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.
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