Georgian office market – interview with Zurab Eristavi, Managing Partner of RENTALS LLC
Wiktor Doktór (Pro Progressio): Zurab. I must say that watching Georgia from the business perspective, it is a country with huge potential of growth, especially when it concerns BPO and IT industries. Those kind of businesses have significant office requirements. What is current size of A and B class office buildings in Tbilisi?
Zurab Eristavi (RENTALS LLC): Wiktor, the classification process for A, B and C class properties is not fully finished yet, but we should be talking about 70.000 sqm of A Class properties and around 98.000 sqm of B Class properties in Tbilisi. All these business centres are centrally located (within 5 kilometre radius and good transport access).
WD: Tbilisi is not the only one business destination in Georgia. What are other business cities and how does the office market look like over there?
ZE: The Second and the third largest cities in Georgia are Batumi and Kutaisi. After having their first office in Tbilisi businesses are looking to extend in those cities as well. That is what Majorel, a leading BPO company did. There are no classified A and B Class properties in those cities but there certainly are properties which have great potential for BPO and IT companies.
WD: We know already about the size of the market. Let’s take a look on costs. What is the average cost of square meter Tbilisi, Kutaisi and Batumi? Are there any significant differences or costs are similar in all cities?
ZE: The cost of A Class properties in Tbilisi is in the range of USD 22-30 per sqm depending on the location, additional facilities and prestige. The prices for B class properties vary from USD 16 to 20.
The prices in Batumi and Kutaisi and well behind Tbilisi. Respective A and B Class properties would cost half the price.
WD: Are there are service charges connected to rent, or the cost of office rent covers also media, security, etc.?
ZE: Usually the total cost per sqm consists of the following components:
- The rent,
- Management fee,
- Utilities
- VAT.
The management fee varies from USD 2 to 5 per sqm. The utility costs are in the range of USD 3-4. So we can say that above the rent price one needs to assume additional USD 5- 8 per sqms (an aggregated management fee and utility cost);
WD: As Rentals LLC you have started in 2008 from residential market, which was a big success. When did the office era started in Georgia and is your company doing on that market?
ZE: Indeed, We RENTALS started as prime residential letting agency in 2008 with the main emphasis on long term housing solutions for diplomatic and business entities. Currently we are working with around 25 different embassies on dozens of commercial institutions.
After securing the leading position in residential housing brokerage in 2015, we started to cover commercial real estate sector as well and today with some 45.000 sqm commercial space rented and sold we are again leading the commercial sector list. Georgian National Real Estate Association named RENTALS as the Company of the Year twice in the raw (2017,2018).
With two our biggest international BPO companies we crossed the boarder of Georgia and set offices in Armenia.
WD: Thank you for all of those details. Let’s take a look into the future. What are your expectations of growth of office buildings in Georgia in the next 2-5 years? What are current demands for office spaces and what they can be in near future?
ZE: Currently the vacation rate at A Class properties stand at 40 % and I think it will time some time before market absorbs this supply, but the there is a big demand in B Class office facilities with the price range of USD 15-18. There number of large scale projects coming to the marking in the coming 3-5 years. Most of them will provide B Class solutions. I believe that in the coming years the supply will surplus the demand creating more favourable conditions from the new tenants.
WD: Thank You.
