Hospitality & Retail Market Update GEORGIA - Q1 2014

3 Rapiel Eristavi St | 4th Floor Tbilisi 0179, Georgia

Tel: (+995-32) 295-90-19 | www.TBSC.ge

Economic Update “Signing of the EU Association Agreement in June

2014 to contribute to significant economic growth”

After a significant slowdown of economic growth in the first nine months of 2013, the year ended with 3.2% real GDP growth;

GDP real growth

6,3%

7,2%

6,2%

3,2%

4,5%5,0% 5,0%

2010 2011 2012 2013 2014 2015 2016 Source: Geostat, EBRD, IMF

EBRD’s current outlook for Georgia is at 4.5% in 2014, founded by the anticipation of an acceleration of export growth as the EU and Russia continued to reopen access of Georgia. Longer-term growth forecast by IMF is 5%;

Key Economic Figures

CPI 2010 2011 2012 2013*

GDP Per Capita (current) USD 2623 3231 3523 3597

CPI 107,1 108,5 99,1 99,5

Unemployment Rate 16,3% 15,1% 15,0% -

Average Monthly Wage (GEL) 597,6 636 712,5 -

Foreign Trade Deficit (Mln USD) -3580 -4869 -5465 -4965 Source: Geostat, * estimates

Inflation was relatively stable in 2013. NBG targets

annual inflation rate of 6% in 2014. In Jan 2014 the GEL depreciated considerably, but is now slowly returning to the long-term average;

Exchange Rate (GEL/USD)

1,67

1,49

1,67

1,78

1,691,65 1,66

1,781,75

2007 2008 2009 2010 2011 2012 2013 Jan-14 Feb-14 Source: NBG

The upcoming signing of the Association Agreement with the EU in June 2014 and the increase of trade with Russia will have an important impetus to growth.

Hotel & Hospitality Market “Hotel sector igniting a new construction boom”

The tourism boom in Georgia is gradually slowing down, with growth of tourism arrivals at 22% in 2013, down from 56% in 2012;

The latest figures indicate a further slow-down of

growth (8% in Q1 2014). TBSC estimates 10-15% growth in 2014, with in total around 6 million tourist arrivals forecasted;

In Q1 2014, tourism from CEE and CIS is up 32%.

Demand from the main source country Turkey is down 22%, a decline which will impact Batumi the most.

Tourist arrivals in Georgia Q1 2014

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

CEE and CIS Rest of

Europe

Turkey AMERICAS EAST

ASIA/PACIFIC

MIDDLE EAST

Q1 2013 Q1 2014

Source: GNTA

After more than 5 years of sustained demand growth, developers are planning new hotels constructions in ever larger numbers;

Developer appetite is now concentrated on the

capital Tbilisi, where skyrocketing occupancy rates (estimated at 80% on average in 2013) are propelling growing interest. Currently, there are 8 major hotel projects under construction in Tbilisi;

Main pipeline hotels in Tbilisi

Hotel nameNumber

of roomsStars Status

Expected

openingRooms Hotel Tbilisi 150 **** Under construction Q2 2014

Best Western 42 **** Under construction Q2 2014

Ambassadori extension 80 **** Under construction Q1 2015

Millennium Hotel 220 **** Under construction Q2 2015

Park Inn by Radisson 190 **** Under construction Q3 2015

Rixos Tbilisi 180 **** Under construction Q4 2015

Hilton Garden Inn 180 **** Under construction Q2 2016

Intercontinental Tbilisi 200 **** Under construction Q2 2016 Source: TBSC Consulting

Supply

Demand

Hospitality & Retail Market Update GEORGIA - Q1 2014

3 Rapiel Eristavi St | 4th Floor Tbilisi 0179, Georgia

Tel: (+995-32) 295-90-19 | www.TBSC.ge

Two branded hotels are slated for opening in Q2 2014: Rooms Hotel Tbilisi and Best Western.

With competition concentrating in the 4-star segment, the best development opportunities can be found in other segments of the market;

International brand interest keeps growing, with

brands such as Ibis, MOXY and Extreme investigating opportunities.

Retail Market “Supermarket expansion accelerating”

Georgia remains a lower-middle income country with per capita GDP at USD 3,597 in 2013;

With around half the country’s 4.5 million population

living around the poverty line, expenses on food make up around 60% of total retail expenditures;

Modern retail is catching on however, with Carrefour

now the most popular supermarket in Tbilisi.

Total retail stock in Georgia (modern + traditional supply) remains limited with an estimated 0.2 m² per capita. Modern shopping centre stock is concentrated in Tbilisi, where it amounts to less than 200,000 m²;

The only large modern mall is Tbilisi Mall (72,000 m²

GLA), completed in 2012 and the major pipeline scheme is East Point (67,000 m² GLA), the first phase of which is slated for completion in Q3 2014;

Supermarket expansion is the major force driving

current development of the Georgian retail market, with Carrefour’s recent openings in Karvasla and GTC and Smart on Chavchavadze Av.

Total retail surface area per inhabitant (m²)

0,00

0,20

0,40

0,60

0,80

1,00

1,20

1,40

1,60

1,80

Netherlands Belgium Germany Czech Republic Georgia Source: TBSC Consulting

Supermarket chains Carrefour and Smart continue expansion and will reportedly be joined by a new competitor, SPAR, which is poised to take over the former local chain Populi;

The second most dynamic segment is fast-food,

with Subway’s recent opening on Chavchavadze and Wendy’s on Rustaveli and Chavchavadze;

Other brands preparing market entry include

leisure and hospitality formats such as National Geographic Entertainment Centres, Hard-Rock Café and Toy Store.

Trend Forecast

Supply

Demand

Trend Forecast

Tengiz Lomitashvili Managing Consultant, Partner E-mail: TengizL@TBSC.ge Teb: +995 577 410202

Martijn Kanters Associate – Real Estate, Retail & Hospitality Email: MartinK@TBSC.ge Tel: +995 555 157961

TBSC REAL ESTATE, RETAIL & HOSPITALITY

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our permanent international real estate and hospitality consultants, local experienced consultants and our strategic alliance with the world’s largest real estate services companies. This way TBSC Real Estate, Retail & Hospitality is able to provide the entire spectrum of real estate and hospitality advisory in Georgia:

Market Research and Assessments Feasibility Studies and Concept Design Development and Investment Strategies Investment Proposals and Business Plans Funding and Matchmaking Support Retail and Hospitality Management Support www.tbsc.ge