Issue 4, 2019. August-September

   

COMPANIES BULLISH ON CONSTRUCTION, ALTHOUGH SOME SEE CHALLENGES ON HORIZON

The construction sector of the Georgian economy grew nearly 60 percent from 2014 to 2017, pushed by building projects in the capital and elsewhere. While many industry specialists anticipate growth to slow due to new regulations, developers are still bullish on the market's potential. Investor.ge spoke to its member companies and others involved in the sector about the construction industry's future in Georgia, the challenges it is facing and the projects they are working on today.


The single fastest growing sector in Georgia from 2014 to 2017 was construction. It continued to boom in 2018, notwithstanding a small 0.3 percent dip in 2018.

The 2019 figures for the construction sector were strong for the first two quarters of the year, although industry experts warn sales and construction may falter due to more stringent qualifications for mortgages and higher standards to qualify for building permits.

Tbilisi's boom

Tbilisi's construction boom appears to be going strong so far. Construction cranes are visible on the horizon in most neighborhoods, as new residential buildings, hotels and commercial space go up.

In Tbilisi, 43 percent of real estate sales are concentrated in Saburtalo and Vake, where 54 percent of ongoing constructions are located, according to a 2019 report by Transparency International.

A recent analysis of the housing market by TBC Bank also found that sales are healthy.

Colliers International in Georgia highlights the growing demand for hotels and other properties.

"We believe that there are healthy demand and supply fundamentals across key sectors and the real estate market is driven by demand," Colliers International said in an email interview with Investor.ge.

"The Georgian hotel market is experiencing a growing appetite and diversity of investors. International brands started to show interest in Georgian resorts. Hotels are also trying to create innovative concepts to attract new generation of travellers and follow the trends in developed markets," they said.

Colliers International sees a slight mismatch in the office space market, where supply "might be outpacing the demand."

The company's specialists believe that there may be higher levels of occupancy in Tbilisi in the next two years.

"The prospects for the Tbilisi office market still look positive as the Georgian government is focused on improving the business environment. Free trade agreements with major economies, significant tax cuts initiative for transnational companies and major infrastructural investments are aimed at transforming Georgia into the regional economic hub. If realized, these initiatives are expected to further increase the demand for office space," Colliers International said.

Shopping areas are also on the rise.

"An expansion of the City Mall Saburtalo is going to enhance the pattern of malls becoming more community-based allowing people to work, live and shop in the same neighbourhood," Colliers International said.

"Both local and international consumers expect more and more service, experience, and entertainment. As shopping centers are attracting more customers in Tbilisi, retail streets need to continue to innovate in addition to a balanced offer of retail, cafes and entertainment."

Demand for hotels, housing, commercial space

Many developers are also enthusiastic about Georgia's potential for more residential buildings, more hotels and more commercial space.

"We can see the demand is high... in eight years we are planning to build ten hotels in different regions, one of them has opened already on Kazbegi Avenue, which is occupied all the time," Nino Rukhadze, Deputy CEO and Head of Public Relations at m2 Real Estate told Investor.ge.

The company is expanding its reach in all sectors from hotels to residential buildings. New hotel projects range high end to three-star, with new brands (including the first Kempinski Hotel in Georgia) and offers across the country.

"We are trying, as in residential and also in the hospitality direction as well, we want to challenge all the directions and we want to target all the segments that are available on the market," Rukhadze said.

"We are working in different categories, for the different projects we have different offerings."

The company is also planning a new multifunction project that will be announced in the near future.

m2 Real Estate plans to triple its supply in the residential housing market in the next five or six years, Rukhadze said. "Right now we have 3000 families who have bought our apartments...and we are planning on tripling it," she noted.

MAQRO Construction also sees growing potential in Tbilisi's housing market. "At this time, MAQRO Construction is developing unique, unprecedented residential complex in Tbilisi - Green Diamond," the company said.

"The whole design reflects new, contemporary life comfort with an accent on healthy lifestyles. We successfully completed the first stage in May 2018, and the second stage exactly one year later, in May 2019. In total 975 units are already delivered and soon we are going to start 3rd stage."

MAQRO Construction is building a new hotel, the Novotel in Tbilisi, a 4-star hotel in the AccorHotels group. It will be completed in 2020.

Galleria Tbilisi


Company BLOX has started construction on a four-star Hampton by Hilton Hotel in Tbilisi's historic Avlabari area district. This will be the first Hampton hotel by Hilton in the Caucasus region and the facility will be solely owned and operated by BLOX.

Together with Hampton By Hilton, the company will also build a 23-floor residential complex "Hill Home Residence," with commercial space on the ground floor.

BLOX is also building two new residential projects in Tbilisi's Dighomi neighborhood, scheduled to start in 2019 and 2020.

Simetria is working on a hotel project in Tbilisi (Holiday Inn Express in Avlabari) and (Hotel Four Points by Sheraton) Bakuriani, a well-known resort area in central Georgia. The company is currently building a premium class residential complex in Okrokana in the capital (Simetria Park) and a residential complex near Lisi Lake in Saburtalo (Simetria Lisi).

Simetria told Investor.ge it has several other projects underway, including the full transformation of Shovi Resort in Racha, a wakeboarding park in Bobokvati (in Georgia's western Adjara), and a mixed function building (residential apartments, office center and commercial space) in Tbilisi.

BBC is currently building a medical rehabilitation center and a residential building, the company told Investor.ge.

It is in negotiations for a large project in Rustavi, as well. CMC is also working on a number of new projects in Tbilisi and other cities under a number of different roles, from project management and supervision to construction.

"Since its incorporation in Y2009 CMC has grown incredibly fast. We reached the ultimate development in civil construction sector and gained unprecedented experience by working with world renowned brands. Now we are focused on urban development, which is a larger scale of construction development and develops complete urban concepts," CMC CEO Giorgi Ioseliani told Investor.ge.

"CMC is designing urban development of the Abastumani wellness town at the present moment, in line with that we are participating in the tender for Mtskheta city upgrade. CMC participates in the above-mentioned projects with its strategic partner, bringing their know-how and extensive experience to the benefit of construction sector in Georgia."

Other projects include 11 other hotels across the country, the new headquarters for TBC Bank, and the City Mall in Saburtlo.

Focus on quality, European standards

All the companies Investor.ge spoke with emphasised the trend of better construction, better materials - and more focus on green technology.

The increased interest in meeting European standards dovetails with moves by the Tbilisi City Hall and the Georgian Parliament to strengthen standards for buildings - and for building projects before developers are granted permits.

Several companies noted that the increased regulations (including more stringent requirements for mortgage loans) could dampen sales and investment.

"New banking regulations affected the residential market in the first quarter of 2019. Tbilisi residential market saw very modest growth. In the next quarters we will see more of how different stakeholders of the real estate market adapted to the regulations," noted Colliers International in Georgia.

Developers also stressed the need to promote ecologically clean, safe and high quality buildings on the market.

m2 Real Estate's Nino Rukhadze also said the new regulations offer opportunities for companies to be more competitive on the market. "We are already looking at the regulations from an international perspective and trying to meet international standards in our building projects. So when Georgia said it needed these standards put into law, we were very happy because we have been doing that for years," she said.

"That makes us more competitive."

CMC noted that it has been working to bring trends to the Georgian market that have been developed in Europe for many years. The company noted that better practices, including producing green buildings, focusing on energy efficiency, gaining LEED / BREEAM certification, and other measures will help the market develop. "Urbanization, which has become one of priorities of the company, presents major challenges, i.e. congestion, sprawl, inefficiency, health hazards and high cost of living, just to name a few, are well known for the Georgian environment.

"But the choices we make for our cities can transform these challenges into opportunities: mobility, connectivity, economies of scale, healthier lifestyles and economic opportunity," CMC CEO Giorgi Ioseliani said.