The FINANCIAL — Georgia has great potential in the industrial and logistics as well as big box retail market, according to a survey which was conducted by Jones Lang LaSalle and IPM.
The FINANCIAL — Georgia has great potential in the industrial and logistics as well as big box retail market, according to a survey which was conducted by Jones Lang LaSalle and IPM. The presentation of the report will be held at the Tbilisi Real Estate Conference in Tbilisi on December 3-4, 2012. This conference will feature investment opportunities identified by the latest research of Jones Lang LaSalle.
“This conference will bring together local and international players already active on the market, some potential new entrants and the local government,” said Omar Choudhury, Associate Director of Jones Lang LaSalle. “It is a good platform to discuss the best investment opportunities and start new cooperations to realize them.”
Jones Lang LaSalle is a financial and professional services firm specializing in real estate services and investment management. The company is in business to create and deliver real value for clients, shareholders and people in a complex world that is constantly changing.
Omar Choudhury is General Practice Chartered Surveyor with 15 years experience, in the UK and Europe, across all asset classes specialising in Valuation, Professional Services, Development Consultancy, Asset and Investment Management and Real Estate Work outvalue recovery. Currently based in Croatia, Omar has undertaken instructions in a number of markets including the United Kingdom and Germany and since 2006 the CEESEE and Caucusus markets, namely Austria, Greece, Hungary, Czech Republic, Poland, Slovakia, Romania, Bulgaria, Moldova, Croatia, Slovenia, Macedonia, Montenegro, Serbia, Bosnia, Turkey, Georgia and Azerbaijan.
“Although the Georgian real estate market is small, there are quite a few attractive niche opportunities. In addition, Georgia is a good place from which to operate a large South Caucasus development programme, which can include Armenia and Azerbaijan. Also, the strong economic growth in the economy coupled with the ease of doing business has attracted Foreign Direct Investment which in turn has created pent up occupational demand for certain sectors of real estate.”
Q. What are the concrete segments which could be interesting for investors? Which have the most problems?
A. The most attractive segments are the logistics, hotels and big box retail markets. Our research clearly showed that the residential market has suffered most from the global economic downturn. Particularly in this segment of the real estate market, the Government should play a stronger role. It will be great if they put in place a housing policy.
Q. How could Tbilisi be developed as a major trade and transit hub? What are the advantages of Tbilisi compared to other cities in the South Caucasus?
A. Tbilisi sits at the crossroads of major regional transport infrastructure and is a natural hub between Turkey, Russia and Azerbaijan-Armenia. Continued upgrading of the motorway system and development of affordable modern logistics space are key to its further development.
Q. According to the survey, retail and logistics markets have the biggest potential, unlike the residential and office markets. What are the specific opportunities and problems of these markets?
A. The residential market in Tbilisi could face the risk of oversupply given the large scale of some pipeline schemes. Remaining low incomes coupled with high levels of home-ownership have a downward pressure on demand. As a result housing prices have stabilized and stopped increasing. The low level of office employment in Tbilisi is the main constraining factor on the office market. Tbilisi would need to develop a sizeable market services sector and only if that happens would the office real estate market get new impetus.
Q. The survey reports that the main problem of all real estate segments is high owner-occupancy. Why is that a problem? How can it be solved?
A. The high level of owner-occupancy is seen in all sectors. This limits the involvement of international institutional investors, as the availability of leasehold A class income generating properties is scarce. Some opportunities may be found in Sale and Lease Back deals, however. Also, developers in Georgia should learn from the mistakes made in other developing markets in the CEE and CIS regions, where developers have sold off space in shopping centres and office buildings in addition to leasing space, creating split ownership. This has created management problems and deterred the developers from finding future purchasers. The solution therefore is not to sell off commercial space in developments so ensuring that all the space is leasehold.
Q. According to the report, the hotel market is undersupplied, with a clear lack of international operators, particularly in the two and three star segments. How can the sector develop?
A. We think that the market will respond by itself. The numbers speak for themselves and it is likely we will see new international chains arriving soon.
Q. How can the Government support real estate market development?
A. The Government can support real estate market development in many ways. First, there is a clear need for more targeted economic and urban development strategies and policies, coupled with an evaluation of the investment incentives package. Second, new ways of financing are available and we see, for instance, favourable conditions for Public-Private Partnerships.
Q. What should investors investigate and take care of while investing in the Georgian real estate market?
A. They should realize that the Georgian real estate market has become a “segmented” market, with different conditions in each segment. Competition is increasing, so investors need to carefully evaluate their proposed investment against the reality on the market. For instance, most developments have typically included a large proportion of residential spaces. We believe it is time for other types of investment that are not residential-led.
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