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Airbnb Accounts for 11% of Accommodation Market in Tbilisi

Airbnb supply increased 2.5x in Tbilisi over 2016-2018. Market is already oversupplied, but still continues growing – a classic case of market overreaction.

Notably, 64% of properties do not get booked at all while average monthly supplied rentals was up 62.8% y/y in 2018.

Oversupply is evident when compared to peers – supplied rentals in Tbilisi (12,403 rentals in Feb-19) only slightly below Istanbul and way above rest of peers.

We expect low performing properties to gradually leave the market and supplied rentals to be concentrated in Old Tbilisi mostly.

Despite demand growth outpacing supply growth, occupancy rates were up only slightly due to existing oversupply:

Total demand nearly doubled in 2018 (+97.3% y/y, 562,320 rental/nights booked).

Demand growth (+97.3% y/y) outpaced supply growth (62.8% y/y) in 2018 but was insufficient to absorb massive offerings on Airbnb.

As a result median occupancy was up slightly – 3.6ppts y/y to 48.4% in 2018.

Airbnb is a high-yielding investment for certain properties, incentivizing real estate owners to rent flat on Airbnb instead of long-term renting. However, median Airbnb yields are similar to long-term renting.

Airbnb stock is mostly concentrated in the Old Tbilisi, which never was hotspot for long-term renting. Therefore, there is no sign of long-term rent price spikes in Tbilisi due to Airbnb.

Emergence of multiple listing hosts indicates that buying or renting flats for sub-renting has become a successful business model in Tbilisi, as professional management improves performance of the properties.

Survival of the fittest – we believe, share of multiple listing hosts will increase in the future – share of multiple listing hosts in Tbilisi stands at 46% vs 58% peer average.

Key findings and expectations on Airbnb in Tbilisi

Question 1: Is Airbnb profitable for hosts?

It is. Top performing properties enjoy much higher yields compared to long-term renting, while yields of median Airbnb properties tend to be similar to longterm renting business.

Top performers on Airbnb expected to enjoy higher yields in the future in our view. However, part of median (or below) properties expected to gradually leave the market, because of similar (or lower) yields compared to long-term renting business.

Question 2: How Airbnb affects long-term rental rates?

There is no sign of long-term rent price spikes in Tbilisi.

Airbnb stock is mostly concentrated in the Old Tbilisi, which never was hotspot for long-term renting business.

Question 3: Is Airbnb price competitive with hotel industry?

Airbnb mostly competes with local midscale/economy/budget class hotels, offering lower prices to tourists.
We believe that Airbnb has largely been complementary to the hotel industry lacking budget accommodation. Airbnb benefits market and adds value to the tourism industry.

Question 4: Will Airbnb’s market share increase?

It will. Tbilisi Airbnb accounts 11% of market share, similar to peers, which have strict regulations and are more price competitive with hotel industry.

Taking into account tourism boom to continue in Georgia there is room for Airbnb growth in Tbilisi. This segment expected to gain maximum of 20% of the market size over next 5 years on the back of low yielding visitors.

Galt and Taggart