Hotel Market in Georgia | 2019 PREPARED FOR: Photo: Sheraton Grand Tbilisi 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, Batumi 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, Mestia hotels international brands will open hotels in not only recorded the highest occupancy rate (48%) in 2019. Tbilisi and Batumi, but also in Kutaisi, 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, Armenia, Azerbaijan, and Russia. 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 Black sea 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 ‘Georgian Dream 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 Public Service Hall 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