The retail sector in Tbilisi is entering a period of unprecedented dynamics. The long-awaited entry of H&M, the recently announced closure of Smart supermarkets and an increasing number of modern shopping centre projects are among the most significant events.
On the demand-side, a recent survey by Colliers revealed a shift in consumer behaviour in Tbilisi towards increased preference of shopping centres as opposed to street retail. “Existing high streets in Tbilisi (Rustaveli, Pekini, Chavchavadze and Aghmashenebeli Avenues) are in different districts of the city and create various obstacles for consumers during shopping (parking problems, necessity of transport). Additionally, the arrangement of retail units on the streets is not convenient for customers”, explains Nikoloz Kevkhisvili, Manager Valuation & Advisory at Colliers International Georgia.
It is clear we are entering a next phase in the development of the retail sector in Tbilisi. But it is a phase that could have a dramatic impact on the city’s retail structure and – if kept unregulated– result in a “zero-sum-game”, where one development’s gain translates into another’s loss.
So why should we worry about this?
First of all, the retail sector is the largest contributor to the Tbilisi economy, both in terms of Gross Value Added and employment. It is also a highly complex and sensitive sector with many players, large and small, and provides a vital urban service. A balanced development of the retail sector is of crucial importance to a local economy and most cities in Europe therefore have a retail policy in place. But, as Zviad Archuadze, a leading advisor on local economic development policy, points out: “Regulation is a dirty word in Georgia and politicians don’t like it. Few people acknowledge the need for stricter urban planning policies and the spatial-economic benefits they have”.
Second, during the analytical stage of the production of the new Tbilisi General Land Use Plan (GLUP) it was concluded that the retail structure in Tbilisi is already imbalanced, both on the level of optimal geographical distribution and alignment of supply and demand. An optimal, planned spread of Daily Shopping facilities promotes urban equality and mitigates traffic congestion. This desired structure is under serious threat in Tbilisi, as increased concentration of retail in large shopping centres has the opposite effect: neighbourhood- and high street retail declines and traffic concentrates on a few locations. “Cities should manage and facilitate inclusive urban development, where economic activity is spread equally over its territory and not concentrated in a few areas” adds Archuadze. “In addition, traffic congestion in Tbilisi is reaching an alarming level and urban planning policy can play an important role to improve this”.
Third, the reality is that retailer demand has its limits, particularly in a small middle-income country as Georgia. Large modern malls are difficult to fill up and evidence shows that we have reached this limit in Tbilisi. “Building for vacancy” is pure capital destruction and causes a negative pressure on property values. This is bad for property owners and investors.
”Recent years have shown that the primary reason of the low occupancy in shopping centres is wrong planning and oversupply in the market , which is reflected in high numbers of floors and extremely large sizes for the Tbilisi retail market. Additionally, retail developers should analyze market tendencies, supply pipeline and design concept coinciding with worldwide market trends – offering adventure together with shopping experience”, says Kevkhisvili.
Finally, the absence of a retail policy doesn’t help to attract international developers either. With no real restrictions on the development of shopping centres, new competition may emerge around the corner and cannibalize a recently completed scheme. A few years ago, this almost happened to Tbilisi Mall.
This way, the lack of regulation actually deters (international) investment.
Therefore, to (1) protect existing entrepreneurs, (2) stimulate a balanced retail structure and (3) protect the interests of developers, owners and investors, a retail planning policy should be put in place by the Tbilisi planning authorities. At the minimum, this retail policy should put measures in place primarily to restrict large-scale new developments and designate a limited volume of retail development land spread evenly across the city. “Tbilisi needs this policy and it needs it urgently – we are already late and need to start managing the development of our city now”, concludes Archuadze.
Author: Martijn Kanters – Position: Urban Development & Real Estate Advisor