looking forward, supply growth is set to continue. the current pipeline. However, due to challenges posed by Covid-19 Among factors that are likely to impact Georgia’s slightly slower growth is expected. hotel market in the near future, Covid-19 is the 2019 has been a challenging year for the tourism main challenge. The industry has already industry of Georgia. Despite the pessimistic experienced its adverse effects in every country expectations caused by the flight bans from Russia, from the beginning of 2020 because of the the annual tourist inflow increased slightly restrictions imposed by the governments. After the compared to the previous years. The strong lockdown, the hotel market of Georgia is on its growth in the number of domestic travelers, as well initial stage of recovery. as the increase in tourist inflows from neighboring International hotels will be in the highest demand and European countries, have contributed to this because of the customers’ trust in the brand. modest increase. Among them, chain-branded midscale hotels will The accommodation market slightly grew in 2019. be the quickest to recover as they are preferred by However, it is still outperformed by the growth rate people who need to travel. As for the international of tourism, as the number of tourists increased by upscale and luxury hotels, they may face a slower 7% in 2019. recovery trend. Specifically, luxury will be the last to recover. It is noteworthy that smaller hotels reach The stock of rooms in all segments is highest in break-even point more quickly but benefit less Tbilisi. The hotels in the capital hosted 1.7 million because of the increased expenditures to meet the local and international guests in 2018. The new regulations, while the larger hotels will benefit international upscale hotel supply has significantly more after reaching this point. increased in Tbilisi during the past couple of years, driving the performance indicators downwards. Overall, the market size experienced an insignificant Hotel Market Performance of Tbilisi decline, compensated by the substantial increase of the Airbnb market that accumulated USD 35 mln in Tbilisi 2017 2018 2019 2019. Therefore, the overall accommodation market Hotel Room Supply 9,466 10,107 12,430 recorded a modest 2% growth. Approx. Room Revenue (USD, MLN) Hotel Room Revenue 151 171 162 The stock of international hotel rooms is expected AirBNB Revenue 13 23 35 to double by 2023. The majority of announced Total 163 193 197 upcoming hotels is situated out of the central hotel cluster. In particular, the Vake district features three major hotel developments. Hotel Market Performance of Batumi The international hotel supply has not changed Batumi 2017 2018 2019 during the last three years in Batumi. This could be the reason for maintaining the stability of Hotel Room Supply 5,205 5,627 6,341 performance indicators regardless of economic and Approx. Room Revenue (USD, MLN) political factors in 2019. Hotel Room Revenue 53 55 52 AirBNB Revenue 6 9 14 Kutaisi hospitality market lacks international brands Total 59 64 67 and is dominated by local budget hotels. However, the planned opening of Ramada Encore in 2021 will increase the stock of international hotel rooms.

Colliers International Georgia 89 APPENDIX 1

Real Estate Registration & Construction Permits Real Estate Registration

Application Submission Public Service Hall or Property territorial office of Acquisition National Agency of Purchase / Gift Public registry

Document Preparation Service Fee Payment Documents needed: Within 4 business days - 50 GEL - Proof of identity document Within 1 business day - 150GEL - Duly attested Purchase On the day of application - 200 GEL Contract / deed of gift on immovable item

In Georgia, the National Agency of Public Registry is the state institution responsible for the registration of property, registering both transfers between private entities and state-owned properties. In case of private transfer, the purchaser has two options: • Via a notary - contract drafting and legalization by the notary and subsequent registration. The notary assumes responsibility for the content of the draft and its legalization. The presence of a translator and his signature on the bilingual purchase document is required and the translator assumes responsibility for the authenticity of texts. Time for preparation of the bilingual document and its legalization varies depending on the notary • Via the National Agency of Public Registry - direct submission of the purchase contract for legalization and registration. In this case, the bilingual purchase document is to be drafted directly by both parties or by their authorized representatives. The Agency’s representative certifies the signatures and may provide recommendations if the document is not accurately drafted but does not carry any responsibility for the validity or its content. • The National Agency of Public Registry is represented in: a) Public Services Halls (Tbilisi, Gori, Kutaisi, Batumi, , Mestia, , , , Gurjaani, Telavi, Kvareli and ) and b) regional departments of the National Agency of Public Registry (located in cities throughout the country).

In the case the property being purchased from the state/municipality (privatization, auction or other form of purchase) the documents should be submitted directly to the Agency.

Times and fees for registration • 4 working days upon the submitting of documents (ordinary time) - the day of submission of documents is not counted - GEL 50 (registration fee per one property) + GEL 5 for certifying the document (GEL 5 per each document subject to submission) • 1 working day - GEL 150 + GEL 5 for certifying the document • On the day of submitting the agreement in the Agency - GEL 200 + GEL 5

Times and fees for renewal of public registry information Online • 1 working day - GEL 10 (USD 4.4) • Same working day - GEL 40 (USD 17.6) Justice House • 1 working day - GEL 15 (USD 6.6) • Same working day - GEL 50 (USD 22)

Colliers International Georgia 91 Construction Permits

For the purposes of construction, buildings are divided into five types:

1st class buildings - no construction permit is required; 2nd class buildings - buildings with low risk factors; 3rd class buildings - buildings with medium risk factors; 4th class buildings - buildings with high risk factors; 5th class buildings - buildings with very high-risk factors. The permit issuance process is divided into three stages:

Stage I - Statement of urban construction terms; Stage II - Approval of architectural-construction project; Stage III - Issuance of Construction Permit; State organs responsible for the issuance of permits:

Local self-governmental (municipal) organs - for II, III class buildings within the municipal territory (at stages I and II) except from Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special regulatory zones on the territory of Borjomi.

Local self-governmental (municipal) organs - for IV class buildings (at stages I and II) with the participation of corresponding state organs

Local self-governmental (municipal) organs - for II, III and IV class buildings (at III stage) independently (including Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special regulatory zones on the territory of Borjomi)

Tbilisi City Hall - for II, III and IV class buildings in Tbilisi Municipality (at all stages) independently

Corresponding local organs of Adjara Autonomous Republic and Autonomous Republic - for II, III and IV class (at all stages) on the territory of the Autonomous Republics

Local self-governmental (municipal) organs - II, III and IV class buildings (at stages I and II) for Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special regulatory zones on the territory of Borjomi - with the participation of the Ministry of Economy and Sustainable Development.

Ministry of Economy and Sustainable Development - for V class buildings

Ordinary terms per each stage (working days):

Stage I 10 days for II, III and IV class buildings 15 days for Bakhmaro, Bakuriani and Ureki-Shekvetili recreation territories (excluding V class buildings), also for all buildings that require ecological expertise. 30 days for V class buildings Stage II 18 days for II and III class buildings 20 days for all IV class buildings, for Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories , for all buildings that require ecological expertise and for V class buildings. Stage III 5 days for II, III and IV class buildings 10 days for V class buildings

Colliers International Georgia 92 Construction Permits

Exceptions:

The special terms for permission process:

Construction permits concerning:

III class buildings with an intensity coefficient up to 1,500 p/m2 and for buildings with a height of up to the 14 meters that will be located on the territories where urbanization regulatory plans do not exist and are organized according to land use or which are organized according to the perspective development regulatory plans on the territory of Tbilisi - the permission process may involve II and III stages only

The simplified permit procedure may involve just two stages and the permit is issued in the second stage.

The terms for the simplified procedure are as follows:

Stage I - 12 days for II and III class buildings

15 days for all IV and V class buildings, for Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for all buildings that require ecological expertise.

Stage II (issue of permit) - 20 days for all classes

Permission fees

The municipal organs determine the permission fees though the maximum limits are envisaged by the Law:

For all territory of Georgia - 1 (one) GEL (USD 0.4) p/m 2 of construction territory

For construction of industrial buildings at resort areas- 5 (five) GEL (USD 2.2) p/m2 of construction territory

Exceptions:

Investors seeking the construction of hotels in free tourism zones and investing not less than 1,000,000 (one million) GEL (USD 440,494) per each hotel are exempted from paying the permission fee.

Colliers International Georgia 93 APPENDIX 2

Primary Information Sources, Data Used for the Study, Definitions & Assumptions Primary Information Sources, Data Used for the Study, Definitions & Assumptions

In the process of preparing the research, we were guided by the information provided by property managers, owners, developers, governmental institutions (The National Agency of Public Registry, the National Statistics Office of Georgia, the National Bank of Georgia, the Ministry of Economy and Sustainable Development of Georgia, Georgian Civil Aviation Agency, City Halls, World Economic Forum). The following web-portals is also used: www.geostat.ge; www.nbg.ge; www.gnta.ge; www.tas.ge; www.worldbank.com; www.imf.org; www.cia.gov Definitions & Assumptions

EMEA: Europe, Middle East and Africa FDI: Foreign Direct Investment IMF: International Monetary Fund GDP: Gross Domestic Product GEL: Georgian Lari GLA: Gross Leasable Area NLA: Net Leasable Area sq m: Square metre USD: The United States Dollar HVAC: Heating, ventilation, and air conditioning VAT: Value added tax EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization IRR: Internal Rate of Return

Average Daily Rate: is calculated by dividing room revenues by the number of rooms sold.

Revenue Per Available Room: is calculated by dividing rooms revenue by rooms available for sale in the same period.

Occupancy Rate: is calculated by dividing the number of room nights sold during a period by the total number of rooms available in the same period.

Colliers International Georgia 95 DISCLAIMER

Colliers International is a leading commercial real estate Established by the Ministry of Economy and services company operating in 67 countries, providing a Sustainable Development of Georgia, “Enterprise full range of services to real estate occupiers, Georgia” is a legal entity of public law aimed at developers and investors on a local, national and development of Georgian enterprises. As the first international basis. Services include brokerage sales and state-owned institution mandated to facilitate leasing (landlord and tenant representation), real estate development, growth and internationalization of management, valuation, consulting, project country’s private sector through use of different management, project marketing and research, and a mechanisms, Enterprise Georgia operates within its recently added GIS services. three pillars: EG – Business, EG – Invest, and EG – Export. Colliers International provides services across the following core sectors as well as many specialized As one of the EG Pillars, Investment Promotion and property types: retail, office, hotel, industrial and Support Divisions play a role of moderator between logistics. foreign investors and the Government of Georgia, ensuring that the investor gets different types of updated information and has means of effective communication with the Government bodies. The aim of the Invest division is to attract, promote and develop foreign direct investments in Georgia. It serves as a “One-stop-shop” for investors to support companies before, during & after investment process.

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Colliers International Georgia 96 PROJECT TEAM

RESEARCH & PUBLICATIONS DATA SERVICES

Ramaz Sharabidze Leo Chikava Project Manager, Director | Research & Publications Director | Data Services Colliers International Georgia Colliers International Georgia

Kristine Bakradze Mariam Asatiani Senior Researcher | Research & Publications Senior Data Manager | Data Services Colliers International Georgia Colliers International Georgia

Shota Natenadze Tamar Khurtsilava Intern | Research & Publications Data Analyst | Data Services Colliers International Georgia Colliers International Georgia

Elene Seturidze Teimuraz Mosulishvili Intern | Research & Publications Data Analyst | Data Services Colliers International Georgia Colliers International Georgia

DEVELOPMENT ADVISORY Nini Shonia Data Analyst | Data Services Levan Gvaramadze Colliers International Georgia Managing Partner | Development Advisory Colliers International Georgia Giga Nozadze Intern | Data Services Etuna Munjishvili Colliers International Georgia Director | Development Advisory Colliers International Georgia

Colliers International Georgia 97 COLLIERS GLOBAL AT A GLANCE

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