Issue 1, 2013. February-March



A rise in consumer confidence in the real estate sector and profitability has developers cautiously optimistic about 2013. But can they meet the market's real demands?

Maia Edilashvili

Recent statistics indicate that Georgia's real estate market is rebounding: in 2011, the turnover of the construction sector jumped to 3.3 billion lari (approximately $2 billion) from 1.7 billion lari (approximately $1.03 billion) in 2010.

As the real estate market showed turnaround, investors' interest increased as well: in 2010, the country's real estate sector was the fourth sector after transport and communications, industrial and financial sectors. In 2011, real estate sector outpaced all the other sectors and topped the list with $ 224.8 million.

"The best time for our sales was between 2006 and 2008, when we would deliver around four completed projects annually; but the recovery is already in sight and we see profit, a minor one, but still profit," says Lasha Gelashvili, technical manager at Kid Architecture, a developer company which has been on the market since 1998.

Currently, Kid Architecture is about to finish a 54-apartment residential block on Saburtalo District's Nutsubidze Street, the first block of its single project after the crisis - launched in November 2011. In total, eight 12-storey blocks are planned under this project.

"We have carried out approximately 25 projects in total, mostly in the housing sector," Gelashvili told, noting that sales had dropped to an 1/8th of its pre-financial crisis level. "But it's speeding up again. In this block we have already sold 90 percent of the apartments."

7 Sky, another Georgian developer company, was forced to temporarily close in 2008 and was only able to resume work in November of 2010. "We even could not dream of profit just couple of years ago. Our only goal was just to cover the debts. Though, we can say that we have already survived," Anzor Odikadze, the company's director, said.

According to Odikadze, the Kavtaradze Block was the first project they have completed since the crisis. Out of 21 thousand square meters, just 2,500 square meters have not yet been sold.

"People still had fears leftover from the crisis that, even if they would pay the cost, the company would fail to deliver the apartment; so they have refused to buy anything until the block has been fully completed," he said. "Since its completion we sell around four apartments per month."

The crisis has not, however, made an impact on costs. One square meter of a completed facility costs up to $600 in Tbilisi suburbs, between $700 and $850 in Saburtalo and, in high end Mtatsminda and Vake, ranges between $1,000 and $1,800.

Like the housing sector, commercial office construction is also growing.

Tinatin Kapanadze, sales manager at Ideco, a developer company which completed Opera Residence -- a residential house with commercial space in Mtatsminda district in the summer of 2012 -- noted demand is up.

"Starting from the second half of 2012, we see increased interest from customers. Currently 40 percent of 550 square meter space which is 15 offices in total has been already rented.," she said.

Both local and international customers, according to Kapanadze, have shown interest in renting offices. "To be more accurate, the demand has increased for A class segment," she said. "The country's A-class market clearly has problems and the situation is improving at a slow pace."

In Tbilisi, the total vacancy rate for modern offices currently stands at 13 percent, according to a December 2012 report on the real estate sector prepared by Jones Lang LaSalle, a US-based commercial real estate services provider, the consulting company IPM Georgia, and Tbilisi Municipality.

However, vacancy rates differ depending on the neighborhood: the highest vacancy rate is in Vake-Vera at 30 percent; and in the developing area around Davit Agmashenebeli Avenue, on the outskirts of Tbilisi, vacancy is close to zero.

The report notes that, with limited supply added to the market in 2012 - a total of 9,000 square meter, the average rent is expected to stay stable in the short-term. In 2013, however, an estimated 34,771 square meters of space is due to be finished, which could end up lowering rents.

The Jones Lang LaSalle study found that, with 13,571 square meter space scheduled for delivery in Vake-Vera, the vacancy rate will further increase. "The pipeline is very limited in Davit [Agmashenebeli Avenue] and it is in this district where the best opportunities can be found for new office developments," the report stated.

There are opportunities in other neighborhoods, as well, based on Kapanadze's experience: the Opera Residence has 65 apartments and, to date, half have been sold. "I think that the supply on the housing segment, as well as in the commercial one, meets the demand," she concluded.