Retail Property Market Overview By Cushman & Wakefield | Veritas Brown
Cushman & Wakefield | Veritas Brown is a leader Real Estate consultancy company in Georgia. Georgia Today met with Leah Rusia Beselidze, Head of Consultancy Services of the company about the retail property market.
Q: Please give us a general overview of the retail property market in Georgia.
A: On behalf of Cushman & Wakefield | Veritas Brown I can say that to assess the retail market of the country we normally look at two factors, allowing us to form a general overview of this real estate sector. Firstly, occupier demand, which has been relatively healthy in the first half of 2015 resulting in an improving tenant mix within the prime shopping centers and high street destinations. Apart from the local newly established DIY (do it yourself) brand, DOMINO, which has agreed to occupy 11,700 m2 in East Point Shopping Center, international retailers have been the main drivers of demand, with the F&B (food and beverage) and value to mid-range fashion sectors being the most active. Ahead of the summer season, the market has witnessed positive activity with a number of new lettings and new entrants: the entry of Turkish fashion brand “DEFACTO” renting 600 m2 in Tbilisi Mall and 1,085 m2 in East Point; Weekend Max Mara opened a 150 m2 high street store on Chavchavadze Avenue; and Wissol Group continues its aggressive expansion plan with five Dunkin Donuts and four Wendy’s restaurants already operational.
The second factor that we normally assess is the supply of quality real estate on the market and the rental values. In this respect we still see some prime units available in the best performing retail projects and high street locations, presenting good opportunities for new retail occupiers looking to establish a presence on the market. Prime rental values saw downward pressure in the second quarter compared to the beginning of the year, with many retailers re-negotiating lease terms based on the currency devaluation.
Supply is still limited with no new openings in the first half of 2015, which, for the time being, has ensured that vacancy rates remain stable in shopping centers, and increased slightly on the high street. However, construction activity is quite high, with East Point Shopping Center, comprising 72,000 m2 GLA, due to open by the end of the year. Pre-leasing in the project has been largely successful, although flooding the market with such a large quantity of retail space may turn out to have a further negative impact on rental values in the city.
Q: How does the economic situation in Georgia affect the retail real estate market of the country?
A: The geopolitical unrest in the region, combined with falling oil prices and the subsequent economic shocks, have had a negative impact on the retail sector. The currency instability and ongoing devaluation of the Georgian Lari is putting significant pressure on retailers that sell international brands, as it erodes profit margins and heightens uncertainty.
According to the National Statistics Office of Georgia the total retail turnover still registered a growth of 8% in 2014 compared to 2013, however, is significantly lower compared to the average over the last 5 years of 26%. The first quarter of 2015 has also been showing healthy signs of retail trade increasing by 13% year-on-year. That said, retailers are generally pessimistic about their sales performance for the last quarter, Q2 2015.
Q: How does the lack of economic growth affect the retail market demand?
A: Although generally still relatively healthy, conditions are deteriorating slightly, with rents even in top locations starting to come under downward pressure. The main reason behind this, given current supply, is the Georgian Lari devaluation against the US $, which is still the primary currency in real estate transactions. Similar downward pressure is also evident in respect of retailers’ turnovers and as a result there is a decline in occupier demand. Prime locations, where traditionally there have been several candidates competing for one property, are now seeing fewer interested parties and as a consequence fewer transactions are taking place.
Q: Is it reflected in the level of investment as well?
A: The investment market remained quiet in the first quarter of the year, with the Georgian Co-investment Fund being the only party pushing investment towards retail centers. No actual transactions took place.
According to “Niba Delisi’s” developer the due diligence process for the mixed-use project has been completed and is in the pipeline for investment.
The acquisition of the former “Tbilisi Univermaghi” building on Freedom Square by the same Georgian Co-investment Fund in Q2 2015 marked the return of investment to the retail market. The deal ensures total investment of $70m in the reconstruction of the 22,000 m2 shopping center, which has been on hold for years. This shows that the only parties still active in the retail development market in Tbilisi are local investment funds and developers. However, according to the Agency team of CW|VB there are some more deals in the pipeline, but the negotiation period is longer and none of these are expected to be finalized until Q4, 2015.
Q: What are your projections for the end of the year?
A: Despite tentative signs of retail sales growth, the high street market remains under pressure and prime rents may decline slightly in the second half of the year, although they are likely to hold firm for shopping centers and retail parks. With the development pipeline healthy, occupier demand will continue to be driven by large retail chains and the F&B sector. Distressed schemes, however, and those with potential for extension will remain the main target for investors. Hence, the activity in the investment market is expected to improve by the end of the year on the back of large transactions in the pipeline.
Eka Karsaulidze
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