Hotel Market in Georgia | 2019 - PREPARED FOR

 
Hotel Market in Georgia | 2019 - PREPARED FOR
Hotel Market
in Georgia | 2019
PREPARED FOR:

                    Photo: Sheraton Grand Tbilisi Metekhi Palace
Hotel Market in Georgia | 2019 - PREPARED FOR
Photo: Radisson Blu Iveria Hotel Tbilisi

CONTENTS

 Executive Summary                         3   Appendix 1 - Real Estate Registration          90
                                               and Construction Permits
 Country Profile                           4
                                               Appendix 2 - Primary Information Sources,
 International Rankings                    6   data used for the study and definitions        94

 Economic Overview                        7    Disclaimer                                     96

 Tourism Overview                         14   Project Team                                   97

 Tbilisi Hotel Market Overview            26   Colliers Global Stats at a Glance              98

 Batumi Hotel Market Overview             39

 Kutaisi Hotel Market Overview            52

 Seaside Resorts Hotel Market Overview    57

 Mountain Resorts Hotel Market Overview   64

 Spa and Wellness Hotel Market Overview   78

 Destination Hotel Market Overview        86

 Conclusions                              89

Colliers International Georgia                                                                      2
Hotel Market in Georgia | 2019 - PREPARED FOR
EXECUTIVE SUMMARY

   Tourism                                                  In 2019, Batumi International Hotels Performed
                                                            Well
   In 2019, the number of Georgia’s international
   inbound travelers grew by 7% year-over-year from         The occupancy rate for Batumi’s internationally-
   7.2 million to 7.6 million. Tourist arrivals increased   branded hotels has maintained its stability at 65%,
   by 7% from 2018 to 2019, reaching 5.1 million            while the figure in local upscale and middle-class
   visitors.                                                hotels declined by 7%. RevPAR in local upscale
                                                            and midscale hotels remained stable at USD 27,
   Hotel Supply Trend
                                                            while the figure in international hotels has merely
   The hotel industry in Georgia comprises                  decreased by 2.6%. The ADR at internationally
   approximately 33,460 rooms. The supply is                branded hotels decreased slightly by 3%. In
   expected to increase roughly by 7K new rooms by          contrast, the ADR at local upscale and middle-class
   2024.                                                    hotels grew by 14% .
   Tbilisi and Batumi – Main Suppliers of Hotel Rooms       Overall, the occupancy rates at Tbilisi’s hotels
                                                            decreased across all classes in 2019. International
   The supply of Tbilisi and Batumi hotel rooms has
                                                            and local upscale &midscale hotels held an
   increased significantly during the past few years. In
                                                            occupancy rate of 62%. The ADR and RevPAR in all
   2019, the total number of hotel rooms in Tbilisi
                                                            segments dramatically declined compared to 2018.
   increased by 23%, amounting to 12,430 units.
   Batumi’s supply rose to 6,341 rooms, reflecting a        Spa and destination resort hotels are characterised
   13% increase. Taking the pipeline into                   with their high-performance indicators. The total
   consideration, these two cities will remain              occupancy rate at spa resorts was 49% in 2019,
   Georgia’s top suppliers over the next five years.        while that of destination hotels was 57%. The ADR
                                                            at spa resorts stands at USD 68, while the same
   International Operators Continue to Expand in
                                                            figure at destination hotels amounts to USD 85.
   Georgia
                                                            Georgian ski resorts have hosted more than
   Substantial growth of the Georgian hotel market is
                                                            550,000 visitors during the 2017-2018 winter
   expected during the next few years. Several major
                                                            season. Among other ski resorts, Mestia hotels
   international brands will open hotels in not only
                                                            recorded the highest occupancy rate (48%) in 2019.
   Tbilisi and Batumi, but also in Kutaisi, and Georgia’s
                                                            While Gudauri has the highest ADR at USD 83. Ski
   seaside and mountain resorts. The first
                                                            resorts are characterised by increasing
   internationally-known midscale brand, Best
                                                            competitiveness of the Airbnb market, reflected in
   Western, already opened a 45-room hotel in
                                                            the substantial growth of its revenue.
   Kutaisi. Another international brand, Ramada
   Encore, is expected to open a hotel in Kutaisi in
   2021, adding another 124 rooms.
   Internationally-branded hotels have not entered
   Batumi’s hotel market since 2017. But the number
   of international hotel rooms is expected to grow
   by 1,600 units by 2024.
   Today, internationally-branded hotel rooms
   represent 21% of Tbilisi’s total supply. There are 18
   international hotels in the current pipeline with a
   total investment volume of approximately USD 700
   million.

                                                                                       Photo: The Biltmore Hotel Tbilisi

Colliers International Georgia                                                                                      3
Hotel Market in Georgia | 2019 - PREPARED FOR
COUNTRY PROFILE

Background
At the crossroads of Europe and Asia, Georgia              POPULATION                           AREA
borders Turkey, Armenia, Azerbaijan, and Russia. The

                                                           3.7mln                               69.7K km
country occupies an area of 69,700 square kilometers
(sq km) and is home to a population of 3.7 million                                                                     2
people. The country’s land borders run a length of
1,839 kilometers (km), while the Black sea coastline is
315 km.                                                     CAPITAL CITY OF GEORGIA                    TBILISI
During last two decades, Georgia has implemented            OFFICIAL LANGUAGE                          GEORGIAN
large-scale reforms that have led to political and
economic transformation. It has strengthened its            CURRENCY                                   GEORGIAN LARI (GEL)
democracy and furthered its relationship with the           GDP PER CAPITA, 2019*                      USD 4,763
European Union (EU). The Association Agreement
with EU was signed and ratified in 2014. Georgia has        REAL GDP GROWTH RATE, 2019                 5.1%
also made business development within the country a
                                                            UNEMPLOYMENT RATE, 2019                    11.6%
top priority through encouraging entrepreneurship,
attracting private investments, and shifting tax            AVERAGE MONTHLY SALARY, 2019*              USD 567.9
incentives, thereby positioning itself as an attractive
                                                            LIFE EXPECTANCY, 2018                      74 years
option to the international business world.
                                                           Source: Geostat (preliminary data)
With its unique cultural heritage and exuberant
hospitality, Georgia’s tourism industry continues to
grow and thrive, further bolstering economic growth.

Government
Georgia is a parliamentary republic. Parliamentary
elections are held every four years. In 2018, Georgia’s
parliament relocated to Tbilisi from Kutaisi. It acts as
the representative body for the country, exercising
legislative power and developing domestic and
foreign policy. As an executive council of government
ministers, Georgia’s cabinet is headed by Giorgi
Gakharia, a member of the majority ‘Georgian Dream
Party.’ Based on accountability, citizen participation,
technology, and innovation as its guiding values,
today’s government continues to make European and
Euro-Atlantic integration a primary strategic
objective.

 Colliers International Georgia                                                                                    4
Hotel Market in Georgia | 2019 - PREPARED FOR
Legal Framework                                             Tax Climate
The Georgian Constitution, adopted in 1995, lays out        To stimulate investments and boost economic
the structure of the national government and defines        growth, developing an attractive tax system is one of
its authority and function. Georgia’s court system has      the main goals of the Georgian government. With
three branches: the Courts of First Instance (District or   only six flat-rate taxes (Personal Income Tax – 20%,
City Courts), the Appellate Courts, and the Supreme         VAT – 18%, Profit Tax – 15%, Import Tax – 0%, 5%, or
Court. The Courts of First Instance have jurisdiction       12%, Excise Tax – on a few selected goods, and
over all civil, criminal, and administrative cases.         Property Tax – up to 1%) and the Estonian tax model
Decisions from the Courts of First Instance may be          implemented in 2017 that exempts undistributed
appealed at the Appellate Courts and further                earnings from profit tax, has made Georgia one of
appealed at the Supreme Court.                              the most competitive places to invest in. Georgia’s
                                                            liberal trade regimes include: “Double Taxation
As an alternative to litigation, Georgian laws allow        Avoidance” 56 countries and the DCFTA with the EU
arbitration both in local as well as international          (since 2014).
arbitration institutions. Georgia is a member of the
International Centre for Settlement of Investment           In January 2019, a new pension fund system was
Disputes (ICSID). The Public Service Hall in Georgia        launched in Georgia that is compulsory for every
provides customers with state services, including           hired person under the age of 40. For self-employed
business registration and property registration             people and those above the age of 40, engagement
through the ‘one-stop-shop’ principle that ensures          in the system is optional. The methodology of the
efficient service delivery.                                 reform is a 2+2+2 scheme, meaning that employer,
                                                            employee, and government transfer 2% of the gross
                                                            volume of the employee’s income on a personal
                                                            account.

 Colliers International Georgia                                                                              5
Hotel Market in Georgia | 2019 - PREPARED FOR
International Rankings
Georgia has improved its status as a free economy                    EASE OF DOING BUSINESS
thanks to its fiscal policy, regulatory efficiency, and
open market policies. According to the World Bank’s
Doing Business report 2020, Georgia ranks 7th for
“ease of doing business” among 190 economies, 2nd
for “ease of starting a business”, and 5th for “ease of
registering property”.
In 2019, Fitch Ratings upgraded Georgia's Long-Term
Foreign-Currency Issuer Default Rating from 'BB-' to
'BB' with a stable outlook. As Fitch explains, it was
due to the country maintaining a resilient economy
during the regional shocks in 2018 and adds that
Georgia ranks above the current medians of 'BB'
category peers. Standard & Poor’s also raised
Georgia’s ranking from ‘BB-’ to ‘BB’, while Moody’s
credit rating for Georgia remains at ‘Ba2’.
Registering a new business takes a maximum of two                    Source: World Bank, Colliers International

days and requires no minimum capital requirements.
                                                                     GLOBAL COMPETITIVENESS INDEX
According to the ‘Heritage Foundation Index of
Economic Freedom 2020,’ Georgia’s economy is
categorized as Mostly Free, ranking 12th across 180
countries.

Georgia remains the least corrupt country in
the region. According to Transparency
International, Georgia is the top performer
among the Eastern European and Central
Asian countries.

Foreign investors in Georgia are guaranteed equal
rights to those of Georgian citizens. After payment of
                                                                     Source: World Bank, Colliers International
taxes, foreign investors are entitled to repatriate the
earnings (income) gained from investments and other
funds abroad.
Property Ownership & Non-agricultural Lands
In Georgia, property rights are recognized and protected by the Law. An owner has the right to possess, use
and dispose of his or her property. The rights of individual owners to possess, use and dispose of land are
regulated by the land legislation. There is no restriction on non-agricultural land ownership in Georgia.
According to the Heritage Foundation Index, Georgia has substantial improvement in property rights in 2020
and is 21% above the world average.

THE WORLD CORRUPTION RANKING

   Georgia
     44
                     Belarus          Romania
                       66                       Bulgaria   Armenia
                                        70        74         77            Turkey
                                                                             91

                                                                                            Moldova
                                                                                                                  Ukraine   Azerbaijan
                                                                                             120
                                                                                                                   126         126

Source: World Bank, Colliers International

 Colliers International Georgia                                                                                                  6
Hotel Market in Georgia | 2019 - PREPARED FOR
ECONOMIC OVERVIEW

 Gross Domestic Product
 In 2019, according to the preliminary data of Geostat,         GDP AT CONSTANT PRICES BY YEARS (GEL, BLN)
 the gross domestic product of Georgia reached an
 all-time high of GEL 40.4 billion. Despite the political
 and economic difficulties at the edge of the 2nd and
 3rd quarters of 2019, the real GDP growth reached its                                                                40.4
                                                                                                          38.4
                                                                                                  36.6
 maximum after 2015 at 5.1%, well above the                        33.9            34.9
 Caucasus (Russia, Azerbaijan, Armenia, Georgia)
 region average of 3.7%.
 As of 2019, according to the Ministry of Finance of
 Georgia, the ratio of total government debt to
 nominal GDP is 40.6%, well below the euro area
 average (86.4% - 2019 Q2). During the last eight years
 (up to and including 2018), the budget deficit has               2015            2016            2017    2018        2019
 remained under 4%. As of 2018, the budget deficit
 constitutes only 2.9% of the nominal GDP.                      Source: Geostat, Colliers International

 Fast-growing Sectors
 Despite the political and economic difficulties at the
 edge of the 2nd and 3rd quarters, strong growth in
 the professional, scientific and technical activities
                                                                   Georgia has recorded the highest
 (26% YoY), administrative and support activities (20%             real GDP growth of 5.1% since 2012.
 YoY) and information and communication (19% YoY),
 as well as art and entertainment (19% YoY) sectors
 contributed positively to the real GDP growth.

 REAL GDP GROWTH (%)                                            GDP STRUCTURE
                                           Georgia   Caucasus

                                                        5.1
                                     4.8       4.8

    3.0             2.9                                 3.7
                                     3.5                                                                                     13%
                                               3.3

                                                                          Trade                            Public Administration
    1.3                                                                   Real Estate                      Financial Activities
                                                                          Industry                         Accommodation
                    0.1                                                   Transport & Communication        Education
   2015            2016             2017      2018     2019               Construction                     Health & Social Work
                                                                          Agriculture                      Other

Source: Geostat, Colliers International                         Source: Geostat, Colliers International

 Colliers International Georgia                                                                                         7
Hotel Market in Georgia | 2019 - PREPARED FOR
Exports
 The main exporting partners for the country in 2019           MAIN EXPORT COUNTRIES, 2019 (MLN,USD)
 were Russia, Azerbaijan, Armenia, Bulgaria, and
 Ukraine. In 2019, based on the preliminary data, total
                                                                  498    497
 exports grew by 12% YoY. This figure is significantly
 lower compared to the previous years, when the                                  412
 growth rate was above 20%. The increase in exports
 to EU countries was also 12% YoY and represented
 22% of the total exports. For CIS countries, it grew by                                  284
                                                                                                   245
 20% YoY, making up 53% of total exports.                                                                   228
                                                                                                                     202
                                                                                                                           178
                                                                                                                                     132
 The high volatility and depreciation
 of the Georgian national currency is                                     Azerbaijan                   Bulgaria              Turkey
 one of the main challenges in                                            Russia                       Ukraine               Romania

 recent years.                                                            Armenia                      China                 USA

                                                               Source: Geostat, Colliers International

  Currency Fluctuations
  Depreciation and high volatility of the Georgian national currency was one of the main issues of the first half
  of 2019, seeing it reach a peak in August when, after the effects of flight ban from Russia were fully realized, 1
  USD was exchanged for 2.97 GEL. However, as the negative expectations eventually dissipated following
  intervention by the National Bank of Georgia in the FX market, and the fundamental macroeconomic
  indicators showed a positive trend, the GEL quickly strengthened and at the end of 2019, 1 USD was traded
  for 2.82 GEL.
  CURRENCY FLUCTUATIONS (LCU vs. USD)
                                                                                         Azerbaijan              Armenia         Ukraine
  100%
                                                                                         Georgia                 Russia          Turkey

    80%

    60%

    40%

    20%

     0%
       2015                               2016             2017                                 2018                              2019

   -20%
Source: Geostat, Colliers International

  Colliers International Georgia                                                                                                 8
Hotel Market in Georgia | 2019 - PREPARED FOR
Unemployment Rate
Georgia’s labor force comprises approximately                                      UNEMPLOYMENT RATE IN GEORGIA (%)
1,911,200 people. The unemployment rate is 11.6%,
which is the lowest it has been for more than a
decade. Since 2013, the unemployment rate in urban
areas has declined by approximately 10%; however,
the flat trend in rural areas indicates the fact that the
main cities of Georgia remain the gravitational centre
for businesses and are more attractive places to                                      14.1%                   14.0%             13.9%
invest in. The distribution of hired people in the labor                                                                                              12.7%
                                                                                                                                                                         11.6%
force for Tbilisi and rest of the country is significantly
different.

Remittances
In 2019, the total number of                                                         2015                 2016                  2017                  2018               2019

remittances amounted to USD 1.73                                                  Source: Geostat, Colliers International

billion, reflecting a 10% growth
compared to 2018.                                                                 REMITTANCES (USD), 2015-2019

The main source markets are Russia (25%), Italy                                            2.0                                                                                25%
(14%), Greece (11%), USA (10%), Israel (9%), and                                                                                    20%
Turkey (6%).                                                                                                                                                                  20%
                                                                                           1.5
                                                                                                                                                   14%
                                                                           Billion (USD)

                                                                                                                                                                              15%
                                                                                           1.0                                                                    10%
Inflation                                                                                                             7%
                                                                                                                                                                              10%

The annual inflation rate in 2019 was 4.2% (IMF                                            0.5
                                                                                                                                                                              5%
estimate). The main source of inflationary pressure on
prices was the depreciation of the nominal currency.                                                   1.08           1.15          1.39           1.58           1.73
As a result, the monetary committee of the central                                         0.0                                                                                0%
bank raised the monetary policy rate from 6.5%                                                         2015           2016          2017           2018        2019
(September) to 9.0% (December). It is expected that                                                            Remittances                            Growth y-o-y
during the year, the refinancing rate will decrease as
                                                                                 Source: National Bank of Georgia, Colliers
mid-term inflation expectations become positive.                                 International

CONSUMER PRICE INDEX (INFLATION, %)
                                                                                                                             Headline Inflation               Core Inflation

                                                                                                                                                            6.9
                                          6.4                                                                                                                                6.4
                6.1          6.0

                                                                                                                                             4.6
                                                 4.3                                                                          4.1
   3.9

                                                                     2.8                                                                                    4.7
                             4.3          4.4             2.5                                    2.3                                                                         4.4
                                                                                                               2.2
                                                                                                                              3.6            3.4
                3.3
   2.8                                           3.0

                                                          1.8                                    1.7           1.7
                                                                     1.4

Jan 2017 Apr 2017         Jul 2017    Oct 2017 Jan 2018 Apr 2018   Jul 2018                Oct 2018 Jan 2019 Apr 2019                      Jul 2019       Oct 2019 Jan 2020
Source: Geostat, Colliers International

 Colliers International Georgia                                                                                                                                          9
Hotel Market in Georgia | 2019 - PREPARED FOR
FOREIGN DIRECT INVESTMENT (FDI)
According to the preliminary estimates of Geostat, in      FDI INFLOWS BY YEARS (MLN, USD)
2019, the volume of FDI increased by a modest 0.2%
(amounting to USD 1,268 million) compared to the                                             1,963
previous year, while dramatically decreased                  1,729
                                                                             1,650
compared to 2017. Among the reasons for the
decline may be the completion of magistral gas                                                               1,265         1,268
pipeline project, the transfer of several enterprises to
the ownership of Georgian residents, as well as the
reduction of non-resident direct investors liabilities.
The United Kingdom, Turkey, and Ireland were the
main investors, with shares of 19.5%, 18.7%, and
10.5%, respectively. As for the sectoral distribution,       2015             2016            2017           2018              2019
20.6% of total FDI was invested in the financial sector,   Source: Geostat, Colliers International
while the second and the third were the energy and
manufacturing sectors with 15.4% and 13.4%,                FDI BY SECTORS (MLN, USD)
respectively.
                                                            262                                                                  253
In 2019, unlike other sectors, FDI in real estate
experienced a significant decrease and recorded a
negative figure. The first quarter of 2019 was                       194
                                                                            171
particularly remarkable in terms of decline as the                                 158
number stood at USD -125 million. The most likely
                                                                                           118       117
reason for such a sharp decline in 2019 was the fact
that companies moved to ownership by residents,
from non-residents.
                                                                                                           14       14   -32

In 2019, Financial, Energy &
Manufacturing were the key sectors
                                                                Financial                             Transport & Communication
that attracted around 50% of total                              Energy                                Health & Social Work
FDI. In 2020-23, around USD 1 billion                           Mining & Manufacturing                Agriculture

is expected to be invested in the                               Hotels & Restaurants
                                                                Construction
                                                                                                      Real Estate
                                                                                                      Other
construction of hydroelectric power
stations.                                                  Source: Geostat, Colliers International

 Colliers International Georgia                                                                                            10
Covid-19 Effects & Economic Outlook

Exposure Of Economic Sectors Towards Covid-19

   Georgia’s economic sectors are exposed to the crisis on different scales.
   The Hotels, Food & Beverage and Entertainment sectors are highly
   exposed; however, in total, their share in the GDP amounts to 10%. Trade
   (14%) and Construction & Development (8.6%) have a relatively larger
   share in the GDP, yet both fall into the category of highly exposed sectors.

        GROSS DOMESTIC PRODUCT, COVID-19 IMPACT ON SECTORS (2019)

                                                                        Very Exposed                Exposed              Partially Exposed

                                                                        Neutral/Limited Impact                More positive, than negative

                                                                          Other Sectors
                                           Professional, Scientific &         6.7%
                                              Technical Services
                                                     2.9%
                           Information &                                                                             Wholesale & Retail
                          Communication                                                                                   Trade
                                3.0%                                                                                      14.4%

              Arts, Entertainment &
                    Recreation
                       3.2%

            Health & Social Work
                  Activities
                                                                                                                                              Real Estate
                    4.3%
                                                                                                                                               Activities
                                                                                                                                                11.5%
                 Education
                   4.5%

         Accommodation &
        Food Service Activities
                4.8%

                                                                                                                                             Manufacturing
        Financial & Insurance Activities                                                                                                        10.1%
                      5.4%

                                  Transportation &
                                      Storage                                                                                Construction
                                        6.5%                                                                                    8.6%

                                                     Public Administration &
                                                             Defence                 Agricalture, Forestry
                                                              6.8%                        & Fishery
                                                                                             7.2%

            Source: Geostat, Colliers International

Colliers International Georgia                                                                                                                               11
5                        2,084
                                                                                                    km

                         AMBROLAUR

                                                                    AIRPORTS                      RAILWAY
                         I

                                                                    1,603                        5,298
                                                                        km                           km

                                                                  INTERNATIONAL                  INTERNAL
                                                                      ROADS                    STATE ROADS

TRANSPORT & LOGISTICS INFRASTRUCTURE
While already contributing roughly 9% to the                Georgia has 1,603 km of international roads, 5,298
country’s Gross Domestic Product (GDP), Georgia’s           km of internal state roads, and 2,084 km of railway
manufacturing sector is poised to provide further           lines. Construction of Georgia’s central highway is
significant investment opportunities. Greenfield            one of the top priorities in the government’s
investments are expected to rise in the export-             infrastructure rehabilitation program. Since 2005,
oriented manufacturing sectors, for which access to         most of the country’s significant roads for
the European market would be attractive. Together           international trade have been upgraded or are now
with international and local experts, Georgia’s             under reconstruction.
government is performing a deep analysis of the
competitive sectors, and seeking new ways to                Poti Sea Port is the largest port in Georgia. Currently
stimulate foreign investment, attract new technology        serving as the European gateway for international
and know-how, and create high value-add                     trade in Georgia, Armenia, and Azerbaijan, it is
production in the country.                                  ideally located to become a future hub for trade with
                                                            central Asia. Together with the Georgian
From the transport and logistics perspective,               government, the Chinese conglomerate CEFC China
Georgia can serve as a gateway for foreign                  Energy group recently signed a cooperative
companies interested in the Caucasus/CIS region             agreement regarding the construction of a Common
due to its geographic location and open business            Market Zone in Poti that will actively promote the
environment. Georgia is uniquely positioned to              export of advanced technologies, production
capitalize on the increasing trade flows between            capacity, and products from China to countries in
Europe, the Caspian Region, Central Asia, and China.        the Eurasian region, and build a new Eurasian land
With a transport system that functions as a key link        bridge that will function as an economic corridor
in the historic “Silk Road,” it offers the shortest route   between China, Central Asia, and Western Asia.
between the Black and Caspian seas.
                                                            Georgia’s five airports are located in various regions,
In October 2017, leaders of Georgia, Azerbaijan, and        with the largest - operated by TAV Airports - in
Turkey officially opened the Baku-Tbilisi-Kars (BTK)        Tbilisi. The Ambrolauri airport opened in December
railway as a part of Iron Silk Road project. The 826-       2016; it serves smaller aircraft with a 30-50
kilometer (km) / 513-mile line has the capacity to          passenger capacity. Georgia’s additional airports are
transport one million passengers and 6.5 million            in Batumi, Mestia, and Kutaisi.
tons of freight per year. The project will deepen
trade relations between Georgia and China, making           A recent governmental initiative regarding the
the country a primary link between Europe and Asia.         establishment of logistic centres in Tbilisi and Kutaisi
Additionally, the government is investing heavily in        created substantial interest from investors. Along
road infrastructure, including highways and local           with several Georgian companies, applications from
roads. It is believed that long-term growth will stem       companies registered in China, Switzerland, Turkey,
from Georgia’s role as a transit state for pipelines.       and others were received. The anticipated
Three pipelines currently exist:                            development of infrastructure and manufacturing in
                                                            Georgia, combined with its increasingly recognized
      • The Baku-Supsa pipeline;                            strategic location at the crossroads of Europe and
      • The Baku-Tbilisi-Ceyhan oil pipeline;               Asia, will open up opportunities for modern
      • The South Caucasus pipeline (operated by            industrial and logistics real estate investments.
           BP).

Colliers International Georgia                                                                                12
The Influence of Covid-19 on Foreign Direct Investments
                                                                     LARGEST DIRECT INVESTOR COUNTRIES
According to the national statistics                                 (USD,MILLIONS), 2019*
office, in 2019 the foreign direct
investments (FDI) slightly increased by
0.2% and amounted to USD 1,267.7                                           UNITED KINGDOM                                             247.8
million. Around 50% of the
investments are coming in from the
UK, Turkey and Ireland (preliminary                                        TURKEY                                                     236.5
data, Geostat). The way these
countries tackle the spread of Novel
Coronavirus, and their investing                                           IRELAND                                                    132.7
strategy, will be critical for the inflow
of future investment in Georgia.                                           USA                                                            99.0
The crisis of 2008-2009 had a
negative impact on direct foreign                                          PANAMA                      78.1       NETHERLANDS             52.9
investment inflows in Georgia,
recording a 60% decrease compared
                                                                                                      RUSSIA                              40.4
                                                                           CHINA             50.5     JAPAN                               39.2
to the previous year.
                                                                                                               Source: Geostat, Colliers International

FOREIGN DIRECT INVESTMENT BY LARGEST
SECTORS IN THE ECONOMY, 2019*
                        Agriculture,             Mining &
                        Forestry and             Quarrying

    Other Sectors
                          Fishing                  5.4%                                              In 2019, (preliminary data)
                            1.1%
       18.5%                                                        Manufacturing
                                                                       8.1%
                                                                                                     investments were made in the
                                                                                                     given sectors: Finance (20.6%),
                                                                                                     Electricity, Gas, Steam and Air
                                                                                                     Conditioning supply (15.3%),
                                                                                                     and Hotels & Restaurants
                                                                                 Electricity, Gas,
                                                                                 Steam and Air       (12.4%). Hotels & Restaurants
                                                                                  Conditioning
                                                                                     Supply          and Construction sectors fall
                                                                                      15.3%
                                                                                                     into the very exposed and
Financial                                                                                            exposed category, respectively.
 Sector
 20.6%
                                                                                                     In the period of isolation, it is
                                                                                                     expected that investments in
                                                                            Construction
                                                                               9.3%
                                                                                                     Hotels & Restaurants and
                                                                                                     Construction sectors will
                                                                                                     dramatically decrease.
        Transport and                                        Hotels and
       Communications                                        Restaurants
            9.2%                                               12.4%

       Very Exposed         Exposed       Partially Exposed           Neutral              Other

Note: *Preliminary data
Source: Geostat, Colliers International

Colliers International Georgia                                                                                                              13
TOURISM OVERVIEW

Tourism in Georgia
In 2019, the number of international traveller trips      INTERNATIONAL ARRIVALS BY YEARS (MLN)
grew by 7.8% YoY from 8.7 mln to 9.4 mln, of which
83% were international visitor trips (7.7 mln.).
The number of tourist arrivals increased by 8.3%,
constituting 65.7% (5.1 mln) of the total number of
                                                                                                                         5.1
international visits, while same-day trips stood at                                                        4.8
                                                                                              4.1
about 34.2%.
                                                             3.0             3.3
Citizens of 98 countries can travel to Georgia without
a visa and stay up to one full year. In addition,
foreigners who hold a visa/residence permit of 50            5.2             5.3              6.4          7.2           7.7
countries can enjoy visa-free travel to Georgia.
                                                            2015            2016             2017          2018         2019
Visitors who need to obtain a visa can take advantage
of the e-visa portal to get a short-term visa.                         International arrivals              Tourist arrivals
Simplified travel and visa-free regimes build on the
strong growth of inbound tourism.                         Source: Geostat, Colliers International

Road travel remains the main means of transport for       INTERNATIONAL ARRIVALS BY TYPES OF VISIT (MLN)
international arrivals due to the large share of
travellers from neighbouring countries in the total
number of visitors. In 2019, this increased by 8.7%,
representing 74.8% of the total. Air travel, the second                                                                  2.6
                                                                                                           2.4
most popular choice among travellers, increased                                               2.4
modestly by 2.3%, and constituted 23.7% of the total.        2.2             2.0

                                                                                                           4.8           5.1
                                                                             3.3              4.1
                                                             3.0
In 2019, the number of international
arrivals as well as the number of                           2015            2016            2017          2018          2019

tourists increased by modest 7%.                                         Tourist arrivals           Same-day visit

                                                          Source: Geostat, Colliers International

 Colliers International Georgia                                                                                         14
Source Markets
In 2019, the number of tourist arrivals amounted to         SHARE OF MAIN SOURCE MARKETS
5.1 million. Most tourist visits originated from Russia
(23%), Azerbaijan (19%), Turkey (13%), EU countries
(12%), and Armenia (11%). Despite difficulties related                       13%
to US sanctions on Iran, the country remained in the
                                                                                                       23%
list of top 15 countries of international visitors.

                                                                              5.1
Remarkably, in recent years, Georgia has become
more attractive to the western Europeans, as the              12%
number of visits from EU countries increased by
21.9%. July and August remained the most popular
                                                             1%
months for visiting Georgia.
                                                              4%
From July 8, 2019 Russia has banned direct flights to
Georgia due to extended street protests. After the             4%
                                                                                   MLN                       19%
flight bans the number of international visits by
Russian citizens decreased by 20.6% in Q3 2019,                       11%
when compared to Q3 2018. The annual figure                                             13%
marked an insignificant 0.6% decline. However, the
strong growth of the number of tourists visits from
Israel (31%), Ukraine (20%), Armenia (12%) mitigated
                                                                    Russia                Armenia            Iran
the shock and the total annual number of tourist
                                                                    Azerbaijan            Ukraine            EU
visits increased by 6.8%.
                                                                    Turkey               Israel              Other

NUMBER OF TOURIST VISITS FROM RUSSIA IN Q3                   Source: Geostat, Colliers International

2019 vs. Q3 2018 (THOUSAND)

                                                          Even though the number of tourist
                                20.6%                     visits dropped by 20.6% in Q3 2019
           456                            362             due to flight bans from Russia, the
                                                          annual figure marked an
           Q3 2018                        Q3 2019
                                                          insignificant decline.
Source: Geostat, Colliers International

  Colliers International Georgia                                                                                    15
Map Of Top 15 Source Markets

DYNAMICS OF INTERNATIONAL TRIPS FROM TOP 15
SOURCE MARKETS (THOUSAND)                                                  Georgia’s tourism market is sourced
COUNTRY                  2015          2016    2017    2018    2019        dominantly by neighbouring countries
Azerbaijan               1,156         1,076   1,302   1,425   1,527
                                                                           (71% of tourist trips in 2019). However,
Russia                    763          849     1,135   1,405   1,472
                                                                           there’s significant increases shown from
Armenia                  1,192         1,152   1,287   1,269   1,365
                                                                           other non-neighbouring countries.
Turkey                   1,074         988     1,007   1,099   1,157
Ukraine                   127          152     170     177     208     DISTRIBUTION OF INTERNATIONAL TRIPS FROM
Israel                     55           85     115     157     205     NEIGHBOURING AND NON-NEIGHBOURING
Iran                       22          130     283     291     142     COUNTRIES
Kazakhstan                 31           41      47      59     104
                                                                          20.4%           24.6%            27.0%          27.9%          28.6%
Germany                    30           33      43      64      89
Poland                     39           42      49      67      88
Saudi Arabia                8           18      46      52      75
                                                                          79.6%           75.4%            73.0%          72.1%
Belarus                    26           33      42      60      66                                                                       71.4%

India                       8           26      43      51      55
China                       7           11      18      32      48
USA                        25           27      34      42      47        2015             2016             2017           2018          2019
                                                                               Neighbouring countries              Non-neighbouring countries

Source: GNTA, Colliers International                                   Source: Geostat, Colliers International

  Colliers International Georgia                                                                                                    16
Economic Impact of Tourism
The tourism industry accounted for 8.1% of Georgia’s                          STRUCTURE OF TOURISM VALUE ADDED, 2019
economy in 2019. The same year, tourism value added                           (USD)
grew by 16.9% YoY and amounted to USD 1.3 billion                                                      3%
(GEL 3.53 billion). Tourism value added reflects the
economic activity generated by industries such as
                                                                                      22%

                                                                                                1.3
hotels, food and beverage (F&B), travel agencies,
airlines and other transportation services. The transport                                                                     38%
category, which represents 38% of the total value
added, grew by 20% YoY. The F&B industry grew by
23%, while the travel agencies and the accommodation
categories increased by 17% and 11%, respectively.
Travel industry supported 123 million jobs in 2018.                                                    BLN
Revenues from inbound tourism have been growing
rapidly over the past five years. In 2018, revenues rose
by 17% YoY and amounted to USD 3.22 billion. The                                                37%
volume of foreign card operations by international
travellers has also grown - by 3.7%, hitting 2.14 billion                             Transport                       Food & Beverage
GEL in 2018. Spending volume is expected to increase                                  Accommodation                   Travel Agencies
as Georgia continues to attract travellers with higher                        Source: GNTA, Colliers International
holiday budgets.
                                                                              TOURISM REVENUE BY YEARS (USD, BLN)
EXPENDITURES PER TOURIST VISITS BY YEAR (USD)
                                                                              2019                                                  3.27

 645               658                 665          677          644          2018                                                  3.22

                                                                              2017                                          2.70

                                                                              2016                                   2.17

                                                                              2015                             1.94
2015              2016             2017             2018        2019
Source: GNTA, Colliers International                                          Source: GNTA, Colliers International

TOURISM VALUE ADDED AND SHARE IN GDP BY YEARS (USD, BLN)

                                                                                                                               8.1%
                                                                                               7.6%
                                             7.1%                   6.9%
         6.7%

          0.86                               0.83                      1.03                     1.19                           1.27

          2015                               2016                   2017                        2018                           2019

                                                      Tourism value added         Share in GDP

Source: GNTA, Colliers International

 Colliers International Georgia                                                                                                         17
Types of Tourism
Winter tourism is becoming ever more popular.         HOTEL INDUSTRY REVENUES (USD, MLN)
The Mestia-Hatsvali cableway construction was
completed in 2017. Goderdzi ski resort in
Adjara and Tetnuldi ski resort in Mestia both
opened in recent years. Two cableways were                                                     363
added to Goderdzi resort and in 2023, the                                                              331
world championship in freestyle ski and                                                288
snowboarding is set to be held in Bakuriani.                          241
Three new ski lifts are to be built for the event.
                                                      202
Wine tourism, adventure tourism and spa and
wellness tourism are under development. In
2019, wine tourism grew further with 46 newly
built cellars and small enterprises. In Kakheti,
near the village of Kisiskhevi, a wine village was
built by Schuchmann Wines Georgia, consisting         2015           2016            2017      2018   2019
of 10 cottages with 15 more to be built in 2020.
Georgia hosted the 18th World Federation of          Source: Geostat, Colliers International
Tourist Guide Associations (WFTGA)
international convention in Tbilisi from January
17 to January 25, 2019. The convention brought
together 300 tourist guides and representatives      Hotel industry revenues are growing
from around 70 countries and contributed to          in line with the tourism trend in
raising awareness about tourism in Georgia and
will further contribute to the development of        Georgia.
the tourism industry in the future.

Colliers International Georgia                                                                        18
Benchmarking
In 2019, tourist arrivals in Georgia has increased by                 INTERNATIONAL TOURIST ARRIVALS (24+ HOURS)
6.3%. Among benchmark countries Bulgaria and                          Y-O-Y GROWTH RATE (%) BY BENCHMARK
Estonia experienced the highest annual growth rate                    COUNTRIES, 2019/2018
in 2019 amounted to 4.5% and 3.2%, respectively.
Israel and Turkey had the negative growth rate in
                                                                         6.3%
2019 amounted to 1.2% and 2.4%, respectively.
Among benchmark destinations, international
tourist receipts were the highest in Turkey (USD                                      4.5%
36.5 billion), followed by Israel and Bulgaria with
USD 8.16 billion and 5.07 billion, respectively.                                                   3.2%

                                                                                                                 1.4%

Georgia has the fastest growth in
arrivals, and the revenue per tourist                                   Georgia     Bulgaria      Estonia       Romania    Israel       Turkey

visit is on par with the benchmark                                                                                         -1.2%

countries, except for Israel.                                                                                                           -2.4%
                                                                      Source: Worldbank, Geostat, Colliers International

INTERNATIONAL TOURISM RECEIPTS (BLN) AND EXPENDITURE PER TOURIST TRIPS (USD)
BY BENCHAMRK COUNTRIES, 2019

                                  2,005

       818
                                                                                                                                     698
                                                                             641
                                                      545

                                                                                                          274
                                                                                                                                     2.33
       36.5                       8.16                5.07                   3.27                         3.26

     Turkey                      Israel             Bulgaria              Georgia                    Romania                        Estonia

                             International tourism reciepts(USD/billion) 2018           Expenditure per tourist

Source: Worldbank, GNTA, Colliers International

Colliers International Georgia                                                                                                         19
Travel Purposes
The number of guests in hotels has had a positive        PURPOSE OF TOURIST VISITS IN GEORGIA,
trend over the past four years. Out of 2.8 mln hotel     2019
guests in 2018, 1.9 mln were international travellers.                           1% 2%
74% of these were leisure travellers, 13% visited
Georgia for business purposes and only 1% for health                           4%
tourism.                                                              12%

                                                                              5.1
Out of 5.1 million tourist trips, 56% were made for
leisure-recreation and shopping purposes, 25% for
visiting families and relatives, and about 12% for
business purposes. Its notable that business visits
have increasing trend, the figure grows with an                                                          56%
average of 9% annually. On average, the typical
tourist spent 6.2 nights in Georgia.
                                                                  25%
                                                                               MLN
AVERAGE LENGTH OF STAY IN GEORGIA (NIGHTS)

                        6.6                                      Leisure & Shopping                 Transit
  6.3                                     6.3                    Visiting Friends/family
                                                 6.2                                                Health & Medical Care
                                                                 Business                           Other
                                                          Source: Geostat, Colliers International

                                                         During last five years, the number of
                                                         business trips is growing on average
 2016                  2017               2018   2019
                                                         by 9% annually.
Source: Geostat, Colliers International

  Colliers International Georgia                                                                                    20
Domestic Tourism
In 2019, Georgian residents took a total of 14.3        PURPOSE OF VISITS IN GEORGIA 2019
mln domestic trips. 44.7% of those visits included
at least one overnight stay, with an average trip                         4%
length of 1.97 nights.                                               5%
                                                                                                        Visiting Friends
                                                              9%                                        & Family
The majority of domestic trips made by Georgian

                                                                     14.3
residents were made with the intention of visiting                                                      Leisure & Shopping
friends and relatives (51%). The second and third        9%                                             Visiting second
most frequent purposes were leisure & shopping                                                    51%   home
and visiting a second home, respectively. Adjara                                                        Health & Medical
was the third most visited region in 2019: since it
is located next to the Black Sea, it was the most
                                                                        MLN                             Care
                                                                                                        Business
popular holiday, leisure, and recreation                      22%                                       Other
destination.
Domestic tourism is a significant part of Georgia’s
economic activity. In 2018, domestic travel             Source: Geostat, Colliers International
spending accounted for 71.2% of direct Travel &
Tourism GDP. Total expenditure by domestic              SHARE OF TOTAL EXPENDITURE (USD), 2018
visitors amounted to c. USD 792 million (over 2
bln GEL). The majority, more than 852 mln GEL,                                 1.5%
was spent on shopping, followed by food and                               5%
drinks (400 million GEL) and transportation (305
mln GEL). Since 87.1% of domestic visitors
preferred to stay at a friend’s, relative’s, or their     19.4%                               33.5%

                                                                       792
                                                                                                        Shopping
own homes, spending on accommodation                                                                    Food & Beverage
accounted for only 5% of the total expenditure                                                          Transportation
(over 86 mln GEL).                                                                                      Other

775,838 local travellers stayed in hotels in 2018,
58% of them for leisure and 28% for business
                                                                        MLN                             Accommodation
                                                                                                        Cultural & Entertainment
                                                                                                        service
                                                           17.6%
purposes. Hotels in Tbilisi received 255,354 local
guests, while hotels in Batumi and Kutaisi hosted                                     23%
222,556 and 53,935 Georgian guests, respectively.
                                                        Source: Geostat, Colliers International

 Colliers International Georgia                                                                                          21
Visa Liberalisation                                       Georgia, especially those who are looking for a low
                                                          budget trip. This also increases demand on local
The government continues to make European and             hotels and other hospitality facilities and incentivises
Euro-Atlantic integration a primary strategic             native businesses to develop to meet the
objective. Since March 2017, the EU-Georgia visa          expectations and requirements of European
liberalisation agreement has allowed Georgians to         customers.
access visa-free travel to the Schengen zone. This
has led to the increased inflow as well as outflow of     The visa free regime with Europe will potentially
visitors from Georgia.                                    contribute to the development of the tourism
                                                          industry in Georgia in the future. However, as this
First of all, less bureaucracy, simplified travelling     industry has suffered in all countries due to the
procedures and decreased costs have made it much          current COVID-19 crisis, the future remains uncertain
easier for natives to visit Europe more frequently for    and it is hard to foresee the prospects of this sector.
different purposes like travelling, education,
business, healthcare, etc. The free movement of
people, along with free trade with the EU, brings
                                                          Host in Georgia
significant economic benefits. Georgian SME owners,       In 2016, the Government of Georgia launched the
who before needed to go through long and                  ‘Host in Georgia’ program to develop the hospitality
complicated procedures to obtain a visa, are now          industry in the country. The program encourages
able to travel to European countries to explore new       entrepreneurs to build hotels in all regions of
markets, attend international exhibitions, find           Georgia, except Tbilisi and Batumi, by providing
partners, and gain experience. This leads to new          them with financial and technical support. Under the
jobs, more developed business processes, improved         Host in Georgia program, the government subsidizes
quality of production and a better environment for        a 10% interest rate for loans in GEL and 8% for loans
attracting investors into the country.                    in USD/EUR for the first two years. In addition, the
                                                          collateral guarantee for 50% of the total loan
Increased demand on travelling has spurred the
                                                          amount is provided in the first four years. The
number of passengers at Georgian airports, which
                                                          maximum loan amount can be GEL 5 million in case
has attracted different airlines to open flights in new
                                                          of an International Franchise/Management Contract,
directions. In 2019, Ryanair, a relatively low budget
                                                          and GEL 2 million otherwise. In case of international
Irish airline company, entered the Georgian market.
                                                          brand hotels, the government also co-finances
The increased flow of passengers from neighboring
                                                          franchising and management agreement fees of up
countries has also created an opportunity especially
                                                          to GEL 0.3 million annually for the first two years.
for Kutaisi airport to become an air hub. The entry of
new airlines creates new jobs and contributes to the      The Host in Georgia program has been very
performance of travel agencies and other local            successful in developing the hotel industry in
hospitality businesses.                                   Georgia, and the Georgian government has already
                                                          supported the development of 80 new hotels under
As the new destinations abroad become easily
                                                          the program, with a total investment volume of GEL
accessible for the Georgians due to the visa
                                                          225 mln. As a result, more than 2,200 rooms will be
liberalisation, this raises the competitiveness and
                                                          added to the Georgian hotel market. The new hotels
encourages local providers to improve the quality of
                                                          are being built in various towns, including Bakuriani,
their hospitality services. Moreover, better
                                                          Gudauri, Kazbegi, Gonio, Shekvetili, and Tskaltubo.
relationships with Europe as a result of the visa
liberalisation reform has improved the image of the
country and attracted more international tourists to

Colliers International Georgia                                                                              22
Air Travel
Airlines carried 1.97 million international travellers   NUMBER OF INTERNATIONAL TRAVELLERS
in 2019, up by 1.3% from 2018. Tbilisi International     RECEIVED IN AIRPORTS, 2018-2019 (THOUSAND)
Airport once again received the largest number of                    3%
travellers – 1.5 mln depicting a 3% decrease YoY.
Decline of travellers in Tbilisi airport was caused                                                          2018        2019
by flight bans from Russia as the number of                  1,551
                                                                          1,498
international travelers received in airports from
this country decreased by 24% YoY. The number
of travellers in Kutaisi Airport increased
significantly by 43%. The main contributors were
Ukraine and Poland. 55% of the travellers were
                                                                                                43%                7%
received from these countries. Batumi Airport was
also up from 262 K to 279 K international
travellers, which represents a 7 % increase.                                                          197
                                                                                          138
                                                                                                             261         279
In 2019, there were 50 international and two
domestic airlines operating on the Georgian                        Tbilisi                      Kutaisi        Batumi
market. Wizz Air Hungary is the largest company
                                                         Source: GNTA, Colliers International
operating on the Georgian market. It offers flights
to up to 39 destinations. In 2019, it provided           NUMBER OF INTERNATIONAL TRAVELLERS
service for 825,290 passengers (16% of the total         RECEIVED IN AIRPORTS FROM RUSSIA , 2018-2019
trips). The second largest company is Turkish            (THOUSAND)
Airlines, with 572,181 passengers and 11.1% of the
market share. This is followed by Georgian
Airways, Ural Airlines, Fly Dubai, and Ukraine
                                                                                           24%
International Airlines. In 2018, one Georgian, My
Way Airlines, and nine international companies                  530                                         404
appeared on the market. Additionally, in 2019,
Ryanair, one of the Europe’s low-cost and most
popular airlines, also entered Georgia, offering                  2018                                        2019
two routes from Tbilisi and two from Kutaisi.            Source: Geostat, Colliers International

 Colliers International Georgia                                                                                     23
Map Of Direct Flights From
Georgia

MAIN FLIGHT ROUTES
                                        Duration                              Duration                            Duration
    Origin         Destination                     Origin    Destination                 Origin    Destination
                                         (hours)                               (hours)                             (hours)

    Tbilisi           Baku                1.0      Tbilisi       Riga           3.1      Tbilisi     Kuwait         2.1

    Tbilisi          Tehran               1.7      Tbilisi   St. Petersburg     3.1      Tbilisi     Bahrain        2.5

    Tbilisi          Istanbul             2.0      Tbilisi      Vienna          3.2      Tbilisi     Astana         3.1

    Tbilisi          Tel Aviv             2.1      Kutaisi       Berlin         3.3      Tbilisi      Aktau         1.2

    Tbilisi           Kiev                2.2      Tbilisi      Prague          3.4      Tbilisi      Doha          2.7

    Tbilisi         Moscow                2.4      Tbilisi      Almaty          3.5      Tbilisi    Bucharest       2.2

    Tbilisi          Athens               2.6      Tbilisi      Munich          3.6      Tbilisi    Barcelona       4.6

    Tbilisi           Minsk               2.6      Kutaisi       Milan          3.8      Tbilisi    Tashkent        2.8

    Kutaisi          Vilnius              2.8      Tbilisi    Amsterdam         4.2      Tbilisi     Ankara         1.6

    Kutaisi         Budapest              2.9      Tbilisi      Urumqi          4.5      Kutaisi      Paris         4.2

    Tbilisi           Dubai               2.9      Tbilisi      London          4.6      Kutaisi     Prague         3.2

    Tbilisi          Warsaw               3.0      Batumi       Istanbul        1.7      Kutaisi      Rome          3.3

    Tbilisi          Yerevan              0.39     Batumi        Kiev           2.0      Kutaisi      Riga          3.0

    Tbilisi          Brussels             4.2      Tbilisi       Paris          4.4      Kutaisi   Thessaloniki     2.4

    Tbilisi          Beijing              7.4      Tbilisi     Bologna          3.6      Batumi       Minsk         2.5

    Tbilisi      Sharm el sheikh          2.5      Tbilisi       Milan          3.8      Batumi     Moscow          2.3

Source: www.flighttime-calculator.com

  Colliers International Georgia                                                                                     24
The Reliance of The Georgian
 Economy on Tourism

  The reliance of the Georgian economy on tourism                           same category, and the recovery period will be
  has increased significantly in the last couple of years.                  extensive.
  In 2019, tourism made up 8.1% of the Gross
                                                                            Georgia mainly receives tourists from its neighboring
  Domestic Product of Georgia.
                                                                            countries. Leading countries by the number of
  Domestic tourism has a small role in the sector                           tourists in Georgia are Russia, Turkey, Armenia,
  overall and takes up a mere 27% (percent of local                         Azerbaijan, Ukraine, and the EU countries
  tourists in the total number of tourists staying at                       collectively. In order to make an accurate estimate of
  hotel-type accommodations). With these numbers,                           future visitors to Georgia, the spread of the virus in
  Georgia appears in the lower right corner of the                          said countries must be taken into consideration, as
  graph (close to Greece). It is expected that the crisis                   when these countries will be able to stop the spread
  will have a significant effect on the hotel industry                      of the virus.
  and the economy in general for countries in the

  DOMESTIC TOURISM RELATIVE TO TOURISM AS A PERCENTAGE OF THE ECONOMY, 2019

                                 Significant impact on the hotel industry           Significant impact on the hotel industry
                                 and economy, prolonged recovery                    and economy, gradual recovery
                                 Significant impact on the hotel industry           Significant impact on the hotel industry but
                                 but less on the economy, slow recovery             less on the economy, faster recovery

Source: Colliers International

 Colliers International Georgia                                                                                                    25
Tbilisi Hotel
Market Overview

                  Photo: Panorama Freedom Square
Supply
 Tbilisi’s hotel market provides the largest share of             EXISTING HOTEL ROOM SUPPLY BY YEARS
 hotel rooms in Georgia. In 2019, the existing supply
 consisted of 541 hotels, with a total of 12,430 rooms.
 The largest share, 41% of rooms, are categorized as
 economy/budget, while 38% fall in to the local                                                                                         5,119
 upscale and middle segment, 13% into the                                                                               3,888
 international midscale segment, with only 8% of the
                                                                                                         4,744
 total room supply categorized as international                                        5,222
 upscale.                                                            4,046
                                                                                                                                        4,728
 The total supply of rooms increased by 22% in 2019                                                                     4,251
 when compared to 2018. However, the tourism sector                                                      2,820
                                                                     2,335             2,348
 suffered due to the ban on flights to Georgia from                                                                                     1,573
                                                                                       972               1,091          1,423
 Russia in July 2019. Until 2017, there were only three               972
                                                                                                                         632            1,010
                                                                      376              590                590
 international upscale hotels in Tbilisi: the Radisson Blu
 Iveria, Tbilisi Marriott and the Biltmore hotel. In 2018,           2015              2016              2017           2018            2019
 the Sheraton Grand Tbilisi Metekhi Palace, Wyndham                  Local Economy/Budget Class                  Local Upscale and Middle Class
                                                                     International Midscale Class                International Upscale Class
 Grand Tbilisi, and Stamba Hotel entered the market.
 Together, these hotels provide 5% of the city’s total            Source: Colliers International

 room supply. Nine more international upscale brands,
                                                                  EXISTING SUPPLY BY YEARS
 among them Hilton, Marriot Autograph Collection,
 Radisson Red, and Tbilisi Hyatt, are expected to open                                                                               27,165
 during the next few years, adding 706 hotel rooms to
                                                                                                                       22,661
 the capital’s stock.                                                                                 21,319
                                                                                     18,329
 International midscale hotels provide 13% of the                  14,692
 city’s hotel room supply. Eight hotels are categorized                                                                              12,430
                                                                                                      9,466            10,107
 in this segment, consisting of Courtyard Tbilisi,                                   8,360
                                                                     6,656
 Rooms Hotel Tbilisi, Holiday Inn Tbilisi, and Mercure
 Tbilisi Old Town. Five hotels are expected to open in                287              352               379             426            541
 this segment over the next three years, including Park
                                                                     2015         2016                2017         2018       2019
 Inn by Radisson, Swissotel, Hilton Garden Inn,
                                                                       Number of Hotels            Number of rooms    Number of beds
 Wyndham Garden and Ramada Tbilisi (Melikishvili).
 Together, they will add 655 rooms to the supply.                 Source: Colliers International

 Looking ahead, 18 international hotels are scheduled
 to open during the next three years, which will result              The stock of international hotel
 in around 3,296 new rooms joining Tbilisi’s stock.                  rooms is expected to double by 2023.

 EXISTING AND FUTURE SUPPLY OF INTERNATIONALLY-BRANDED HOTELS
                                                                                                                                        38
                                                                                                                       36
                                                                                                    31                              12,165
                                                                                                                     11,535
                                                                                                   10,231

                                                                                20
                                                             18
                                                15                             6,256                                                 5,879
                                                             5,266                                                    5,539
                          10        11                                                             4,602
        9                                      4,256
                         3,190     3,451
      2,760                                                                    2,979
                                                             2,583
                                   1,681       2,055
      1,348              1,562

      2015               2016      2017        2018       2019                 2020                2021              2022           2023

                                   Number of Hotels    Number of rooms                 Number of beds
  Source: Colliers International

Colliers International Georgia                                                                                                     27
MAP OF EXISTING AND UPCOMING
                                                                                           INTERNATIONAL HOTELS

                                                                    Majority of upcoming announced hotels are situated out
                                                                    of central hotel cluster. In particular, Vake district features
                                                                    three major hotel developments.

EXISTING INTERNATIONAL HOTELS
                                                                                                                 Capacity of
                                                                                                          # of
  #    Operator                           Location                                       Owner                   Conference    Class
                                                                                                         Rooms
                                                                                                                   Rooms

  1    Radisson Blu Iveria                1 Rose Revolution Square           JSC New Hotel                249        645       Upscale

       Sheraton Grand Tbilisi Metechi                                        Ras Al Khaima Investments
  2    Palace
                                          16 Telavi Street
                                                                             Authority Georgia
                                                                                                          220       2,472      Upscale

  3    Wyndham Grand Tbilisi              3 Gudiashvili Street               City M                       158        350       Upscale

  4    Tbilisi Marriott                   13 Shota Rustaveli Avenue          GMT Hotels                   127        427       Upscale

  5    The Biltmore Hotel                 29 Shota Rustaveli Avenue          Dabi Group Georgia           214       1,104      Upscale

  6    Stamba Hotel                       14 Merab Kostava Street            City Loft                     42        230       Upscale

  7    Holiday Inn Tbilisi                1 26 May Square                    Adjara+                      270        712       Midscale
       Hotels & Preferences Hualing       Joseph Pilsudski Avenue, Tbilisi
  8    Tbilisi                            Sea
                                                                             Hualing Group                246       1,410      Midscale

  9    Ibis Tbilisi Stadium               178 Aghmashenebeli Avenue          Stadium Hotel                150         -        Midscale

 10    Moxy Tbilisi by Marriott           Saarbrucken Square                 GMT Hotels                   130         -        Midscale

 11    Ibis Styles Tbilisi Center         4 G.Tabidze Street                 MaQro Construction           119         -        Midscale

                                                                             MaQro Construction
 12    Mercure Tbilisi Old Town           9 Vakhtang Gorgasali Street                                     108         65       Midscale

 13    Courtyard Tbilisi                  4 Freedom Square                   GMT Hotels                   118        662       Midscale

 14    Citadines City Centre Tbilisi      4 Freedom Square                   Amtel Properties Georgia      66         -        Midscale

 15    Rooms Hotel Tbilisi                14 Merab Kostava Street            City Loft                    125        818       Midscale

 16    Ramada Encore                      15 Kazbegi Avenue                  M2                           152        145       Midscale

 17    Best Western Tbilisi Art Hotel     11 Apakidze Street                 Tifli Development             45        222       Midscale

 18    Best Western Tbilisi City Center   92 Vasil Barnovi Street            Bani 2007                     44         -        Midscale

 Colliers International Georgia                                                                                                28
PIPELINE OF INTERNATIONALLY-BRANDED HOTELS

                                                                             # of   Opening              Construction   Investment
#         Developer           Operator/brand       Location                                    Class
                                                                            Rooms    Year                   Type          Volume

     Axis/Georgian Co-     AccorHotels/ Pullman   37-39 Chavchavadze
1                                                                            226     2020     Upscale     Greenfield
     Investment Fund       Hotels & Resorts       Avenue

     Georgian Co-          Panorama Freedom
2                                                 Freedom Square             220     2021     Upscale     Greenfield
     Investment Fund       Square

                           Paragraph Hotel
     Georgian Co-          & Convention
3                                                 Sololaki Hills             208     2022     Upscale     Greenfield
     Investment Fund       Center/ Panorama
                           Sololaki

4    Granat Georgia        Hilton Tbilisi         41 Kostava Street          206     2021     Upscale     Brownfield

                           Radisson Blu
5    Silk Road Group LLC                          31 Rustaveli Avenue        180     2023     Upscale     Brownfield
                           Telegraph

     Georgian Co-          Paragraph Golf & Spa
6                                                 Tabori Mount               176     2022     Upscale     Greenfield
     Investment Fund       Resort

     Rustaveli Property
7                          Tbilisi Hyatt          30 Rustaveli Avenue        170     2022     Upscale     Greenfield
     LLC
                                                  44 Agmashenebeli
8    Telegraph LLC         Radisson Red                                      110     2021     Upscale     Brownfield
                                                  Avenue
                           Kempinski Hotels       22 Zaal Dumbadze                                                      USD 900 mln
9    M2 Residence                                                            99      2021     Upscale     Greenfield     (incl.VAT)
                           Tbilisi                Street
10   Beta Group            Ibis Budget Tbilisi    14 Uznadze Street          227     2022     Midscale    Brownfield

     LLC Block-
11                         Park Inn by Radisson   10 Chanturia Street        200     2021     Midscale    Brownfield
     Investment
                                                  64 Chavchavadze
12   Redix                 Hilton Garden Inn                                 170     2020     Midscale    Greenfield
                                                  Avenue
                           Hilton Garden Inn
13   KIT 2016                                     17 Ialbuzi Street          161     2021     Midscale    Greenfield
                           Tbilisi Riverside
                                                  49G Chavchavadze
14   Alliance Group        Wyndham Garden                                    160     2023     Midscale    Greenfield
                                                  Avenue
15   Beta Group            Ibis Budget Vera       22 Akhvlediani Street      158     2021     Midscale    Brownfield

16   Archi Group           Ibis                   22 Gulua Street            156     2022     Midscale    Greenfield

16   Macro Construction    Swissotel              3 Virsaladze Street        145     2021     Midscale    Greenfield

17   M2 Residence          Ramada Tbilisi         10 Melikishvilis Street    125     2021     Midscale    Greenfield
     Simetria/Capitol
18                         Holiday Inn Express    4 Lagodekhi Street         121     2021     Midscale    Greenfield
     Investment Group
     LLC Block-            Louvre Hotels
19                                                2A 300 Aragveli Street     78      2021     Midscale    Greenfield
     Investment            Group/Golden Tulip

Colliers International Georgia                                                                                           29
Photo: Wyndham Grand Tbilisi

Demand
The number of tourists in Tbilisi usually follows the     BREAKDOWN OF HOTEL GUESTS BY
trend of the whole Georgia. Despite the decreased         PURPOSE OF VISIT, 2016-2018
number of Russian tourists due to flight bans,
there was no significant decline in the annual                                         11%                       15%
                                                               17%
tourist inflow. Georgia managed to partially
substitute it with a significant increase in demand                                    22%                       15%
                                                               25%
from non-neighbouring countries, as well as with
internal tourism.
Travellers from Russia, Turkey, Iran, and Azerbaijan
                                                                                       67%                       70%
comprise the majority of Tbilisi’s hotel guest                 58%
numbers. The number of guests in Tbilisi hotels
increased by 7% year-on-year (y-o-y) in 2018, with
70% of those guests visiting Tbilisi for leisure and
15% in town on business. 15% of hotel guests are               2016                    2017                      2018
locals and 85% international visitors. Tbilisi’s hotels               Leisure & Recreation     Business      Other
hosted around 1,743,000 guests in 2018.                   Source: Geostat

Ministers of tourism from several dozens of
countries will gather in Tbilisi in September 2020 to
discuss the future prospects of the tourism
industry at a ministerial under the aegis of the
United Nations World Tourism Organisation
(UNWTO).

Colliers International Georgia                                                                                         30
Performance Indicators
 The hotels’ market has witnessed a decreasing                              stability yet, also reduces the average indicators of
 trend in all main performance indicators during past                       international upscale hotels.
 few years. The main reason for this downward
                                                                            The average daily rate (ADR) in Tbilisi decreased in
 going trend is not only the increased supply of
                                                                            2019 in all segments. As Georgian Lari critically
 hotels since 2017, but the strengthening
                                                                            depreciated against USD Dollar in 2019, the ADR in
 competition of Airbnb as well.
                                                                            USD terms significantly changed. A substantial
 Occupancy rate recorded a decrease in all segments                         decrease (13% y-o-y) was recorded in International
 in Tbilisi after 2017 due to the abovementioned                            Upscale class hotels.
 reasons. Additional cause of the sharp decline in
 the occupancy rate in 2019 could also be the flight
 bans from Russia, which negatively affected tourism                        Among different classes, international upscale
 industry. Relatively to other hotel segments,                              hotels suffered from the sharpest fall in
 international upscale, as well as local upscale and
                                                                            performance indicators in 2019, supposedly
 midscale hotels experienced the higher occupancy
 rate in 2019 amounting to 62% each. The fact that                          due to increased supply by 60%.
 Sheraton Grand Metekhi Palace has not reached a

ADR (USD, excl. VAT) 2015-2019

 177     175            175
                                                                                                  2015    2016     2017    2018     2019
                161
                                152

                                              118
                                                    112   108   104
                                                                      94
                                                                             77         79
                                                                                  72         72
                                                                                                     61      57
                                                                                                                    39         43      39
                                                                                                                          36

 International Upscale Class                 International Midscale Class Local Upscale and Middle Class Local Economy/Budget Class

Source: STR Global, Colliers International

OCCUPANCY RATE (%) 2015-2019
                                                                                              2015        2016     2017    2018        2019

          70% 69%
  68% 70%                                                 68%                          69% 68%
                                              65% 64%           64%
                                62%                                   60%   62% 64%                 62%
                                                                                                                   57%
                                                                                                                          55% 54%
                                                                                                             48%
                                                                                                                                       46%

  International Upscale Class                International Midscale Class Local Upscale and Middle Class Local Economy/Budget Class

Source: STR Global, Colliers International

Colliers International Georgia                                                                                                    31
Performance Indicators
 Revenue per available room (RevPAR) experienced                       in 2019. It is followed by the local upscale class with
 significant decline in 2019 in all segments of hotels,                USD 38 and local budget class with USD 18, both
 which is caused by the increased competition all                      declining by 23% and 25%, respectively.
 segments, combined with the decreased inflow of
 tourists due to the flight bans from Russia.
                                                                       In 2019, a substantial decrease was seen in
 The figure for International upscale class hotels
 stands at USD 94, decreasing by significant 22%.
                                                                       RevPAR across all hotel classes ranging from
 International midscale class also recorded the                        15% up to 25%.
 decline in the REVPAR by 15%, standing at USD 57

REVPAR (USD, excl. VAT) 2015-2019
                                                                                              2015   2016   2017    2018        2019

  121     123            120
                 113

                                 94

                                              77        74
                                                   71
                                                             67
                                                                  57
                                                                                    53
                                                                         47   46         49
                                                                                                38
                                                                                                       27
                                                                                                            22          24
                                                                                                                   19            18

  International Upscale Class             International Midscale Class Local Upscale and Middle Class Local Economy/Budget Class
 Source: STR Global, Colliers International

Colliers International Georgia                                                                                             32
Photo: Airbnb Listing, Tbilisi

Airbnb Market in Tbilisi
The daily rental, home-sharing platform Airbnb,          MONTHLY AVERAGE NUMBER OF ACTIVE LISTINGS
offering around 7 million listings in more than 100 K    AND BOOKED PROPERTIES BY YEARS
cities, operates in 220+ countries and regions. Since
its launch in early 2008, the website has grown                                                                            6,658
rapidly in popularity among tourists and domestic
travelers all around the world. As of 2019, the
platform has more than 750 million guest arrivals.
                                                                                            3,732
In Georgia, the rental platform was launched in early
2017. Even though it was a novelty for locals, by the         2,020
end of the year, the platform had around 6,319
active listings. The figure impressively grew in 2018,        6,319                         10,248                        14,418
with 62% more listings, amounting to a 10 K monthly
average.                                                      2017                          2018                           2019

Relatively to 2018, in 2019 the number of properties                      Active listings     Booked Properties
listed on Airbnb also saw a substantial growth by        Source: AirDna
41% from 10,248 to 14,418 average monthly listings.
However, this is 2.2x higher than the average number
of booked properties (that is 6,658 in 2019).            MARKET REVENUE BY YEARS (USD)
The median ADR of entire homes in Tbilisi has seen a
slight decline during past 3 years, standing at USD 33
in 2019. The market revenue of Airbnb has been                                                                         35,174,352
                                                                                                          55%
characterised by a steadily increasing trend over the
past few years, having grown by 55% from 2018 to
                                                                             81%          22,747,078
2019. This trend reveals the fact that Airbnb is
successfully competing with local budget hotels and
gradually taking up a larger portion of their              12,548,464
consumers.

The Airbnb market is impressively competing                   2017                          2018                           2019
with hotels, almost tripling its total market                                      2017     2018       2019
revenue since 2017.                                      Source: AirDna

Colliers International Georgia                                                                                            33
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