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Overview of Real Estate Market in 2015

Leah Rusia Beselidze a director of Consultancy Services at Cushman & Wakefield | Veritas Brown in her interview with CBW had overviewed the real estate market in 2015 and talked about retail and development trends in Georgia.

Taking into consideration the lack of official statistics and detailed info published by the official authorities, we usually assess the market based on the current trends of sales/leasing provided by our in-house brokerage team as well as generally on the market.

According to NAPR the number of property transactions registered in 2015 has increased by 5.2% year-on-year.

The breakdown of primary and secondary registrations being 19% and 81%. These figures however do not differentiate the type of property, whether it’s residential, commercial or industrial.

As we have been reporting in our quarterly publications of Market Snapshots (Marketbeats), the commercial property transactions and investments during 2015 have been limited to the acquisition of the former “Tbilisi Univermaghi” building on Freedom Square by the Georgian Co-investment Fund in Q2.

The deal ensures total investment of $70m in the reconstruction of the 22,000 m2 shopping center, which has been on hold for years. This showed that the only parties still active in the retail development market in Tbilisi are local investment funds and developers.

There were some more proposed deals in the pipeline, but the negotiation period took longer and none of these were finalised by the year-end. Office market showed restrained activity throughout 2015 as investors remain apprehensive about the risks for currency and economic stability.

Although the chances of a wider market recovery remain hindered by both the lack of available credit and investment stock being overpriced, demand for well-let, prime office assets was evident through Q4, 2015 and several deals that are currently on the negotiation stage should materialize in 2016.

As for the rental market from the occupier’s point of view (both retail and office), the overall tone is one of caution, with occupiers and developers still wary due to the decline in consumer confidence, which occurred throughout 2015.

Meanwhile, landlords maintained realistic rental expectations and a flexible stance during lease negotiations in Q4 2015, with tenant retention and attraction being key priorities. This took into consideration tenants’ continued cost sensitivity, the stiff competition for qualifying tenants.

Occupier demand for Offices has largely held firm over the past year, and, as 2015 came to a close, conditions were unchanged. Tenants remain focused on modern, efficient and flexible office spaces, usually at the expense of older office buildings or those in secondary locations.

These areas have been affected by falling demand and prime rents, and as a result occupiers can often negotiate good incentives before agreeing a lease. Take-up in Q4 was largely characterized by small local companies relocating to newly-built business centers.

There were a few significant deals including AVON cosmetics leasing 250 m2 in Grato, BDO Georgia relocating to Tarkhnishvili Business Center in December, and Pixel renting out 150 m2 to Ericsson.

On the supply side, the retail market has seen the biggest increase in 2015 with the opening of one major retail development, East Point Mall, corresponding to 72,000 m2 of new modern quality space added to the capital’s retail offering.

With this new all time high stock flooding the market, average occupancy levels of retail centers has increased significantly, notwithstanding a relatively successful pre-leasing of the East Point.

The supply levels for offices were largely unchanged with less new developments, caused mostly by delays in construction. However with nearly 25,000 m2 of office supply due to be delivered in 2016, vacancy levels are expected to increase, despite again the active pre-leasing activities.

Georgia’s real estate market wrapped up 2015 on a muted note. Notwithstanding the traditional year-end holiday boom period for the commercial and residential properties the market sentiment was dented by local currency instability, rising interest rates and overall the regional macroeconomic uncertainties.

The high interest rates on credits from commercial banks and the overpriced investment stock has also been hindering the investments in commercial real estate. However increased activity was noticed in hotel sector in Tbilisi and throughout the country,  supported by the government’s and the governmental agencies’ newly developed programs.

CW|VB has conduced numerous feasibility and Highest and Best Use studies for both local and international investors searching for opportunities on the hospitality market of the country, most of these showcased the positive IRR outcomes and were recommended for further development.

A shift of investor interest from office and retail property sector, towards hotel and hospitality industry is expected to be continued in 2016.