“If mortgages become unaffordable the residential sector will become saturated with empty or half-finished buildings. Good quality office space is in very short supply but this is due to low demand, and we think the hospitality and F&B sectors will continue to boom for the foreseeable future,” Steve Brown, Managing Partner at Cushman & Wakefield | Veritas Brown, told The FINANCIAL.

“Development of the commercial real estate market in Georgia remains firmly focused on the tourism and hospitality sector, which led to us expanding our provision of hospitality consultancy services through the recruitment of Tom Day as Regional Hospitality Director. Also, the expansion of international food and beverage brands is still high on the agenda for 2015 and there are a number of new and exciting retail developments planned in Batumi,” said Brown.

“We are helping Starbucks, through Alshaya, with their roll out in Kazakhstan, but we are making little progress convincing them to come to Georgia; this may change in the medium term. We believe many existing international brands are close to saturation point within the region and are seeking to consolidate rather than expand further,” he added.

Q. How would you summarize 2014 for the Georgian real estate sector?

A. The market began to stabilise after the period of “cohabitation” and 2014 was another successful year for Cushman & Wakefield | Veritas Brown in the Caucasus Region - commission and service fee revenue saw a year-on-year increase of 35% and new improved office premises were found in Tbilisi as staff numbers expanded to 18. We also opened a second office in Batumi primarily to take advantage of the continued focus on the development of tourism in the region.

Q. In your words, the period of “cohabitation” in 2013 had a negative effect on the state of the commercial real estate market in general. Has the situation changed for the better since the presidential elections?

A. There seems to be increased confidence amongst developers, although there is still a degree of caution due to the continued regional instability and local currency issues. But generally things are improving, albeit slowly.

Q. The recent devaluation of the national currency towards the USD has had a negative impact on the solvency of the population. What will be its impact on the real estate sector?

A. Residential development is on the increase, these projects are only successful if the population can gain access to affordable mortgages and of course be in a position to pay them. Currency devaluation can have a damaging impact for both developers and home owners alike, a fluctuating currency is not welcomed, and the Government should consider options to stabilize the situation. We were informed that a recent EBRD report supported the Government on their non-interference policy so perhaps doing nothing at present is the best policy; time will tell.

Q. Cushman & Wakefield | Veritas Brown has been successfully operating in Kazakhstan since 2009. The country is also experiencing hard economic times. What is the situation there at the moment in terms of the real estate sector?

A. The economy in Kazakhstan is intrinsically linked to both the Russian economy and oil prices; two factors that adversely affect current and future prospects in the country. Consequently, the real estate sector is also experiencing an adjustment accordingly - for example, many occupiers are consolidating operations in the short to medium-term with a view to expanding in the medium to long-term.

Q. The Russian-Ukrainian crisis had a negative impact throughout the whole region. Which countries remain the most promising?

A. The current downturn in the Russian economy has caused a ripple effect throughout the region. Those countries with the most positive outlook are those that are insulated from the effects of both Russia and the drop in energy prices, or are sufficiently diversified through cooperation with a number of different international partners, such as China, India, the EU etc.

For Georgia, the best way to minimize external risks is through diversification, by working with a variety of partners, who themselves are not intrinsically linked.

Q. Attracting FDI still remains a big challenge for Georgia. What are your expectations of whether we’ll see larger interest from foreign investors in the country in 2015?

A. For the time being we do not expect to see increased FDI into Georgia due to regional instability issues. Investors have little, if any, risk appetite for the region but may look for trophy assets with good revenue streams.

Q. What are the main negative and positive steps that discourage and encourage the interest of foreign investors in Georgia?

A. Generally Georgia is a good place to do business, highlighted by the country being ranked 15th highest out of 189 economies in the World Bank’s “Ease of Doing Business” index; this position slipped from 8th last year.

However, the recent immigration debacle did not help. Investors coming to Georgia from the east need to have access to the country, and imposing unattainable visa requirements doesn’t help. Common sense needs to be applied and investors need access to the country.

Q. The construction of residential apartments was quite active during 2013-2014. Do you think that as the supply exceeds demand we might face another wave of uncompleted buildings?

A. There seems to be an unfinished residential development on every street corner, a legacy of the 2008 crises. Most are poorly located and constructed, and competing with projects - such as Bank of Georgia M2, which in our view are excellent developments - will be difficult. At present demand exceeds supply, so until this dynamic changes most new, well-located and constructed projects should yield returns.

Q. In Georgia there is no practice of insuring buildings under construction. What are the main reasons for it and do you recommend the implementation of this practice?

A. If is not a legal requirement then developers are not obliged to insure buildings. The Government needs to address this issue which we believe should be a legal obligation.

Madona Gasanova, The FINANCIAL