Retail & Leisure

1.

Updated: September 22, 2020

Street Retail - High Streets

In the first half of 2020, the weighted average rental rates reduced on main high streets.

The weighted average rent on Pekini Street decreased by 2% and stands at USD 34.6 per sq meter, while on Chavchavadze and Aghmashenebeli avenues declined by 1%, amounting to USD 29.5 and USD 25.5 per square metre, respectively.

The weighted average rent on Rustaveli increased by 4%, which can be defined by the exit of low-paying tenants from this avenue.

Weighted Average Rent on High Streets (USD, sq m, net of VAT), H2 2019-H1 2020
H2 2019
H1 2020

As of H1 2020, the vacancy rate significantly increased on high streets.

The vacancy rate on Aghmashenebeli Avenue increased from 10% to 19%. At the end of 2019, the figure stood at 4% on Rustaveli avenue, increasing up to 12% as of H1 2020. Pekini street also saw a prominent growth, from 3% to 9%.

Insignificant change has been recorded on Chavchavadze Avenue, as the rate stood high due to road rehabilitation works.

Vacancy Rate on High Streets (%), H2 2019-H1 2020
H2 2019
H1 2020

2.

Updated: September 22, 2020

Modern Shopping Centres

In the first half of 2020, no significant changes observed in modern shopping centres.

During the pandemic and state of emergency, shopping centre operators made temporary discounts for tenants. Moreover, in some cases, they were exempted from monthly rents.

As of H1 2020, the vacancy rate stands at 11%, which is only 1% higher than the same figure of H2 2019.

Vacancy Rate in Modern Shopping Centres (%), H2 2019-H1 2020
H2 2019
H1 2020

3.

Updated: May 4, 2020

Similarly, shopping centers are expected to suffer from a significant fall in revenues. The Fashion, Food & Beverage, and Entertainment categories, holding 45% of total leased space, will most likely experience a significant negative impact in the short term. Due to reduced demand, hyper/supermarkets within shopping malls will face a partial risk. Presumably, people will prefer small-sized local markets and grocery stores located near their residences.

Nevertheless, landlords/leasers should efficiently work to maintain occupancy. To prevent a growth in vacant spaces, they should reduce the rental rates and apply flexible payment conditions (in case of fixed rental). In the short term, tenants will avoid leaving leased areas or relocating to new spaces as these actions relate to additional capital costs.

In the mid-term, demand may rise for large-sized shopping areas and retail parks (including so-called outlet villages), which will be comprised of isolated commercial units. Also, discussion will open on the relocation of children’s entertainment centers to open spaces.

In the short term, street retail is forecast to experience a significant loss of turnover. The leading categories in the Tbilisi high street tenant mix are service, cafés-restaurants, fashion, and health & beauty. Most likely, the isolation period will negatively impact these categories, of which the most exposed tenants are café-restaurants and fashion retailers, holding 33% of the total mix.

Tenant Mix on High Streets in Tbilisi (%), 2019 Q1
Very exposed
Exposed but not all
Some parts exposed, some parts fine (50/50)
Neutral / Limited impact
Should be a largery positive outcome
Other
Source: Colliers

4.

Updated: May 4, 2020

Similarly, shopping centers are expected to suffer from a significant fall in revenues. The Fashion, Food & Beverage, and Entertainment categories, holding 45% of total leased space, will most likely experience a significant negative impact in the short term. Due to reduced demand, hyper/supermarkets within shopping malls will face a partial risk. Presumably, people will prefer small-sized local markets and grocery stores located near their residences.

Nevertheless, landlords/leasers should efficiently work to maintain occupancy. To prevent a growth in vacant spaces, they should reduce the rental rates and apply flexible payment conditions (in case of fixed rental). In the short term, tenants will avoid leaving leased areas or relocating to new spaces as these actions relate to additional capital costs.

In the mid-term, demand may rise for large-sized shopping areas and retail parks (including so-called outlet villages), which will be comprised of isolated commercial units. Also, discussion will open on the relocation of children’s entertainment centers to open spaces.

Tenant Mix on Tbilisi Shopping Centers (%), 2019
Very exposed
Exposed but not all
Some parts exposed, some parts fine (50/50)
Should be more positive than negative
Other
Source: Colliers

5.

Tenants operating in shopping centers, as well as street retailers, will gain a stronger negotiation position. It can be assumed that the current business model will change, and the concept of fixed payment will be partially eliminated, with rental rates becoming turnover-based. This will protect tenants from the currency fluctuation, as most rental agreements are in US dollars (equivalent in GEL), and unpredictable demand levels.

In the mid-term, food and grocery stores will benefit most. Increased demand will be maintained for local markets and small retailers that can provide people with products of primary need in the immediate area.

6.

The Fitness sector faces a significant negative impact. The demand for fitness services, even in a period of light isolation, will dramatically drop and/or become equal to zero due to the recommendations from healthcare institutions.

Before a cure for COVID-19 is found, demand will increase for public and open recreational spaces, as well as for parks and urban forests, where the possibility for social distancing is high.

7.

The demand for e-commerce and delivery services increased during the isolation period. It is highly likely that grocery and household retailers will start investing in this sector. However, it is apparent that technology and infrastructure is significantly underdeveloped compared to that in mature economies. Therefore, switching to e-commerce will be a significant challenge for the retail sector in the short and mid-term.

Expectations and opportunities

Development of online shopping in the short and mid-term will help retailers to reduce losses, and investing in this direction may be justified. However, the development of e-commerce services in Georgia remains a challenge.
It is likely that the current business model will change, and the concept of fixed payment will partially and temporarily disappear. In order to keep tenants, landlords should work towards establishing more flexible lease terms and fixing rental rates to turnover.
The vacancy rate of street retail is expected to increase if the lockdown is extended. The social distancing culture will likely be maintained, and, therefore, there will be a demand to work in isolated spaces. Some part of vacating street retail spaces city-wide, and offering those spaces as flexible co-working areas, is a possible solution for this purpose.
Fitness operators have the opportunity to move to open spaces. With the support of the municipality and the relevant infrastructure, fitness operators can partially shift their activities to open areas.