RETAIL MARKET REPORT GEORGIA | 2015 · 2016. 10. 24. · Colliers Global Stats at a Glance 31 Team Georgia at a Glance 32. Executive summary Retail trade represents one of the largest

RETAIL MARKET REPORTGEORGIA | 2015

Galleria Tbilisi

Retail Market Report | Georgia | 20152

Contents

Executive summary 3

Georgia Country Profile 4

Retail Market Fundamentals 6

Georgia Retail Market Overview 7

Tbilisi Retail Market Overview 8

Batumi Retail Market Overview 13

Kutaisi Retail Market Overview 17

Conclusions and Outlook 22

Appendix 1 - Success Story 23

Appendix 2 - property registration and construction permits 25

Appendix 3 - Primary Information Sources, Data Used for the Study, Definition and Assumptions 27

Disclaimer 29

Project Team 30

Colliers Global Stats at a Glance 31

Team Georgia at a Glance 32

Executive summary

Retail trade represents one of the largest contributing sectors to Georgia’s GDP.Retail trade is one of the largest sector in Georgian economy, providing 9.4% of country’s GDP in 2015 (preliminary data). The average y-o-y growth rate of the sector was 11% during 2009-2015. Together with wholesale trade, the entire sector creates around 15% of GDP and employs approximately 19% (143,187 persons in the fourth quarter of 2015) of total employed persons in Georgia.

Along with the retail trade sector’s expansion, annual per capita retail expenditure has risen over the last decade. Per capita retail spending increased by 1.95 times from GEL 675 in 2006 to GEL 1,322 (around USD 581) in 2015. This is low in comparison to the international market and is reflected in its structure. For example, overall food expenditure remains very high (60% in 2015), although there is clear evidence that this percentage is decreasing (69% in 2006).

Tbilisi remains Georgia’s top contributor to the growing retail space supply of three main cities (Tbilisi, Batumi and Kutaisi).In 2015, Georgia’s supply of retail space (in Tbilisi, Batumi and Kutaisi) increased by 11%, exceeding 1,230,000 m2. Despite the fact that the country’s retail landscape is still dominated by older, Soviet-era style stock, the total supply of modern shopping centre space increased from 16% to 25% last year and continues to rise. At 71,780 m2, the majority of this new space came from East Point, Georgia’s largest shopping mall which opened in Tbilisi in the second half of 2015.

At 77%, the bulk of the supply is concentrated in Tbilisi, followed then by Batumi (12%) and Kutaisi (11%). There are virtually no modern shopping centres outside of these cities and it is clear that Tbilisi will remain the major source of new supply over the next few years. According to announced future projects, Georgia’s retail supply will rise by 166,432 m2 in 2016 and by 24,500 m2 in 2017. Hualing Mall (110,000 m2), Galleria Tbilisi (24,500 m2) and Gldani Central (22,452 m2) are the largest announced projects in Tbilisi. Metro Atlas Georgia LLC will launch the largest shopping centre in Batumi with 14,000 m2 of GLA in H2 2016.

Despite a robust development pipeline, Tbilisi remains far behind the CEE average for modern shopping centre space.The development pipeline suggests that Tbilisi’s shopping centre supply will almost double during the next four years - which will increase shopping centre stock per thousand inhabitants and exceed the same level in Sofia. This new supply must be supported by economic growth and higher consumer spending to avoid declining rents and increasing vacancy rates.

Prime rents in Tbilisi stand below the CEE average, while yields exceed average CEE figures significantly.The prime high street rent in Tbilisi is USD 56 /m2, which exceeds several Eastern European cities (Tallinn, Riga, Bratislava, Sofia, and Vilnius), but is 36% less than the average CEE figure.

The prime shopping centre rent in Tbilisi exceeds only Zagreb and equals USD 33 /m2, which is around half of the CEE average.

The estimated prime retail yield in Tbilisi is 13% for shopping centres and 12% for street retail, which exceeds average CEE figures (8.6% and 9.1%) significantly.

Tbilisi’s retail spaces experienced significant occupier activity in 2015.In 2015, there was a notable increase in Georgia’s retail stock. Almost 150 new stores were opened in East Point, including Carrefour (10,105 m2), Zara (2,224 m2) and Elit Electronics (2,222 m2), which accounted for a significant proportion of the leased space. After the opening of the new 5-screen, 740-seat cinema in Tbilisi, Cavea then added another cinema in East Point, offering 10 screens and 1,580 seats and equipped with IMAX technology.

Among new entrants should be mentioned the first DIY hypermarket Domino (11,114 m2) and the Lebowski Bowling Club (1,500 m2, 12 professional lanes). Both of them started operations in East Point. The Spanish fashion brand Mango changed franchisee partners and re-entered the market in 2015, opening two Tbilisi-based stores. Snap Fitness opened the first branch in Shopping @ Axis and has expansion plans in 2016. Hard Rock Café also announced to enter the market next year.

Opposite to Tbilisi, occupier demand Batumi and Kutaisi remains at the very low level the mentioned fact causes the extremely high vacancy rates of recently opened shopping centres in regional cities. According to announced future plans of retailers the tendency will be changed during next two years.

The highest rental rates were achieved in Tbilisi’s high streets.The weighted average rent in high streets of Tbilisi equals USD 36 /m2, exceeding the same figure in modern shopping centres and secondary streets 2.25 and 1.7 times respectively. In 2015, the weighted average rent in Tbilisi decreased by 6.2% in secondary streets when compared to 2014 and did not change significantly in high streets and modern shopping centres.

The average vacancy rate is higher in modern shopping centres (17%) when compared to street retail locations (7%-8%). It is worth noting that recently opened shopping centres are experiencing low vacancy rates due to active leasing campaigns that start one to one and a half years before the opening date. When compared to 2014 figures, we see an improving picture, with vacancy rates decreasing in shopping centres and high streets by 5% and 4% respectively.

Shopping centres in Kutaisi and Batumi are struggling with extremely high vacancy rates.In 2015, the shopping centre supply in Kutaisi and Batumi increased by 1.7 and 2.3 times (respectively) when compared to the same figures in 2014. However, this increase was not followed by occupier demand, and vacancy rates climbed to their peaks, hitting 48% in Kutaisi and 51% in Batumi. In contrast, street retail vacancies remained low, and stood at 5% in Kutaisi and 9% in Batumi.

The weighted average rents experienced little change in 2015, and ranged between USD 13-16 /m2 in Batumi and USD 11-13 /m2 in Kutaisi.


GudauriGeorgia – Country Profile


IntroductionLocated at the crossroads of Europe and Asia, the country of Georgia borders Turkey, Armenia, Azerbaijan and Russia. Georgia occupies an area of 69,700 square kilometres and is home to a population of 3.7 million people. The country’s land borders run a length of 1,839 kilometres, while Black Sea coastline is 315 kilometres. There are two autonomous republics and 71 municipalities (including 12 self-governing cities) in Georgia.Since emerging from the Soviet Union as an independent country in 1991, Georgia has implemented large-scale reforms, leading to the country’s political and economic transformation. These changes have made clear the country’s choice to strengthen democracy and further their relationship with the EU.Georgia has made business development within the country a top priority, through encouraging entrepreneurship and devising methods to attract private investments to shifting tax incentives and making the country more attractive to the international business world. With its unique cultural heritage, highly diverse nature, and exuberant hospitality, Georgia’s tourism industry continues to grow and thrive, further bolstering economic growth.

GovernmentThe Georgian government shifted from a presidential to a parliamentary republic after the October 2012 parliamentary elections. The president, Giorgi Margvelashvili, is the head of state and supreme commander-in-chief. Georgia’s parliament is located in Kutaisi City and acts as the representative body of the country, exercising legislative power, and determining the principal directions of domestic and foreign policy. As an executive council of government ministers, the Cabinet of Georgia is headed by Giorgi Kvirikashvili who comes from the ruling Georgian Dream Coalition.Based on accountability, citizen participation, technology, and innovation as its guiding values, today’s multi-party government continues to make European and Euro-Atlantic integration a primary strategic objective.

Legal System

The Constitution, adopted in 1995, sets out the structure of the national government as well as its powers and functions. The powers of government are divided into three branches – the legislative, executive, and judicial. Georgia’s court system has three branches: Courts of First Instance (District or City Courts), Appellate Courts (Tbilisi Appellate Court available for appeals from eastern Georgia, and the Kutaisi Appellate Court, available for appeals from western Georgia) and the Supreme Court. Тhe Courts of the First Instance have jurisdiction over all civil, criminal, and administrative cases. Decisions from the Courts of the First Instance may be appealed to the Appellate Courts and, from there, to the Supreme Court. As an alternative to litigation, Georgian laws allow arbitration both in local as well as in international arbitration institutions. The Constitutional Court of Georgia is the sole entity with constitutional jurisdiction in Georgia.

PopulationGeorgia’s population was 3.72 million at the end of 2015, with a density of 53.4 people per square kilometre and a regional average (in the Caucasus region) 95. Urban dwellers make up 57.2% of the total population though the rate of urbanization is rising. Tbilisi, Georgia’s capital and the country’s largest city, is home to 30% of the total population, followed by Batumi and Kutaisi with 4.2% and 4%, respectively. Ethnic Georgians form 87% of Georgia’s population. Other large ethnic groups in Georgia include the Azeri (6%), Armenians (5%), and Russians (1%).

Labor Market Overview

Georgia’s labor force comprises approximately 2,021,500 people. The country’s economic activity rate has risen in recent years, reaching 67.8% in 2015. The current unemployment rate is 12%, which is lower than the

14.8% average seen last decade. It is worth noting that a large percentage of employed population are self-employed. Currently, 15.4% of the working population are employed by Public sector, while 84.6% work in the non-public sector. In 2015, the three industrial sectors that employed the largest share of people were wholesale and retail trade, industry, and construction.

EconomyFocused on improving efficiency and overcoming expected difficulties, Georgia’s economy is structured to improve efficiency and overcome difficulties, thus allowing the private sector to maintain inclusive growth. The process of economic liberalization, backed by evident pro-Western leanings, has greatly improved the country’s competiveness for both export and investment opportunities. Georgia’s main trade partners include Turkey, Russia, Azerbaijan, and China.Following institutional reforms designed to encourage and support entrepreneurship initiatives, Georgia’s economy has taken a giant leap forward in attracting new business. Over the past decade, the per capita GDP increased by 2.45 times from $1,530 in 2005 to $3,743 in 2015 (at current prices). The estimated real GDP average growth equaled 2.3% for Q1 2016 and is forecasted to reach 3% by the end of the year. The ‘Ongoing Country Partnership Strategy for Georgia’, developed through a collaborative effort by the World Bank Group, has further evolved to ensure the effective use of public resources and increase income opportunities.

Tax system

Since the wave of institutional reforms, Georgia has embraced a low-tax model, slashing the number of taxes and tax rates. Georgia now ranks globally among the top ten countries with the lowest taxes and continues to bring its fiscal policies into further alignment with those of the EU.Currently Georgia has concluded the Argument on the Avoidance of Double Taxation with 52 countries. According to the latest tax code changes, imported goods used in VAT-taxable operations will be exempt from VAT. Moreover, additional changes are planned by 2017, including the removal of the profit tax for the reinvestment of funds. Georgia’s liberal tax code includes only six forms of taxes: Profit Tax – 15% Personal Income Tax – 20% Value Added Tax – 18% Import Tax – 0%, 5% or 12% Excise Tax – on a few selected goods Property Tax – up to 1% Tax rate on dividends is defined as a 5% in Georgia.

Foreign Trade OverviewIn 2015 Georgia exports (FOB) and imports (CIF) amounted to $2,204 mln and $7,729 mln, respectively. The top export destinations for Georgia are its neighboring countries as well as Bulgaria and China, totaling about 50% of Georgian exports. Major export commodities include mineral water, metals, and motor cars (mainly re-exported). Throughout the world Georgia is among the largest exporters of hazelnuts, famous for their unique flavor, while the country’s wide range of natural wine products continue to grow in popularity in the Chinese, EU, and USA markets.Georgia’s main import partners are Turkey, Russia, and China, accounting for 33% of the country’s total imports. The primary imported goods include oil, pharmaceutical products, motor cars, electrical equipment, wheat, and sugar.

Gudauri


Business and Investment EnvironmentAccording to the ‘Heritage Foundation Index of Economic Freedom 2016’, Georgia’s economy is categorized as Mostly Free, ranking 23rd out of the 178 countries measured. The significant improvements made to Georgia’s legislative framework allowed entrepreneurship initiatives to reach new heights, encouraging domestic businesses and opening the door to foreign investors. Today, the country is exemplary in European and Central Asia due to the ease with which business can be conducted. It ranks 6th in the world for ‘Ease of Starting a Business’, 3rd for ‘Ease of Registering Property’, and 24th (14th in Europe and 1st in the region) for ‘Ease of Running a Business’. With no minimum capital requirements, it takes on two days to set up a new business following a quick and simple process. Foreign and local investors are treated equally in Georgia.Today there are four Free Industrial Zones (FIZ) in Georgia in the cities Tbilisi, Potiand Kutaisi and several more is also planned to open including Kulevi FIZ. Two unique Free Tourism Zones in Anaklia and Kobuleti offers various advantages to investors such as free land and ready infrastructure.Aimed at the development of different sectors, the Georgian government has implemented several large-scale projects. Launched in 2014, “Produce in Georgia” is a successful state program that encourages entrepreneurship as it relates to the exportation of Georgian goods. Another interesting program which began this year is “Film in Georgia” which hopes to attract international film producers by cash rebate up to 25% on filming expenses. With the project “Host in Georgia” the local Government provides financial and technical assistance including co-financing to entrepreneurs in hotel industry. The “Check in Georgia” program brings together musical events with international stars, and promotes events dedicated to local products, all in an effort to increase tourism. In order to promote the development of innovative ideas, The Development Center of High Technology and Innovation (Tech Park Georgia) opened this year.According to the last Trade Policy Review produced in 2016 by the World Trade Organization (WTO), as evidenced by the progressive liberalization of its trade regime, Georgia has undertaken an impressive range of successful reform initiatives. The country has been a member of the WTO since 2000. Currently, Georgia is considering joining the expanded Information Technology Agreement, which would help the country attract further investment. FDI of USD 1.75 billion in Georgia in 2014 was the highest indicator seen since 2008, however, this number decreased by 11% in 2015. In H1 2016 FDI of USD 376 billion is 29% higher compared to the same period of time of previous year (highest amount of to the same period of time since 2008).Georgia has signed FTAs with CIS countries. Georgia benefits from the General Scheme of Preferences regulation, which lowers tariffs on goods exported from Georgia to the US, Canada, and Japan. As a result of negotiations with the European Free Trade Association in 2016, Georgia was given duty free access to markets in Iceland, Liechtenstein, Norway, and Switzerland. FTA between the Republic of Turkey and Georgia entered into force in 2008. Currently, an FTA between Georgia and China is also in negotiations and will be finalized by the end of 2016.The EU represents Georgia’s main trade partner. The Association Agreement (AA) between the EU and Georgia, signed in 2014, was ratified by all EU countries in December 2015. The Deep and Comprehensive Free Trade Area (DCFTA) was set up as a part of the AA and aims to gradually enhance Georgia’s trade and economic growth on its path toward integrating with the European economy. The DFCTA has provided better opportunities for local businesses to trade with the EU and made foreign investment in Georgia much easier. For the period of 2014-2015 Georgia also benefits from the unilateral Generalized Scheme of Preferences (GSP). Under the current regulations, due to sustainable development and good governance Georgia qualifies for a special incentive (GSP+) that provides advantageous access to the EU markets.

Georgia in International RankingsAccording to the Doing Business report, Georgia has been among The Top Improvers since 2005 in the EE&CA and globally. Characterized as an efficiently-driven economy, Georgia ranked 66th in 2015-2016 with the relative average score of 4.2 on the Global Competitiveness Index, improving its position by 28 levels when compared to their 2004-2005 ranking.The Transformation Index BTI shows that Georgia is up from 95th to 39th position in Management Index Ranking and up from 79th to 45th position for Status Index Ranking during the period from 2003 to 2016. Democracy Status of the country has also risen in recent years and ranks at 40th position for the period of 2016. The country is ranked 48th among 168 counties and territories on the Corruption Perception Index, greatly outperforming its bordering countries. Fitch’s credit rating for Georgia was last reported at BB- with a stable outlook, and referred to 2016 as a challenging year for growth in Georgia. The report also revealed expectations that the country’s economy will grow 2.5% in 2016 and 4.2% in 2017.

Infrastructure & TransportDue to its access to important terrestrial and maritime transport routes, Georgia has always been a key player in the transportation of cargo as well as natural gas and oil. Today, the three main pipelines are the Baku-Tbilisi-Ceyhan pipeline, the Baku-Supsa oil pipeline, and the South Caucasus gas pipeline. With a capacity to export one million barrels of oil a day, the Baku-Tbilisi-Ceyhan (BTC) oil pipeline runs 443 km through Azerbaijan, 249 km through Georgia and 1,076 km through Turkey.The Baku-Supsa oil pipeline (the Western Route Export Pipeline, WREP) runs from Azerbaijan to Georgia. The pipeline is 833 km long, with 375 km running through Georgia. Reconstruction of portions of the pipeline is scheduled in the near future.The South Caucasus gas pipeline (SCP) has been operational since 2006, following the route of the BTC crude oil pipeline project. The pipeline runs 691 km, with 443 km in Azerbaijan and 248 km in Georgia. Expansion of the SCP is now underway, and will eventually triple the gas volume exported through the pipeline. With the annual capacity of 7 mln tons Supsa oil terminal is a storage for crude oil transported via the WREP. With higher annual capacity of 10 mln tons Kulevi oil terminal has started functioning in 2018.Launched in December 2015, the Iron Silk Road is listed among the 100 Best Projects of Global Significance. Cargo trains will pass via Georgian transit, making the country the key link between the cheapest and shortest roads connecting Europe and Asia. Trade relations between Georgia and China have deepened in recent years, and the Georgian railway received its first cargo train from China in late 2015. The two main ports of Georgia are located in Poti and Batumi, though in order to develop the transit potential currently underutilized, the new $2.5 bln Anaklia Deep Sea port will be constructed till the year of 2020. Efforts will be made to increase its capacity to 40 mln tons in twelve years as the port is expected to become a trade connection between Europe and Asia, and between China and Europe through the New Silk Road.With increasing passenger traffic and an expanding network, the Tbilisi International Airport is the most efficient and secure cargo centre in the Caucasus Region. Reconstruction of the main runway is currently underway and will be completed in 2016. Two other international and one local airport are located in Kutaisi, Batumi, and Mestia. The Central and Eastern Europe's biggest low-cost airline Wizz Air will place an airplane at Kutaisi International Airport on permanent basis in 2016. Wizz Air will conduct flights to 11 destinations in 8 European countries, including Berlin, Munich, Sofia and Milan. Ukraine International Airlines and Pegasus Airlines also operate in Kutaisi Airport. Expanding its services, the airport will offer new, affordable flights to several other European destinations. Several local airports including Mestia Airport and Natakhtari Airport are also presented in Georgia.Georgia has also modernized its road infrastructure with some large projects, including the current construction of a primary autobahn that will connect Tbilisi and Georgia’s eastern regions to the seaports. The total length of Georgian Railroad is 2,084 km with an operational length of 1,146 km. Estimated to finish in 2017, the Baku-Tbilisi-Kars (BTK) railway will further enhance Georgia’s reputation and capacity as a transit country.

EnergyThe country is rich in terms of renewable energy resources and substantial coal reserves, however, only about 25% of country’s total energy potential has been exploited thus far. There are approximately 26,000 rivers in Georgia out of which more than 300 can contribute energy sector.Georgia intends to become a regional leader in the sustainable/efficient energy market by 2030. The Government is actively investing in the sector in order to achieve energy security and to establish a fully competitive energy market. Water is Georgia’s most important natural resource. The country’s sizable hydroelectric capacity per capita (40 TWh) ranks as one of the best in the world. This extra capacity holds the promise of export growth and energy self-sufficiency for the country. Currently, Georgia is focused on the development of small and medium-sized hydroelectric power plants to make efficient use of the country’s remarkably rich water resources and to maximize domestic potential. Large-scale projects that have been implemented recently include: Khudoni HPP with an installed capacity of 750 MW and an average projected annual generation 1,66 TWh; Cascade of Oni HPPs with an installed capacity of 272 MW and an average projected annual generation 1530 TWh; Cascade of Namakhvai HPPs with an installed capacity of 450 MW and an average projected annual generation 1,6 TWh.

Adjara7%Imereti

5%

Tbilisi77%

Other Regions11%

Retail trade by Georgin regions 2014

Source: National Statistics Office of Georgia, Colliers International

-

2,000

4,000

6,000

8,000

10,000

12,000

0

200

400

600

800

1000

1200

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

GDP and annual retail expenditures per capita in Tbilisi (GEL)

GDP Per Capita (Current Prices GEL) RHS On food, beverages, tobacco

Other consumption expenditure On clothes, footwear and household goods

Source: National Statistics Office of Georgia, Colliers InternationalNote: Per capita indicators of the 2015 are compiled in line with updated data from the 2014 general population census. Pre-census demographic data were used for the calculation of per capita indicators for the previous years. Recalculation of 2003-2014 per capita indicators will be produced in 2016 after the release of final 2014 population census data.* preliminary data

Retail Market Fundamentals

The retail trade sector (including motor vehicles and motorcycles) is one of Georgia’s largest and according to the preliminary data it provided 9.4% of the country’s total GDP in 2015 (USD 12,071 million at basic prices). The entire retail and wholesale trade sector accounts for around 15% of Georgia’s national GDP, illustrating its importance to the country’s economy. Employment in the sector is 143,187 (in the fourth quarter of 2015), which is approximately 19% of all those employed, while the average y-o-y growth rate of the retail trade sector in Georgia during 2009-2015 was 11%.

Along with the retail trade sector’s expansion, annual per capita retail expenditure has risen over the last decade. Per capita retail spending increased by 1.95 times from GEL 675 in 2006 to GEL 1,322 (around USD 581) in 2015. This is low in comparison to the international market and is reflected in its structure. For example, overall food expenditure remains very high (60% in 2015), although there is clear evidence that this percentage is decreasing (69% in 2006).

With 77% of the share, Tbilisi dominates Georgia’s trade economy, producing roughly 27.9% of the country’s GDP. Adjara and Imereti are other significant trade regions producing 7% and 5% respectively. Tbilisi is the only region where annual per capita retail expenditure exceeds the country’s average figure (by 33%).

1,399

1,679

2,0102,192

2,4002,530 2,587

0

500

1,000

1,500

2,000

2,500

3,000

2009 2010 2011 2012 2013 2014 2015*

Retail trade (million GEL)

Source: National Statistics Office of Georgia, Colliers InternationalNote: Retail trade incudes motor vehicles and motorcycles* Preliminary data


384

127

204

231

-

200

400

600

800

1,000

Tbilisi Batumi Kutaisi

Th

ou

san

ds

Retail space supply in Georgia 2015 (thousand m2)

Bazaars Other Shopping Centres

Street retail Modern shopping centres

137141

Georgia Retail Market Overview

Supply

In 2015, the supply of retail space in Georgia (Tbilisi, Batumi and Kutaisi cities) increased by 11%, exceeding 1,230,000 m2. The majority of this new supply came from East Point, Georgia’s largest shopping mall at 71,780 m2, which opened in Tbilisi in the second half of 2015. The country’s retail landscape is still dominated by bazaars (37%), followed by street retail (26%) and modern shopping centres (25%). The smallest share (12%) came from shopping centres with less than 5,000 m2 of GLA or shopping centres not operating under single management. It should be noted that the total share of modern shopping centre supply has increased gradually in the past few years.

At 77%, the bulk of the supply (in Tbilisi, Batumi and Kutaisi) is concentrated in Tbilisi, followed then by Batumi (12%) and Kutaisi (11%). There are virtually no modern shopping centres outside of these cities and it is clear that Tbilisi will remain the major source of new supply over the next few years. According to announced future projects, Georgia’s retail supply will rise by 166,432 m2 in 2016 and by 24,500 m2 in 2017. Hualing Mall (110,000 m2), Galleria Tbilisi (24,500 m2) and Gldani Central (22,452 m2) are the largest announced projects in Tbilisi. Metro Atlas Georgia LLC will launch the largest shopping centre in Batumi with 14,000 m2 of GLA in H2 2016.

Occupier demand

In 2015, there was a notable increase in Georgia’s retail stock. Almost 150 new stores were opened in East Point, including Carrefour (10,105 m2), Zara (2,224 m2) and Elit Electronics (2,222 m2), which accounted for a significant proportion of the leased space. After the opening of the new 5-screen, 740-seat cinema in Tbilisi, Cavea then added another cinema in East Point, offering 10 screens and 1,580 seats and equipped with IMAX technology.

Among those new to Georgia’s retail scene are Domino (the first DIY hypermarket with 11,114 m2 space) and the Lebowski Bowling Club (1,500 m2, 12 professional lanes). Both of them were launched in East Point. The Spanish fashion brand Mango changed franchisee partners and re-entered the market in 2015. The brand opening stores in Tbilisi Mall and East Point. Snap Fitness opened the first branch in Shopping @ Axis with an eye towards expansion during next year, while the Hard Rock Café also announced to enter the market in 2016.

City Brand Category Space Location

Tbilisi Domino Household Goods 11,114 East Point

Tbilisi Cavea Entertainment 3,825 East Point

Tbilisi Focus Mocus Entertainment 3,099 East Point

Tbilisi Maxi Land Entertainment 2,300 Gldani Plaza

Tbilisi Lebowsky Entertainment 1,544 East Point

Tbilisi Mango Fashion 1,380 East Point

Tbilisi Snap Fitness Lifestyle 1,120 Shopping @ Axis

City Brand Category Space Location

Tbilisi Carrefour Hyper/Supermarket 10,105 East Point

Tbilisi Furshet Hyper/Supermarket 2,288 Gldani Mall

Tbilisi Metromart Consumer Electronics 2,262 Gldani Plaza

Tbilisi Zara Fashion 2,224 East Point

Tbilisi Elit Electronics Consumer Electronics 2,222 East Point

Tbilisi Cavea Entertainment 1,695 Tbilisi Mall

Tbilisi Furshet Hyper/Supermarket 1,630 Gldani Plaza

Tbilisi LC Waikiki Fashion 1,586 East Point

Tbilisi Metromart Consumer Electronics 1,544 East Point

Kutaisi LC Waikiki Fashion 1,846 5 Tsispherkantseli Street

Kutaisi Koton Fashion 1,662 Novita Capital Partners,

14 Tamar Mephe Street

Batumi Elit Electronics Consumer Electronics 2,788 94 Gorgiladze Street

Batumi Randi (relocation) Furniture 2,454 Batumi Central

Recent entrants (2015)

Major extensions (2015)

Source: Colliers InternationalNote: The chart excludes owner occupied retail space.Shopping centres are classified according to the standard of International Council of Shopping Centres (ICSC).

Source: Colliers InternationalNote: Shopping centres are classified according to the standard of International Council of Shopping Centres (ICSC).

Source: Colliers International

140 231

363 388 8

18

47 47

31

54

59 59

-

100

200

300

400

500

600

2014 2015 2016 F 2017 F

Th

ou

san

ds

Modern shopping centre supply pipeline (GLA thousand m2)

Tbilisi Batumi Kutaisi


Tbilisi Retail Market Overview



Supply

The total volume of retail floorspace in Tbilisi amounts to 952,983 m2. Bazaars and open markets occupy the largest share (40%) of this stock. The overall market continues to grow due to the opening of new and modern shopping centres and, consequently, the share of space occupied by bazaars is declining year-over-year. Tbilisi’s modern shopping centres occupy 24% of the city’s floorspace.

With the addition of Gldani Plaza (6,385 m2), Gldani Mall (11,700 m2) and East Point (71,780 m2), Tbilisi’s shopping centre supply increased by GLA 89,865 m2 in 2015. The first DIY supermarket, Domino, opened in East Point, occupying roughly 11,000 m2. This shopping concept has the potential to replace open markets in a variety of different locations throughout Tbilisi.

During the next two years, the new Hualing Mall, Gldani Central and Galleria Tbilisi shopping centres will be opened, further increasing the city’s retail GLA by 68%, to a total of 387,885 m2. It is worth noting that several other malls have been announced, but their opening dates have not been specified. They are expected to reach completion within the next three to four years.

Source: Colliers InternationalNote: The chart excludes owner occupied retail space.Shopping centres are classified according to the standard of International Council of Shopping Centres (ICSC).

231

363 388

-

50

100

150

200

250

300

350

400

450

2015 2016 F 2017 F

Th

ou

san

ds

Modern shopping centre supply pipeline in Tbilisi (GLA thousand m2)

Modern shopping centres,

230,933 , 24%

Traditional shopping centres,

134,367 , 14%

High streets, 55,136 , 6%

Secondary streets, 148,547 ,

16%

Bazaars, 384,000 , 40%

Retail space supply in Tbilisi (GLA m2)

Name Developer Address GLA m2 Completion Date Construction Status Project Type

Hualing MallJSC Hualing international

special economic zone

Varketili 3, near

Tbilisi Sea 110,000 H2 2016 Under Construction Greenfield

Gldani Central IG Development Georgia LLC 1 Khizabauri Street 22,452 H2 2016 Under Construction Greenfield

Galleria TbilisiCo-Investment Fund (Tbilisi

Plaza LLC)2/4 Rustaveli Avenue 24,500 H2 2017 Under Construction Brownfield

Didube Mega Trade Didube Mega Trade LLC 2 T. Eristavi Street 10,146 N/AConstruction Temporarily

SuspendedGreenfield

Gldani Shopping

CenterJSC Cross Near Mukhiani Bazaar 6,938 N/A

Construction Temporarily

SuspendedGreenfield

Niba Delisi Delisi LLC Along Delisi station 16,000 N/AConstruction Temporarily

SuspendedGreenfield

Sum 190,036

Upcoming Projects


Existing and upcoming shopping centres

Grmagele”

Gotsiridze

Delisi

Vazha-Pshavela

Rustaveli

Liberty Square

Avlabari

300 Aragveli

Isani

Samgori

Varketili

Akhmeteli Theatre

Technical University

Marjanishvili

Station Square

Didube

Guramishvili”

Sarajishvili”

Tbilisi Mall

7,600Merani

9,500IG Mall

6,900

Home Mart

10,000GTC

8,000Goodwill

Hualing MallH2 2016

110,000

8,600 Karvasla

11,700 Gldani Mall

6,400 Gldani Plaza

Tbilisi East Point

GLA m2 GLA m2Existing modern shopping centre

69,566

71,780

Upcoming ProjectCompletion Date

20,000 Tbilisi Central

Galleria TbilisiH2 2017 24,500

Niba Delisi 16,000

Didube Mega Trade

10,146

Gldani Shopping Centre6,938

Gldani CentralH2 2016

22,452

Source: Developers, Operators/Property Managers, Colliers International


Airport

Central Railway Station


Occupier Demand

Fashion and Footwear holds the largest share of occupier demand in shopping centres and it is the second category in street retail. Tbilisi’s largest fashion retailers include Retail Group Georgia and International Corporation ICR. They represent almost 60 different brands, including Zara, Massimo Dutti, Top Shop, Pull & Bear, Gap, Banana Republic, Aldo, Ecco, Geox, Tamaris and Obaïbi-Okaidi . The Fashion and Footwear category absorbed 15,125 m2 in 2015, of which 90% was leased in shopping centres and 10% in street retail spaces. The vast majority of take-up was by existing brands who were extending their operations. Spanish brand Mango’s franchisee partner shift may be considered a new entry to the market. Attracting new retailers and fashion brands remains one of the most significant challenges for shopping centre developers and management companies.

25% and 11% of occupier demand in shopping centres and high streets is represented by the Hyper/Supermarket category. Among the core representatives of the category are international and regional brands (Carrefour, Spar and Furshet), as well as local supermarket chains (Goodwill, Smart, and Fresco). Smaller Georgian grocery chains, such as Ori Nabiji and Nikora (together with Nugeshi), have been growing aggressively during the last two years. The major expansion in this category in 2015 was recorded by Carrefour (10,105 m2 in East Point) and Furshet (2,288 m2 in Gldani Mall and 1,630 m2 in Gldani Plaza).

The third largest share of occupier floorspace (12%) in modern shopping centres is held by the Consumer Electronics product category. In contrast, this category occupies an extremely low share in street retail (3%). The sector is dominated by local companies, such as Elit Electronics, AltaOkay, Metro Mart, Smiley, Galaxy, etc. These companies represent major world brands such as Samsung, Sony, LG, Philips, Bosch, Siemens, Hyundai and Gorenje. In 2015, the category absorbed 15,125 m2. The majority of the take-up was in shopping centres, in particular at East Point, by Elit Electronics and Metromart.

The Catering and Entertainment category occupies 11% of the floorspace in shopping centres and 20% in street retail. The category is dominated by international fast food chains such as McDonald’s, Wendy’s, Dunkin Donuts, KFC, Subway and Domino’s Pizza. After the opening of a new cinema in Tbilisi Mall (5 screens and 750 seats), Cavea added another one in East Point (10 screens and 1,580 seats, equipped with IMAX technology). The opening of Lebowski Bowling Club (1,500 m2, 12 professional lines) and the new kids centres – Focus Mocus (East Point) and Maxxi Land (Gldani Plaza) - are also notable additions to this category.

The General and Service category occupies the largest share (25%) of occupier floorspace in street retail and 3% in shopping centres. The sector is mainly represented by Georgian Banks –Bank of Georgia, Liberty Bank, TBC Bank etc. The major expansion in this category was recorded by Bank of Georgia, which rented more than 2,200 m2 during 2015, the bulk of which was in street retail locations.

In addition to the above mentioned sectors, drug stores should not be excluded from the ‘core occupier’ group of Tbilisi’s retail market. Aversi, PSP and GPC are the largest drug store chains in the city, with a combined total of more than 160 branches. In 2015, the category rented 2,028 m2, of which roughly 50% was in street retail locations. Major network expansion was recorded by perfume shop Lutecia and the above mentioned drug stores.



Category TotalShopping

Centres

Street

RetailMajor Occupiers

Household & Furniture 18,410 16,446 1,964 Domino, Super, Belhouse

Catering & Enteratainment 17,809 14,014 3,795 Cavea, Focus Mocus, Lebowsky, Maxxi Land

Hyper/Supermarket 15,527 14,255 1,272 Carrefour, Furshet

Fashion & Footwear 15,156 13,700 1,456 Zara, LC Waikiki, Mango, Koton, Defacto,

Consumer Electronics 11,210 10,849 361 Elite Electronics, Metromart

General & Service 7,092 2,547 4,545 Bank of Georgia

Health & Beauty 2,028 1,071 957 Lutecia, GPC, Aversi, PSP

Lifestyle 661 526 135 Puma, Timberland, Adidas, Nike

Undefined 2,414 - 2,414

Total 90,307 73,407 16,900

Take up in 2015 (including renewals m2)


Fashion and Footwear

35%

Consumer Electronics

12%

Hyper/Supermarket

25% General and Service

3%

Catering and Enteratainment

11%

Household and Furniture

11%

Health and Beauty1%

Lifestyle2%

Modern shopping centres' floorspace by category in Tbilisi

Fashion & Footwear

22%


3%

Hyper/Supermarket

11%

General & Service 25% Catering &

Enteratainment20%

Household & Furniture

5%

Health & Beauty12%

Lifestyle2%

Street retail floorspace by category in Tbilisi

Performance Indicators

The weighted average rent in high streets equals USD 36 /m2, exceeding the same figure in modern shopping centres and secondary streets 2.25 and 1.7 times respectively. In 2015, the weighted average rent decreased by 6.2% in secondary streets when compared to 2014 and did not change significantly in high streets and modern shopping centres. The highest weighted average rent was observed on Pekini Street (USD 43 /m2), and Rustaveli Avenue (USD 37 /m2).

The average vacancy rate is higher in modern shopping centres (17%) when compared to street retail locations

(7%-8%). When compared to 2014 figures, we see an improving picture, with vacancy rates decreasing in shopping centres and high streets by 5% and 4% respectively. The only shopping centre with a higher-than-average vacancy rate is Tbilisi Mall. It is worth noting that recently opened shopping centres are experiencing low vacancy rates due to active leasing campaigns that start one to one and a half years before the opening date. The lowest vacancy rate among shopping streets is observed along the street fronting Varketili Metro Station (2%) and the highest are found on Tsereteli/Tamar Mepe/Tsabadze Streets (12%).

22%

11%

7%

17%

7%8%

0%

5%

10%

15%

20%

25%

Modern shoppingcentres

High streets Secondary streets

Vacancy rate in Tbilisi

2014 2015



Source: National Agency of Public Registry, Colliers InternationalNote: Data excludes East Point figuresThe rent indicated in the 2014 report was calculated based on available listings.

$16

$36

$22

$16

$36

$21

$-

$5

$10

$15

$20

$25

$30

$35

$40

Modern shoppingcentres

High streets Secondary streets

Weighted average retail rent in Tbilisi (USD /m2

net of VAT and service charge)

2014 2015

Batumi Retail Market Overview

Modern shopping centres,

18,456 , 14%

Steet retail, 79,293 , 57%

Bazaars, 40,549 , 29%

Other shopping

centres, 0, 0%

Retail space supply in Batumi (GLA m2)





8 18

47

-

10

20

30

40

50

60

70

2014 2015 2016 F

Th

ou

san

ds

Modern shopping centre supply trend Batumi (GLA thousand m2)

Batumi Retail Market

Batumi is an administrative centre in the Adjara Region. The Batumi seaport is Georgia's main sea gateway and Batumi is now a quickly-growing tourist destination. The city has undergone dramatic changes and reforms which have significantly improved its worldwide image and made it more attractive to foreign investors. Batumi’s hospitality market is developing with the increased flow of foreign visitors, businessmen and delegations helping to attracting well-known international hotel chains. The international airport serves Batumi since 2007, which is capable of handling 600,000 passengers a year. The total population of Batumi is around 155,000, with another 142,000 people located within a one hour drive.

Supply

The total volume of leasable retail floor space in Batumi amounts to 138,298 m2 – 11% more than the in 2014. The retail supply is dominated by high street retail (57%), bazaars and open markets (29%). With the addition of Batumi Central (10,360 m2), Batumi’s shopping centre supply increased by 2.3 times and shopping centre share of total retail space grew from 6% to 14%.

Old Batumi, Gorgiladze Street and Chavchavadze Avenue are the city’s primary high streets, offering tourists various attractions, cafes, restaurants and fashion shops. The recently-opened Hilton Batumi added around 3,000 m2 of retail space to the market, which is attached to both residential and hotel developments.

With projects in the development pipeline, Batumi’s shopping centre supply will increase by 2.6 times to 47,000 m2 of GLA. The largest project will be Metro City, which will complete in the second half of 2016 and will include a shopping centre with 14,000 m2 of GLA.

Demand

Demand for retail space in Batumi is mainly dominated by local non-brand tenants. As Batumi is a tourist-focused city, the Catering and Entertainment category occupies the largest proportion of retail floorspace (30%). McDonald’s is the only international occupier in Batumi’s fast food market.

The second largest category is General and Service (23%), of which the major representatives are Georgian banks. It should be noted that a significant number of local companies rent retail spaces for use as offices.

The main fashion brands represented in Batumi are LC Waikiki, Naf-Naf, Puma, Nike, Giordano and several brands managed by ICR (Shoes Gallery, Bata, Alcott, Obaïbi-Okaidi, Parfois etc.). In 2015, several Georgian designers opened shops on the high streets of Batumi.

Modern supermarket chains, such as Goodwill, Smart and Foodmart are operating in Batumi and have expansion plans in 2016.

Other branded tenants include consumer electronics shops (Elit Electronics, Altaokay, Megatechnics, Techno Boom etc) and pharmaceutical companies (Aversi, PSP and GPC).

The most notable lease transaction during 2015 was recorded by Elit Electronics (2,788 m2). The relocation of the Randi furniture shop (2,454 m2) to the recently-opened Batumi Central should also be noted.



18%


14%

Hyper/Supermarket4%

General and Service

23% Catering and Enteratainment

30%


8%

Health and Beauty

3%

Retail floorspace by category in Batumi

Name Address Developer GLA m2 Completion

DateStatus

Project

Type

City Mall Era Street 88Sakhli Bulvarshi

LLC 9,600 H2 2016

Under

ConstructionGreenfield

Metro City

Lekh and Maria

Kachinski

Street N1

JSC Metro Atlas

Georgia 14,000 H2 2016

Under


Patrioti-

2006

Pushkini Street

18-20Patrioti 2006 LLC 5,000 H2 2016

Under


Sum 28,600

Upcoming Projects

18%9%

51%

9%

0%

10%

20%

30%

40%

50%

60%

Modern shopping centres Steet retail

Vacancy rate in Batumi

2014 2015


Performance indicators

Retail rents in Batumi range from USD 13-16 /m2. Old Batumi and Gorgiladze Street are the most prestigious locations, where the highest rents are achieved (at USD 22-23 /m2). In 2015, the weighted average rental rate decreased by 7% in shopping centres and by 6% in street retail spaces.

The average vacancy rate in shopping centres (58%) significantly exceeds the same figure in street retail (9%). The opening of the Batumi Central shopping centre is the primary reason for this increase, as 71% of the centre remains unoccupied.

$13.8

$17.0

$12.9

$15.9

$-

$5.0

$10.0

$15.0

$20.0


Weighted average retail rent in Batumi (USD /m2


2014 2015

Source: National Agency of Public Registry , Colliers InternationalNote: The rent indicated in the 2014 report was calculated based on available listings.


Retail Map of Batumi

Black Sea

Source: Developers, Operators/Property Managers Colliers International

Batumi PlazaBatumi Central

10,360

8.096

8,096City Mall(H2 2016)

9,600

Metro City(H2 2016)

Patrioti-2006 (H2 2016)

5,000

14,000

Main streets of the city

Airport


Old Town, High Streets

Existing Shopping Centre

GLAm2

GLAm2

Upcoming Project(Completion Date)

Sea Port


17

Kutaisi Retail Market Overview

Kutaisi Retail Market Overview

Kutaisi is Georgia’s third largest city, located in the centre of the Imereti region on both banks of the River Rioni. The foundation of Kutaisi can be traced back more than 3,500 years. Since May 2012 it has been the seat of the country’s parliament. The construction of the Kopitnari International Airport (Kutaisi) was finished in September 2012, with a total capacity of 600,000 passengers per year. Its opening was marked by the launch of flights by the low-cost carrier (LCC) Wizz Air with direct flights from Kutaisi to Kiev, Budapest, Vilnius, Warsaw and Katowice. Beginning in September 2016, Wizz Air will add seven direct flights from Kutaisi (Berlin, Munich, Dortmund, Milan, Thessaloniki, Larnaca and Sofia). Ukraine International Airlines and Pegasus Airlines also operate in Kutaisi Airport. Kutaisi’s total population is around 148,000, with another 400,000 persons living within an hour’s drive.

Supply

Kutaisi’s total leasable retail floorspace amounts to 136,684 m2 – 20% more than the same figure in 2014. With the addition of Kutaisi Plaza (11,700 m2) and Capital Partners LLC’s Novita (10,845 m2) in 2015, the total supply of modern shopping centres increased from 27% to 39% of retail stock. Despite this increase, the general quality of shopping centres remains very low. It is common practice to sell individual retail units within shopping centres, which reduces the attractiveness of Kutaisi’s investment market. Kutaisi’s primary high streets include Chavchavadze Avenue, Gamsakhurdia, Rustaveli and Old Kutaisi streets. The future shopping centre pipeline in Kutaisi includes one project (New City) with a total GLA of around 5,380 m2.

Demand

Retail space demand in Kutaisi is dominated by local non-brand tenants (around 80%). The Household and Furniture category (25%) occupies the majority of the city’s retail spaces, followed by the General and Service category (21%).

There are a limited number of international brands in the market. Several brands managed by ICR (including Obaïbi-Okaidi, Parfois, Bata and Alcott), recently opened LC Waikiki, Koton and Flo are Kutaisi’s main fashion brands, while McDonald’s is Kutaisi’s only international fast food occupier.

Other branded tenants include leading Georgian banks (Bank of Georgia, TBC, Bank Republic Societe Generale, Liberty Bank), supermarkets (Smart, Nikora), consumer electronics shops (Elit Electronics, Metro Mart, Altaokay, Megatechnics, etc.), and pharmaceutical companies (Aversi, PSP, GPC and Pharmadepot).

Modern shopping centres, 53,745 ,

39%

Steet retail, 40,539 , 30%

Bazaars, 35,000 , 26%

Other shopping centres, 7,400 , 5%

Retail space supply in Kutaisi (GLA m2)



31

54 59

-

10

20

30

40

50

60

70

2014 2015 2016 F

Th

ou

san

ds

Modern shopping centre supply trend Kutaisi (GLA thousand m2)




16%


7%

Hyper/Supermarket8%

General and Service

21%

Catering and Enteratainment

13%


25%

Health and Beauty

10%

Lifestyle0%

Retail floorspace by category in Kutaisi

Name Address Developer GLA m2 Completion

DateStatus

Project

Type

New City192 Tsereteli

StreetNew City LLC 5380 H2 2016

Under


Upcoming Project



$12.7 $12.9 $11.2

$13.3

$-

$5.0

$10.0

$15.0

$20.0


Weighted average retail rent in Kutaisi (USD /m2


2014 2015


Performance Indicators

Retail rents in Kutaisi range between USD 11-13 /m2. Old Kutaisi is both the most prestigious and expensive retail rental location. In 2015, the weighted average rent for shopping centres decreased by 12% compared to 2014. In contrast, the weighted average rent for street retail units increased by 3% y-on-y to USD 13.3 /m2.

The average vacancy rate in modern shopping centres (48%) exceeds that of street retail (5%) significantly. The only shopping centres with lower-than-average vacancy rates are Grand Mall (4%) and Karvasla (3%). Vacancies in the remaining shopping centres, especially the recently opened ones, are extremely high (47%-97%) and reducing them is a primary challenge for operators.

Source: National Agency of Public Registry , Colliers InternationalNote: The rent indicated in the 2014 report was calculated based on available listings.

32%

18%

48%

5%0%

10%

20%

30%

40%

50%


Vacancy rate in Kutaisi

2014 2015

Retail Map of Kutaisi

Old Town, High Streets

Main streets of the city

Airport


Source: Developers, Operators/Property Managers Colliers International

Grand Mall

7,500Comfort

7,000

Iberia Star 6,500

Karvasla10,200

Novita

10,8455,380

New City (2016)

Kutaisi Plaza

11,700

Existing Shopping CentreGLAm2

GLAm2

Future Project(Completion Date)


Source: World Bank, Colliers InternationalNote: Warsaw - Agglomeration

Source: Colliers InternationalNote: * - estimated yield, ** - H1 2015 figure


International Benchmark

Georgia’s retail real estate investment market is still in the early stages of development. The acute shortage of modern shopping centre stock and the fact that most developers retain ownership means that there have been no large scale transactions.

The prime high street rental rate in Tbilisi is around USD 56 /m2 and the prime shopping centre rent is USD 33 /m2. These figures are below the CEE average by 36% and 48% respectively.

The estimated prime retail yield in Tbilisi is 13% for

shopping centres and 12% for street retail, exceeding average CEE figures significantly.

The development pipeline suggests that shopping centre supply will rise significantly in Tbilisi (by 1.8 times) and Batumi (by 2.5 times) during next four years. Kutaisi will see no major changes in the same timeframe. By the end of 2019, all three Georgian cities will stand at around the Sofia level by modern shopping centre stock per 1,000 inhabitants, which will be below than the same figure in other CEE cities. This new supply must be supported by economic growth and higher consumer spending to avoid declining rents and increasing vacancy rates.

Tbilisi East PointPhoto by Robbie RG Commercial


119 207 332 363 427 448

614 636 665 793

896

304 378 340 399

494 531 614

741

1,182

889

1,140

1,840 1,840

3,599

1,840

5,756

6,750

6,177

6,894

6,214

7,938

6,627

-

200

400

600

800

1,000

1,200

1,400

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Batumi Tbilisi Sofia Kutaisi Budapest Warsaw Zagreb Vilnius Riga Bratislava Tallinn

Existing and proposed modern shopping centre supply (m2 per 1,000 inhabitants) and household final consumption expenditure per capita (constant 2005 USD)

Modern SC (m2 per 1,000 inhabitants) RHS

Modern SC (m2 per 1,000 inhabitants) proposed 2019 RHS

Household final consumption expenditure per capita (constant 2005 USD) LHS

36 44 45 46 46 5671 75

98109

120

190207

50 49 35 37 44 33 21 57

116

82 87100

109

0255075

100125150175200225

Prime rents H2 2015 (USD /m2 per month net of VAT and service charges)

Prime high street rent Prime shopping centre rent

4%

7% 7%7%

7% 7% 8%8% 8%

9%

12% 12%13%

5% 6% 6%7% 7% 7% 7%

9%9% 9%

10%

13% 13%

0%

2%

4%

6%

8%

10%

12%

14%

Prime yields H2 2015

Prime high street yield Prime shopping centre yield


Conclusions & Outlook

Retail and wholesale trade account for 16.6% of Georgia’s national GDP and employs almost 150,000 people. Retail trade grew, on average, 11% y-on-y between 2009 and 2015. Supported by a strengthening economy, per capita retail spending has increased 1.85 times from GEL 675 in 2006 to GEL 1,332 (USD 581) in 2015. Tbilisi is the only region where annual per capital spending exceeds the country average.

New retail supply in the main cities of Tbilisi, Batumi and Kutaisi increased by 11% (1.2m m2) in 2015 as a combination of new shopping centres and extensions to existing centres added to and improved the quality of the stock. 2015 saw a significant activity in the retail sector. East Point, Tbilisi (71,780 m2) opened in the second half of 2015 and is Georgia’s largest shopping mall. Anchored by Carrefour, the centre brought almost 150 new units to the city and a number of international brands.

For a recognizable investment market to evolve, and certainly one that attracts international capital, new shopping centres must be retained as a single entity and owner/developers should be deterred from selling individual units piecemeal.

Tbilisi

Tbilisi has the largest stock of modern shopping centre floorspace, with 231,000 m2 in 2015. This is expected to increase to 388,000 m2 by 2017 with three new shopping centres in the pipeline. Vacancy rates in high streets fell to just 7% in 2015. Shopping centre vacancy rates have also fallen but, on average, remain relatively high at 17%. Vacancy rates in new centres are much lower due to aggressive marketing campaigns. Despite the addition on

modern shopping centres, 40% of Tbilisi’s retail stock remains in bazaars and open markets. The market is continuing to evolve and while the space given over to bazaars is reducing, it remains a challenge to convert traditional shopper habits to modern and, perhaps for many, less accessible facilities.

Kutaisi

Kutaisi welcomed two new shopping centres in 2015 (Kutaisi Plaza and Novita) adding 22,500 m2 of modern stock. Shopping centres now represent 39% of retail floorspace in the city. However, vacancy rates in modern shopping centres are unacceptably high (48%) and rents in 2015 fell slightly. While the high streets in Kutaisi are trading well, with a vacancy rate of just 5%, the city needs time to absorb the recent new shopping centre openings and it is suggested that any further shopping centre proposals await a rebalancing of the market to avoid overcapacity.

Batumi

Batumi’s retail supply is still dominated by high street shopping (57%) and bazaars and markets (29%). However, the opening of the Batumi Central shopping centre (10,360 m2) the modern retail stock has more than doubled to 14%. With a vacancy rate of 51% in modern shopping centres, the market is clearly struggling to absorb the extra capacity. It does raise a question mark over potential retailer demand and the ability of Batumi to absorb the three shopping centres due to complete in H2 2016. With vacancy rates already high and rents under pressure, the addition of more retail stock could result in further rental decline and sustained high vacancy rates for the short to medium term.

Tbilisi East Point

APPENDIXSUCCESS STORY

By opening a 13,000 m2 branch in 2012 in the Tbilisi Mall, Carrefour became Georgia’s first international hypermarket. This marked an important milestone not only for the hypermarket sector but for the entire country’s retail sector. Since then, the brand has extended operations and currently runs five different locations in Tbilisi, including two hypermarkets at different ends of the city and three supermarkets in various districts.

Carrefour is the only retailer offering such a large mix of both food and non-food items under one roof. Today, stores offer approximately 35,000 items in their hypermarkets and 15,000 items in supermarkets.

Carrefour has plans to open two new branches in Tbilisi (in the Gldani and Saburtalo districts) in 2016, and to extend into further regions in 2017.

Grmagele

Gotsiridze

Delisi

Vazha-Pshavela

Rustaveli

Liberty Square

Avlabari

300 Aragveli Isani

Samgori

Varketili

Akhmeteli Theatre

Technical University

Medical University

Station Square

Tsereteli

Nadzaladevi

Didube

Guramishvili

Sarajishvili

Carrefour in Georgia


APPENDIXPROPERTY REGISTRATION AND

CONSTRUCTION PERMITS


Property Registration

In Georgia, the National Agency of Public Registry is the state institution responsible for the registration of property, registering both transfers between private entities and state-owned properties.

In case of private transfer, the purchaser has two options:

• Via a notary – contract drafting and legalization by the notary and subsequent registration. The notary assumes responsibility for the content of the draft and its legalization. The presence of a translator and his signature on the bilingual purchase document is required and the translator assumes responsibility for the authenticity of texts. Time for preparation of the bilingual document and its legalization varies depending on the notary

• Via the National Agency of Public Registry – direct submission of the purchase contract for legalization and registration. In this case, the bilingual purchase document is to be drafted directly by both parties or by their authorized representatives. The Agency’s representative certifies the signatures and may provide recommendations if the document is not accurately drafted, but does not carry any responsibility for the validity or its content.

• The National Agency of Public Registry is represented in: a) Public Services Halls (Tbilisi, Gori, Kutaisi, Batumi, Ozurgeti, Mestia, Zugdidi, Rustavi, Marneuli, Gurjaani, Telavi, Kvareli and Akhaltsikhe) and b) regional departments of the National Agency of Public Registry (located in cities throughout the country).

In the case the property being purchased from the state/municipality (privatization, auction or other form of purchase) the documents should be submitted directly to the Agency.

Times and fees for registration• 4 working days upon the submitting of documents (ordinary time) –

the day of submission of documents is not counted – GEL 50 (registration fee per one property) + GEL 5 for certifying the document (GEL 5 per each document subject to submission)

• 1 working day – GEL 150 + GEL 5 for certifying the document

• On the day of submitting the agreement in the Agency – GEL 200 + GEL 5

Times and fees for renewal of public registry informationOnline• 1 working day – GEL 10 (USD 4.4)• Same working day – GEL 40 (USD 17.6)Justice House

• 1 working day – GEL 15 (USD 6.6)• Same working day – GEL 50 (USD 22)

Construction Permits

For the purposes of construction, buildings are divided into five types:

1st class buildings - no construction permit is required;

2nd class buildings - buildings with low risk factors;

3rd class buildings - buildings with medium risk factors;

4th class buildings - buildings with high risk factors;

5th class buildings - buildings with very high risk factors.

The permit issuance process is divided into three stages:

Stage I - Statement of urban construction terms;

Stage II - Approval of architectural-construction project;

Stage III - Issuance of Construction Permit;

State organs responsible for the issuance of permits:

Local self-governmental (municipal) organs - for II, III class buildings within the municipal territory (at stages I and II) except from Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special regulatory zones on the territory of Borjomi.

Local self-governmental (municipal) organs - for IV class buildings (at stages I and II) with the participation of corresponding state organs

Local self-governmental (municipal) organs - for II, III and IV class buildings (at III stage) independently (including Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special regulatory zones on the territory of Borjomi)

Tbilisi City Hall - for II, III and IV class buildings in Tbilisi Municipality (at all stages) independently

Corresponding local organs of Adjara Autonomous Republic and Abkhazia Autonomous Republic - for II, III and IV class (at all stages) on the territory of the Autonomous Republics

Local self-governmental (municipal) organs - II, III and IV class buildings (at stages I and II) for Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special regulatory zones on the territory of Borjomi - with the participation of the Ministry of Economy and Sustainable Development.

Ministry of Economy and Sustainable Development - for V class buildings

Ordinary terms per each stage (working days):

Stage I

12 days for II and III class buildings

15 days for all IV class buildings, for Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special regulatory zones on the territory of Borjomi (excluding V class buildings), also for all buildings that require ecological expertise

30 days for V class buildings

Stage II

18 days for II and III class buildings

20 days for all IV class buildings, for Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special regulatory zones on the territory of Borjomi (excluding V class buildings), also for all buildings that require ecological expertise and for V class buildings

Stage III

5 days for II, III and IV class buildings

10 days for V class buildings

Exceptions:

The special terms for permission process:

Construction permits concerning:

III class buildings with an intensity coefficient up to 1,500 p/m2 and for buildings with a height of up to the 14 meters that will be located on the territories where urbanization regulatory plans do not exist and are organized according to land use or which are organized according to the perspective development regulatory plans on the territory of Tbilisi - the permission process may involve II and III stages only

The simplified permit procedure may involve just two stages and the permit is issued in the second stage.

The terms for the simplified procedure are as follows:

Stage I - 12 days for II and III class buildings

15 days for all IV and V class buildings, for Gudauri, Bakuriani, Bakhmaro, Ureki-Shekvetili recreation territories and for special regulatory zones on the territory of Borjomi, also for all buildings that require ecological expertise.

Stage II (issue of permit) - 20 days for all classes

Permission fees

The municipal organs determine the permission fees though the maximum limits are envisaged by the Law:

For all territory of Georgia - 1 (one) GEL (USD 0.4) p/m 2 of construction territory

For construction of industrial buildings - 5 (five) GEL (USD 2.2) p/m2 of construction territory

Exceptions:

Investors seeking the construction of hotels in free tourism zones and investing not less than 1,000,000 (one million) GEL (USD 440,494) per each hotel are exempted from paying the permission fee.

APPENDIXPRIMARY INFORMATION

SOURCES, DATA USED FOR

THE STUDY, DEFINITION AND

ASSUMPTIONS


Primary Information SourcesIn the process of preparing the research, we were guided by the information provided by property managers, owners, developers, governmental institutions (The National Agency of Public Registry, the National Statistics Office of Georgia, the National Bank of Georgia, the Ministry of Economy and Sustainable Development of Georgia, City Halls). Information from Colliers International EMEA office was used for benchmarking. The following web-portals is also used:

www.geostat.ge

www.nbg.ge

www.gnta.ge

www.tas.ge

www.worldbank.com

www.cia.gov

Definition and Assumptions DCFTA: Deep and Comprehensive Free Trade Agreement

EMEA: Europe, Middle East and Africa

FDI: Foreign Direct Investment

IMF: International Monetary Fund

GDP: Gross Domestic Product

GEL: Georgian Lari

GLA: Gross leasable area

m2: Square metre

USD: The United States Dollar

VAT: Value Added Tax

y-o-y: year over year

RHS: Right Hand Side

LHS: Left Hand Side

Modern Shopping Centres: The term used in this report - ‘Modern Shopping Centres’ coincides the term ‘Traditional Shopping Centre’, defined by the International Council of Shopping Centre.

Gross Leasable Area of Bazaars: Gross Leasable Area of bazaars is calculated using GIS program by measuring floorspace on cadastral maps and deducting 10%.

Gross Leasable Area of Street Retail: Gross Leasable Area of street retail is calculated using GIS program by measuring ground floor space on cadastral map and deducting 60%.

Gross Leasable Area of Shopping Centres: Gross Leasable Area of shopping centres is calculated based on information provided by property managers, developers and owners, as well as by the National Agency of Public Registry. Shopping centre Karvasla comprises only 0 and 1 levels of the property.

Retail floorspace by categories: Retail floorspace by categories was calculated

based on the information obtained from the National Agency of Public Registry. In those cases, where the mentioned information was not available, we were guided by the information provided by GREMIC (Georgian Real Estate and Investments Management Company).

The Weighted Average Rent: Are calculated based on registered lease transactions in the National Agency of Public Registry, unless otherwise indicated, and weighted by the space. All rents are calculated in USD /m2 per month net of VAT and service charges. Turnover based rents are calculated according to the information provided by retailers and/or property managers.

Vacancy rate: is calculated as ratio of total vacant stock to total stock within the specified area.

Prime Rent: Prime Headline Rent represents the top open-market tier of rent that could be expected to be paid by an in-line tenant in a shopping centre for a unit of standard size commensurate with demand (typically 250 m²), of the highest quality and specification (Grade A) in the best shopping centre in the market at the survey date. Prime Headline Rent should reflect the level at which relevant transactions are being completed in the market at the time but need not be exactly identical to any of them, particularly if deal flow is very limited or made up of unusual one-off deals. If there are no relevant transactions during the survey period, the quoted figure will be more hypothetical, based on expert opinion of market conditions, but the same criteria on building size and specification will still apply. The rent should be quoted excluding service charges and taxes, and should not reflect tenant incentives.

Prime Yield: The yield an investor is prepared to pay to buy a Grade A building, fully-let to high quality tenants at an open market rental value in a prime shopping centre. Lease terms should be commensurate with the market e.g. typically 5 years +. The size of the building should also be commensurate with the local market. Gross Yield is considered in calculations. Gross Yeld = First years' passing rent (i.e. net effective rent) / Property Price (irrespective of transaction costs).

High Streets in Tbilisi: Pekini Avenue, Rustaveli Avenue, Chavchavadze Avenue and Aghmashenebeli Avenue with Marjanishvili Street are considered as high streets.

Secondary Streets in Tbilisi: Paliashvili Street, Abashidze Street, Kostava Street, Vazha-Pshavela Avenue, Kazbegi Avenue, Tsereteli Avenue, Tamar Mephe Street, Tsabadze Street, Leselidze Street, Pushkini Street , surrounding of Akhmeteli Metro Station and surrounding of Varketili Metro Station are considered as secondary streets.

Street Retail in Batumi: Chavchavadze Avenue, Pushkini Street, Gorgiladze Street, Streets located in historical part of Batumi and retail space adjacent to Hilton Batumi are considered in Batumi street retail figures.

Street Retail in Kutaisi: Chavchavadze Avenue, Gamsakhurdia Street, Rustaveli Street and Streets located in historical part of Kutaisi are considered in Kutaisi street retail figures.

http://www.geostat.ge/

http://www.nbg.ge/

http://www.gnta.ge/

http://www.tas.ge/

http://www.worldbank.com/

http://www.cia.gov/

Disclaimer

This document has been prepared by Colliers International for general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/or its licensor(s). ©2016. All rights reserved.


Project Team

Mariam BenashviliResearch AnalystGeorgia

Mark CharltonHead of Research & ForecastingUnited Kingdom

Zurab KananashviliHead of Valuation & AdvisoryGeorgia

Nikoloz Kevkhishvili MRICS

Manager | Valuation & AdvisoryGeorgia

Ramaz SharabidzeTeam Leader | Research & ForecastingGeorgia

Eliso BurkishviliJunior Research AnalystGeorgia

Project Team


554OFFICES

66COUNTRIES

6CONTINENTS

16,000EMPLOYEES

$2.5BN REVENUE

$112BN TOTAL TRANSACTION VALUE

185mSQUARE METERS MANAGED

>80,000LEASE/SALE TRANSACTIONS

United States 153

Canada 31

Latin America 24

Asia-Pacific 231

EMEA 112

COLLIERS GLOBAL STATS AT A GLANCE

22PROFESSIONALS

53PROJECTS COMPLETED

$1.5BILLION SALES GENERATED

9,500VALUATIONS CONDUCTED

15YEARS IN INDUSTRY

2.7MILLION SQUARE METERS DEVELOPED

$310MILLION FUNDS RAISED

150MARKET & ADVISORY REPORTS

We cover 10 Regional Centers and 59 Municipalites in Georgia

CONTACT DETAILS

DIR +995 32 222 4477

FAX +995 32 222 4477

37/39 Kostava Street

Grato Business Centre

0179 Tbilisi Georgia

www.colliers.com/georgia

AZERBAIJAN

RUSSIA

ARMENIATURKEY

BLACK

SEA

TEAM GEORGIA AT A GLANCE

Documents

RETAIL MARKET REPORT GEORGIA | 2015 · 2016. 10. 24. · Colliers Global Stats at a Glance 31 Team Georgia at a Glance 32. Executive summary Retail trade represents one of the largest