Market Snapshots Q1 2020
First quarter of 2020 started out on a high note on Tbilisi hospitality market – the number of incoming tourists was increasing and the ADRs had been stabilized at long-term levels. However, end of February brought COVID-19 and by mid-March hospitality sector was fully paralyzed. State of Emergency was announced on March 21, which prompted all but a handful of hotels to close down. The few that remained opened were accommodating stranded tourists or served as quarantine sites. Non-brand hotels felt the effects of the pandemic more acutely and had to let go of their staff. With significantly stronger financial backbone, branded hotels endured the first onslaught of pandemic slightly better.
Trouble for the retail sector began when the first case of COVID-19 was identified in Georgia on February 26th. First week of March saw sales figures drop by 35%, followed by a drastic 80% plunge in the week leading up to the announcement of the State of Emergency. Swift and sharp reduction in revenue forced many retailers to close their stores days before the State of Emergency mandated closure of all retail units. Retailers with an online presence started aggressively advertising their e-commerce platforms and offering discounts in a bid to recapture market demand. Yet by the end of Q1 2020, the retail market was in full stall. Due to the quick depletion of the working capital, 40% of the retailers interviewed have not been able to pay March salaries.
January and February were quiet months for the office market. There were no new entrants and the rent rates and occupancy in A and B Class centers remained virtually unchanged. Second half of March ushered in the regulations and restrictions imposed due to COVID-19. Lockdown and the State of Emergency forced many workplaces to shift to teleworking mode, which emptied the business centers. By the end of March, situation was still quite uncertain but a number of tenants had started conversations with regard to lease renegotiations. Overall, circumstances have been less than favorable for landlords given that apart from lease renegotiation requests, due to force majeure, tenants stopped paying rents.
Due to fears of unemployment and the efficiency of working from home, the chances that tenants will opt for smaller offices or will abandon standard offices altogether are very high. This puts landlords in a risky situation. In Tbilisi, the pipeline of office buildings has been quite voluminous for some time now. The unfavorable market conditions have caused the launch of some A Class BCs to be delayed. COVID-19 will further delay these launches.