The second quarter of 2015 has seen more positive climate on the Georgian office market, and the second part of 2015 is expected to be more active. The issues covering Office Market in Georgia we have discussed with Director of International Desk at Cushman & Wakefield | Veritas Brown company, Giorgi Japaridze.
– How would you evaluate the office market in Tbilisi?
– On behalf of Cushman & Wakefield | Veritas Brown company, I can say that the second quarter of 2015 saw a more positive climate on the Georgian office market. Occupational activity levels were reasonably high, although some large transactions skewed the results. Nevertheless, as there are clear signs of more activity mainly fuelled by relocations and deal renegotiations, this should translate into somewhat healthier – although still subdued – take-up volumes over the remainder of the year.
There are a couple of small projects that are in a completion stage and will be delivered to the market shortly. Due to the lack of quality office supply the market is mainly active in deal renegotiations rather than relocations. A and B+ class stock is rather short and for this reason most of the well-known international brands prefer not to relocate.
The market continues to suffer from the exchange rate fluctuation, hence with the country’s economy and the real estate market being highly dollarized, the prime rents in Tbilisi as well as the in whole of Georgia came under a downwards pressure over the last period of time.
Keeping in mind above mentioned, the large players like Axis, Redix Group, Meidan Group and others are still constructing new and renovating old properties as office centers.
We are waiting for another 10,000 to 15,000 square meters of quality office space to be constructed and delivered to the market in the nearest future. It is obviously a positive sign that will give our occupiers more choices to relocate.
– Which specific districts are mostly, favored as office space and why?
– It depends what segment of occupiers are we talking about. Obviously most of the International representative offices prefer to lease spaces in central Tbilisi. Areas like Freedom Square, Rustaveli Ave. and Meidan Square are highly demanded, although the supply is very limited and most of the current business centers located in these areas need major refurbishment works to be performed.
On the other hand, local companies and medium-sized businesses mainly stay price-oriented and prefer to rent office spaces in Saburtalo, Avlabari and Chugureti districts.
– Could you give us general overview of current occupier demand in Tbilisi?
– Occupier activity was characterised by increasing levels of activity in Q2, however many adopted a wait-and-see approach. A few deals concluded and the ones of note were the securing of 600 square meters by Oriflame in Meidan Group’s Business Center on Agmashenebeli, and the new entry of European Investment Bank occupying 150 sq.m in Tabidze 1.
On the supply side, there were limited new or refurbished schemes delivered in the second quarter, with only 1,400 square meters added to the office stock corresponding to the business center on Pekini Str. Occupancy levels were relatively stable over the quarter supported by demand rising from the Q1 figures, as well as limited new speculative deliveries. Considering the magnitude of ongoing negotiations in the Central Business centers of Tbilisi the increasing scarcity of supply should continue in H2, until the Freedom Square and Tarkhnishvili Developments hit the market in Q4 bringing additional 10,000 sq.m leasable space to the office supply.
If we focus on the international occupiers, it is worth mentioning that most of these companies have their internal regulations as well as the international standards that new locations/business centers must foresee and meet. Unfortunately, Georgian developers rarely understand this and very often find themselves in the position when they need to invest more funds in order to meet criteria and rent the spaces to well-known and respective brands.
Features like HVAC systems; fire regulation standards, internal fit-out materials, parking lots, wiring etc. need to be precisely planned prior starting the construction.
All above mentioned is the explanation to the fact that the demand is present, although the actual transactions are very few.
– What in your opinion are investors’ interests, in this respect, for 2015?
– Levels of investor interest appear to be improving but this year is yet to transform into actual activity in the investment market. There is evidence of the renewed interest from international investors who are testing the ground and assessing opportunities.
The second part of 2015 is expected to be more active from the transaction point of view.
Hospitality, logistics and residential markets seem to be more attractive compared to the office field for potential newcomers.
The last and the most important factor is the economic stability of the country as well as the currency exchange rate stabilization.
– What are your expectations throughout the year?
– Having in mind many interesting projects, I would say not very ordinary projects that are in the pipeline of ours, I expect in the nearest future to be more active, especially in the field of hospitality. The positive vibes are here and let’s hope that more international brands as well as the investors will step in to Georgia.