Georgian hotel market growing, but lacking foreign investment. ქართული სასტუმროების ბაზარი იზრდება, მაგრამ არის უცხოური ინვესტიციების ნაკლებობა

Georgian hotel market growing, but lacking foreign investment. ქართული სასტუმროების ბაზარი იზრდება, მაგრამ არის უცხოური ინვესტიციების ნაკლებობა
01 September 2014

The FINANCIAL -- The average daily rate of Georgian hotels increased by 7.5% in July 2014 compared with the same month of 2013, STR Global, global data tracker of the hotel industry, told The FINANCIAL. The daily rate of Georgian hotels totalled GEL 247.09 in July 2014 while the rate was GEL 229.14 in the prior-year period. During the past 5 years the record number of FDI (USD 181.9 million) in the HoReCa sector was mobilized in 2008, the year the country survived its brief war with Russia.

The total number of registered hotels in Georgia amounts to 1,631. The largest share (40%) are located in Tbilisi. 24% are situated in Adjara. During the current year 26 new hotels have been registered in Georgia. Meanwhile the share of FDI in the HoReCa sector measures the lowest (1%) out of the total investment fund.

STR Global track supply and demand data for the hotel industry and provide market share analysis for international, regional hotel chains and independent hotels.

July 2014 has shown a slight increase of occupancy. It reached 74.9% in the seventh month of the current year, up from 74.5 from the same period of the previous year.

Revenue per available room amounted to GEL 185.05 in July 2014, up from GEL 170.69 from July 2013.

There are 12 hotels in the pipeline in Georgia, with 2,019 rooms between them. Out of them 4 are situated in Batumi, which will bring an additional 720 rooms to the Black Sea coastal city. With the scheduled 5 hotels, an additional 985 rooms will be offered for accommodation.

Georgia is the fourth country by number of upcoming hotels in the CIS. With 126 units Russia leads the list. It is followed by Poland, which expects to increase its hotel number by 27. A total of 16 hotels are in the process of being established in Ukraine, and Belarus counts 10.

Georgia is missing midmarket and budget internationally-branded hotels, HVS Global Hospitality Services told The FINANCIAL. The company, which monitors the global hospitality business, says that there is great potential for hotel development in both the sea and mountain resorts of Georgia.

According to HVS, the development of midmarket and budget hotels is the key opportunity in hotel development in Georgia and the CIS. All hotel brands which are not currently present in Georgia are potentially interested in entering the market. High demand and low supply remains the key reason for the high room rates in the country. HVS suggests that a price reduction will happen automatically once more hotels open up.

“Investors are discussing Georgia as an interesting country for business due to its very pro-western outlook and approach, plus being very good for doing business, as well as its high tourism potential,” Alexey Korobkin, Senior Consultant at HVS Consulting and Valuation, told The FINANCIAL.

HVS Global Hospitality Services is a consulting firm based in Mineola, New York, that specializes in providing services to the hospitality industry.

According to him, private investors and groups in Georgia have a tendency to first build luxury and upscale hotels, partly due to the “ego” factor. There is a concern that if the upscale and luxury segments become oversupplied this will affect the whole market by putting pressure on both ADR and occupancies. “In general, oversupply for such a small market like Georgia will lead to a decrease in operating performances,” he concluded.

“Currently the Georgian hotel market has quite a strong performance; the lack of international hotels allows the few players to achieve good results. As new supply enters, there will be some pressure on the operating performance,” he said.

“Despite the economic turmoil in Russia, the CIS and Georgia and continued crisis in the Euro zone, hotel development in this region continued in 2012,” said Korobkin.

Besides the increasing number of registered hotels in Georgia, the volume of FDI made up only 1% in the first quarter of 2014. Out of the total volume of FDI - USD 259,853,800, HoReCa made up only USD 1,810,500. Even the previous year ended with -13,360,100 in the sector. During the past 5 years the record number of FDI in the HoReCa sector was mobilized in 2008. The sum came to USD 181.9 million.

According to the Georgian National Statistic Center, there were 836 active hotels and hotel type accommodations in 2013. The number was 7.6% more than the data of the previous year.

The number of hotel rooms increased by 6.1% in 2013 in comparison with 2012 and counted 15,351.

The total number of guests at Georgian hotels and hotel-type places amounted to 1.26 million. 62% of them were non-residents. The number of hotel guests showed 5.9% growth during 2013 in comparison with the previous year.

The number of employees at hotels amounted to 8,735 in 2013, the figure is 2% more than it was in 2012. Females are the dominant employees at hotels. They made up 59.4% or 5,189.

According to the latest report of KPMG Georgian office regarding the hotel industry in Tbilisi, there are several factors that affect the demand for Tbilisi hotels. Out of a total score of 4, the friendliness of staff reached 3.86; cleanliness of rooms - 3.73; location - 3.55; image (reputation) - 3.45, and price - 3.27.

In addition, the same report determined the following five economic indicators to have the greatest impact on the flow of visitors to Tbilisi, listed from the most influential to the least influential. Government spending with 3.45 has been the most influential factor. It is followed by business spending - 3.36, FDI - 3.36, international assistance - 3.27, and GDP growth - 3.18.