Offices

1.

Updated: September 22, 2020

Modern Business Centres

In H1 2020, the weighted average rent fell in unclassified business centres by 4%, amounting to USD 13.8 per square metre. The figure reduced by 2% in Class A business centres equalling to USD 22.2, a 1% decrease has seen Class B standing at USD 14.3 per square meter, while in Class C the figure remained unchanged at USD 11.3.

As of H1 2020, the weighted average rent in modern business centres stands at USD 14.4.

Weighted Average Rent in Modern Business Centres by Class (USD, sqm, net of VAT), H2 2019-H1 2020
H2 2019
H1 2020

As of the first half of 2020, the vacancy rate in Class A and Class C modern business centres decreased, mostly during the pre-pandemic period.

Class A remains with the highest vacancy rate at 21.5%, followed by Class C at 16.5%, Class B at 14%, and the rate for unclassified business centres stands at 7.2%.

The overall vacancy rate of modern business centres accounted for 13.6%, reducing by 0.1% when compared to the previous period.

Vacancy Rate in Modern Business Centres by Class (%), H2 2019-H1 2020
H2 2019
H1 2020

2.

Updated: May 4, 2020

Potential Relocation of Tenants

Professional Services, the Financial Sector, Construction, and Retail account for 60% of business centers’ tenant mix. Professional Services and the Financial Sector are partially exposed to the risks posed by the pandemic. In other words, the crisis will negatively impact a significant number of business centers.

Exposed Tenants by Class and Potential Relocation
Very exposed
Exposed but not all
Some parts exposed, some parts fine (50/50)
Neutral / Limited impact
Should be more positive than negative
Source: Colliers

3.

Updated: May 4, 2020

While communicating with tenants and tenants of business centers, we see the trend of relocations and revision of rental prices. We think that bilateral movements are expected:

Tenants who are less affected by this crisis are mainly concentrated in B and lower-class office centers. it is expected that these businesses will migrate to higher classes but under the old lease terms.

And tenants which are in the exposed zones are expected to relocate to lower classes or to individual spaces.

Tenant mix distribution by category in A, B & C class business centers, 2019
Exposed but not all
Some parts exposed, some parts fine (50/50)
Neutral / Limited impact
Should be more positive than negative
Other
Source: Colliers

4.

Updated: May 4, 2020

During the isolation stage, bargaining power will shift from landlords to tenants. Tenants will gain an opportunity to review their contract terms, specifically long-term agreements. Presumably, rent prices and areas occupied will be reduced as a result of this process.

5.

The number of remote workers and demand for flexible workspaces will soar. It is less likely that tenants will rent new spaces. Unless a cure for COVID-19 arrives soon, we will probably witness the relocation of tenants from business centers to street retail, and the decentralization of offices in preference of co-working spaces.

6.

Although co-working spaces will face some challenges in the short-term period, new health & safety solutions can be found by rearranging and isolating workspaces. Flexible contract terms (the rental period, area and price of a contract) might result in a competitive edge for co-working spaces.

7.

Updated: May 4, 2020

It is likely the future supply pipeline of business centers’ and their distribution in upcoming years will change. The supply of A & B class business centers was to increase by 50.8 K sqm in 2020. A big portion of that supply was concentrated on Chavchavadze Ave.

Future supply – Area of A, B, C class business centers in Tbilisi (m²), 2020-2022
Source: Colliers

Expectations and Opportunities

Business centers and their owners will need to be prepared for the reopening of offices by ensuring infrastructural health & safety practices in their spaces.
Keeping distance is becoming a primary objective, especially in offices with open planning. Regulations addressing the area per person ratios could be introduced to ensure the personal safety of the workforce.
In the short-term, opportunities for negotiating contract terms will appear for those with long-term contracts. In this critical period, landlords are advised to meet their tenants’ requests and review existing contract terms in order to keep the centers occupied.
According to international forecasts, even in case of an extension of light quarantine, decentralized workspaces and isolated areas will become preferable to centralized offices where all the workers share the same space. There is a chance that demand will appear for workspaces located close to residential buildings and street retail properties, seeing new opportunities for office development appearing.
The trend of integrating technological solutions- such as remote services, cleaning and disinfection by robots, low touch infrastructure, virtual tours, etc. -will be on the rise. The majority of these costs will have to be carried by business center owners. Gaining a competitive edge on the market will depend on these factors being taken into account.