Tbilisi has the largest stock of modern shopping centre floorspace,
with 231,000 m2 in 2015 among Georgian cities. This is expected to
increase to 388,000 m2 by 2017 with three new shopping centres in
the pipeline. Vacancy rates in high streets fell to just 7% in 2015.
Shopping centre vacancy rates have also fallen but, on average,
remain relatively high at 17%. Vacancy rates in new centres are
much lower due to aggressive marketing campaigns. Despite the
addition on modern shopping centres, 40% of Tbilisi’s retail stock
remains in bazaars and open markets. The market is continuing to
evolve and while the space given over to bazaars is reducing, it
remains a challenge to convert traditional shopper habits to
modern and, perhaps for many, less accessible facilities.
Tbilisi has a housing stock of 360,000 units. There is a considerable
development pipeline for the period 2016 to 2018 that promises to
deliver over 500 projects and just under 30,000 new units.
Encouragingly, 37% of these units have already been sold.
Selling prices of new build flats vary between USD 400 p/m2 to
USD 3,000 p/m2, but average prices in both the prime and
secondary market have declined slightly between 2014 and 2015.
With the amount of new stock in the development pipeline,
significant growth in selling prices is not expected.
The development land market has shown some volatility, with land
transactions down 27% y-on-y in 2015, resulting in average land
prices falling by 4%. However, this reduced rate is still 22% higher
than 2013 prices.
Tbilisi contributes the majority of both leasable and owneroccupied
office space supply in the country. The city has no specific
business district and modern leasable office space (144,380 m2 in
total) is distributed between the various business hubs located in
each of Tbilisi’s primary districts. There is twice as much older,
lower-class office stock in the city, which is spread throughout
Tbilisi. The trend is for developers to add more high class office
space to the market, although some of the city’s business centers
are struggling to keep pace with international standards. There are
no business centers outside of Tbilisi and the supply of modern
stock is limited in regional cities.
Though Tbilisi’s leasable modern office stock supply increased by
only 6% in 2015 compared to the previous year, the pipeline of
projects (including the two largest projects, King David Business
Center and Axis Towers) will increase the existing supply by 41%
between now and the end of 2018.
Tbilisi is the most profitable location for hotels and this has been
recognized by a wide range of developer and operators. Over 20
new hotel developments are scheduled for completion between
2016 and 2018, many for international brands. If all schemes are
developed, over 50 per cent of them are in the 5 Star category,
bringing more than 2,000 quality rooms to the market. In reality, a
number of these developments are likely to be delayed or dropped
completely. There is, however, going to be more competition,
which will inevitably place existing operators under pressure and
potentially result in the unwanted combination of reduced room
rates (ADR) and lower occupancy rates at the premium end of the
Analysis of Real Estate Boom In Georgia
An analysis of the real estate market in Tbilisi shows that prices have risen faster than
rents in recent years. As a result, property owners earn less rent per U.S. dollar/Lari of
investment today as compared to several years ago. This trend may be due to improved
political and economic conditions, strong economic growth and rising incomes. Another
factor may be that speculative property buyers are driving up prices based on very
optimistic expectations about future price increases. This paper presents a framework for
analysing Tbilisi’s real estate market that is based on standard real estate economics
taught at Western business schools. Future analysis is needed to quantify the factors that
drive the recent boom.
What Does It Mean?
Real estate prices in Tbilisi have risen faster than rents and building costs.
After strong increases in recent years, real estate values significantly exceed
marginal building costs, which are the long-term drivers of real estate prices
according to standard economic theory. Developers are taking advantage of rich
prices by building large volumes of new real estate.
The stars were aligned for Tbilisi’s real estate boom. Pent-up demand, strong
economic growth, relative political stability, the legalization of economic activity
and lack of investment alternatives were powerful drivers of the recent boom.
But supply could overshoot. There is a risk that developers may overbuild,
because they may have over-optimistic expectations of future demand.
Market participants should be prepared. Real estate buyers and investors
should not expect prices to rise forever. Real estate developers need to realize that
ultimately, prices are likely to move closer to building costs, reducing profit
opportunities. Banks need to evaluate the credit risk of commercial real estate
lending and residential mortgages. If price increases slow down or even reverse,
credit losses are likely to increase. Governmental authorities need to be watchful,
as every boom creates opportunities for questionable behavior.