Outlook on Georgia 2017

Tourism: Driving Real Estate Growth in Georgia

The recent boom in the hospitality and real estate sector in Georgia has been attributed to the investments made by multinational companies across the country, and in particular to areas where tourism once flourished, sparking a revival in these regions. Tourism throughout Georgia has boomed over the past 18 months.

“Borjomi — a historical destination for the entire Soviet Union had been long forgotten,” said Leah Rusia Beselidze, head of valuation and advisory at Cushman and Wakefield Georgia. “There was nothing there, no hotels, only guest houses, family hotels, hostels, and families renting out their apartments. When Rixos Borjomi opened in 2015, development really accelerated only a year and a half or two years later — the Crowne Plaza and the Golden Tulip opened. The locals are now converting their family houses and homes into guest houses, which are better served and better facilitated.”

A lot of the developments like those mentioned by Mrs Beselidze are made possible by the incentives and support that the Georgian government have in place. Programmes such as the JSC Partnership Fund (PF), Georgian Co-investment Fund (GCF) and Free Tourism Zones.

The Tsinandali Radisson Project in the Kakheti region is another project carried out in partnership with PF, which has had a domino effect on development in neighbouring Telavi. Following on from what has happened in Borjomi, the Golden Tulip also began construction of a hotel in Tsinandali.

“Telavi had been interesting previously as well with all the chateaus, and Lopota, for example, when Lopota started off, it had only 17 rooms. Now, they have over a hundred, and they are continuing to expand. The fact is that it only takes one well-thought investment into a new region, and then others follow very quickly,” Mrs Beselidze adds.

Driving investment

Cushman and Wakefield are expecting the same trend to follow into Abastumani and across Georgia as a whole. All that is really needed to drive investments further is a well-thought out plan and potential risk investing in an area where at present nothing exists. However, at the end of the day those risks paid off as more people and companies are investing in those areas.

Whilst there have been many developments of luxury hotels in Georgia, Rusudan Mamatsashvili, first deputy head of the Georgian National Tourism Administration believes that there are great investment opportunities for budget – three, three and a half star hotels, as it is less saturated with key development locations being in Tbilisi, Kutaisi, and Batumi. She also added that over 200 new accommodation units have opened (or will open) in Georgia in 2017 and 2018 across the full spectrum of luxury, boutique, budget and hostels.

“Regions of Georgia are becoming highly popular destinations as well, exposing a segment for quality and good value accommodation needs. We have also witnessed an expansion of chain hotels, with Holiday Inn and Radisson planning to open hotels in the Kakheti region, Crown Plaza is already present in Borjomi and Best Western having several projects in the pipeline,” says Ms Mamatsashvili.

Cushman and Wakefield’s Mrs Beselidze says that they have seen an increase in the number of requests and visibility studies in the three and four star hotel segment. Quite a few of these projects are already being developed and some completed.

“We just had Ibis open near Freedom Square, with another in the pipeline. We have two Ramada hotels. We have a Moxy hotel being built, the three-star segment is also coming on really quickly,” Mrs Beselidze adds.

One other area that requires further development when it comes to hospitality is creating better conference facilities, and as such new build hotels are taking advantage of the lack of conference facilities to attract the Meetings, Incentives, Conferencing, and Exhibition (MICE) segment.

Moving upscale

“A number of new upscale hotels are being planned and implemented with larger than usual conference, meeting and banqueting facilities. The reason behind this is the increased demand evident in recent years. Numerous international public and private events have been deferred to unusual facilities due to the lack of supply. As an example the EBRD Annual Meeting and Business Forum as well as the Belt and Road Forum had been previously held in the Parliament building, because of non-existence of the venue in 2015. In 2017, however, the Belt and Road Forum was hosted by the recently opened Biltmore, Mrs Beselidze tells Emerging Europe.

According to Mrs Beselidze, there is another untapped market developing in Georgia, that being the hostel market: only 10.8 per cent of the entire hospitality market is hostel-based. Millennials would be the ideal target market, as they travel more than any other generation. A great example of targeting and developing around this client base can be seen at Fabrika Hostel.

“Basically, a majority have tapped into this and they have supplied Fabrika Hostel, which is not only a hostel with great amenities and services, but also something local and something special, sought after by any visitor. Basically anyone, for leisure, pleasure, or for business. This is an example of a well thought out product that you would deliver on to the market. That would be the niche that we would be looking at now and expecting to be developing in the nearest future,” says Mrs Beselidze.

This is another area where there is potential for investment and development. According to Mrs Beselidze, Georgia suffered from a lack of office space. However, in recent years there have been a few developments in Tbilisi, such as the King David Business Centre which has 10,000 square metres, a second development on Freedom Square (offering 5,000 square metres of space) and a new build set to be completed in 2018, Axis Towers (twin towers), offering 15,000 square metres each. Unfortunately, even with these new builds, prices are still quite high.

“It’s expensive, quite expensive. Any classes, what we had, tended to be expensive because there was a lack of them. Now we have a huge supply coming online and people don’t want to spend on it. We would project that the rents in A-class spaces would go on a downward trend for a while and then stabilise at a reasonable price,” Mrs Beselidze says.

The classifications and pricing of these office spaces has been largely exaggerated as there was no demand for them in the past. However due to the influx of international organisations as well as the strict regulations for diplomatic offices, class A buildings had to be constructed, the high pricing at present is due to the fact that there has been increasing demand with little availability of such space. At present prices are still high, 25 to 30 US dollars per square metre plus service charges and VAT.

Mrs Beselidze says that things are now returning to a state or normalcy according to her, “the highest price should be 25 US dollars per square metre.” However, in her opinion she would not recommend investing in business centres, as the capital needed is high and very risky.

With the Ministry of Economy and Sustainable Development having started promoting Georgia as an outsourcing destination, the demand for quality office space might soon grow.