The FINANCIAL — Veritas Brown – Cushman & Wakefield foresees an oversupply of retail space in the Georgian market over the next 18-24 months, with around 180,000 sq.m of retail space coming online within this timeframe.
Supply will predictably outstrip demand, considerably, with a sharp reduction in headline rents inevitable. Logistics and industrial facilities suited to the growing transit and consumer goods storage requirements are also undersupplied or unavailable, which will become a significant requirement for short/medium term development.
Steve Brown, Chief Operating Officer at Veritas Brown – Cushman & Wakefield, said that there is a clear deficit of international-standard office space in Georgia. In his words, we have not yet seen evidence of sufficient demand to encourage and reward large-scale office development with required rental income returns. However, he hopes that this will change over the next 24 months, as companies commit more finance to occupational expenditure through understanding the commercial benefit of a quality working environment.
“There is clearly demand in the 3 and 4 star hotel market sector, with tourism up 30% over last year developers would be wise to consider this market,” said Brown.
Veritas Brown – Cushman & Wakefield is currently the only internationally recognized commercial property consultancy with a permanent presence in Georgia. The company’s Tbilisi office was established in 2012 to service the growing need for expert and professional advice in the Caucasus and has continued to go from strength to strength throughout the region. Veritas Brown – Cushman & Wakefield provides an extensive range of commercial real estate services through its professionally trained and experienced staff and is aligned with Cushman & Wakefield, the largest private real estate services company in the world. Being part of the Cushman & Wakefield global network enables the company to access the global expertise of over 16,000 professionals in 250 offices in 60 countries throughout the world.
“There are a number of shopping centres and other retail developments of varying quality planned to be delivered to the Georgian market, primarily in Tbilisi with smaller scale projects in Batumi. As mentioned, the amount of space forecast will produce a significant over-supply,” said Brown.
Q. How would you summarize the Georgian retail market in 2013?
A. Fluctuations, with a tentative general amount of growth would summarize trade and leasing activity across 2013. Quality property stock remains restricted in key locations and the market is dominated by single major retail groups, restricting market entry for groups with portfolios of new brands and slowing market growth prospects. A ‘wait and see’ attitude predominated the market, with most activity restricted to a small number of locations in prime Tbilisi.
Q. Please can you highlight the main advantages and disadvantages that the political changes have had on the real estate market?
A. Much like other sectors of the economy in Georgia, the period of “cohabitation” had a negative effect on the state of the commercial real estate market in general. Foreign Direct Investment decreased during the period of relative instability. The retail sector continued to grow, although not as strongly as previously. Now the political situation is more stable going forward we anticipate an increase in real estate activity, both in development activity and investment/transactions.
Q. Huge companies operating in Georgia are more likely to purchase retail space, rather than rent. Meanwhile renting or leasing is more beneficial for the economy. What are the reasons for this and how can it be changed?
A. This is not necessarily true – large companies generally prefer to rent retail space rather than purchase. A number of factors are usually in evidence that influence companies’ decisions such as the availability and cost of mortgage loans, macro-economic and political outlook, supply of property for sale, ease of purchasing property and core business capital requirements.
Q. During the holiday period those retailers selling festive goods enjoy better sales. How was the year 2013 in terms of overall retail sales? (Please discuss with reference to companies present in Tbilisi Mall)
A. There is, of course, a system of expenditure and sales cycles throughout the year and across the various sectors of the retail market. Whilst staple goods tend to produce steady trade throughout the year, there is an increasing tendency as the levels of disposable income per capita increases for seasonal interest in non-essential items, with the period around New Year producing significant increases in the majority of consumer-goods sales, not restricted to festive goods.
Q. Online shopping is one of the most rapidly expanding businesses worldwide as well as in Georgia. Are the representatives of rental spaces considering it an upcoming challenge?
A. We believe that the characteristics we are seeing in more mature markets, such as the U.S. and UK, will become more evident in Georgia. For example, in recent years the most successful retail operators in more advanced markets have been those that have a strong online presence in conjunction with their conventional “tangible” points of sale on the high street or in the shopping centre. In this way, customers benefit from both the advantages of being able to touch the goods they wish to buy and tapping into the cost savings that tend to be available through online stores.
Q. What are the main mistakes made by local retail representatives, what would you suggest to them?
A. To research the market before bringing new brands to Georgia, and understanding the country’s population demographics. The more successful brand expansions are undertaken viewing Georgia as part of a broader regional territory throughout the Caucasus and Central Asia.
Q. Commercial banks are less active in issuing mortgage loans. How does this impact on real estate business?
A. The availability of credit heavily influences the real estate market. Of course, if banks are lending less money and have more stringent lending criteria there is less money in the market and, consequently, less ability and willingness to purchase property.
Q. Which new brands plan to enter Tbilisi Mall in 2014?
A. We are in dialogue with all the major retail brands both regionally and through our network of offices across the world. Brands need multiple locations and over the next couple of years Tbilisi will be in a better position to accommodate a large-scale roll out of international brands and retail groups.
Q. What will be the main challenge for the Georgian real estate sector this year?
A. Attracting foreign direct investment to the levels seen in recent years.
Q. Which innovative steps should we expect from your company?
A. We will be using our network of offices and contacts for the benefit of our clients. We plan to be in a position where we can pick and choose the right projects to work on and that we believe in, rather than making decisions purely based on commercial aspects. We understand the need for creativity and hard work in producing, managing and executing the quality of property deals that will ensure Georgia is marketed to as broad a spread of potential investors as available.
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