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Brosse Street Journal » Business and Economy:

Hotel boom in Tbilisi

By Shalva Bibilashvili, Kamala Hassanova, Martha Ardashelia, Turan Huseynova, Asset Matayev
Brosse Street Journal
Wednesday, May 30 2007
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By 2010, Tbilisi will have five more hotels, run by world-famous hotel operators.
Apart from the Marriott, which operates two hotels here, and the Sheraton, hoteliers Hyatt, Kempinsky, Radisson and Intercontinental have also signed deals with international investment groups, which have bought real estate in the Georgian capital. Meanwhile, the United States-based flagship brand Hilton Hotels Corp. is in talks with the Georgian government to construct its own 5-star hotel in Tbilisi.
In early November, Georgian President Mikhael Saakashvil attended the announcement about Intercontinental Tbilisi Hotel. The deal was arranged by Georgian Properties the investment group behind the project. Saakashvili said that it is the image of Georgia as the world's number one economic reformer that attracts investors to the country.
He referred to the World Bank's Doing Business 2007 report, which identified the country as the number-one reformer of economy.
But is a hotel in the relatively small Georgian market a good prospect, or risky business?
According to the Department of Tourism, of the Georgian Ministry of Economy, all risks are in hands of the private companies. The department says that before making investments, all private businesses conduct elaborate market research. In fact, they have already pledged in their contracts with the Georgian government to make further investments when their initial projects are finished.
Development Solutions, a Georgian-Kazakh investment group, believes the risks are acceptable. They cite significant changes in the business climate in Georgia, reflected in research by the Germany based Horvath and Partner Management Consulting. The result was the deal with the Radisson Hotel and Resorts to operate a $100 million Radisson SAS Hotel in the center of Tbilisi, due to open in early 2009.Development Solutions is the biggest investor in the hotel business in Georgia. Apart from Tbilisi, the firm is investing in 22 hotels in Adjara, the Black Sea province of Georgia. Daulet Orazaliyev, the CEO with Development Solutions, says that some investors may wait and look at how the situation develops before they actually open hotels. But Orazaliyev believes that the emergence of internationally known hotel brands in Georgia means that the country's potential is recognized.
Within two minutes walk from the future Radisson SAS, Kempinski, another 5-star hotel, is due to open in 2010. Kempinski Hotels is teamed with the London-based Capital Vostok investment group. Michael Tippin, a founder of Capital Vostok, is also a founder of Toronto-based Tippin Corp, which according to the Canadian daily Globe and Mail, announced last summer its plans to sell its portfolio of properties in Toronto to invest in Eastern Europe.
According to Aword investment group, a Georgian subsidiary of Capital Vostok, Kempinski will be the first A-class hotel and apartment complex in the South Caucasus, designed by the German architects, Rob Krier and Christoph Kohl. Apart from 200 hotel rooms and 50 apartments, Kempinski will include a shopping mall with international brand boutiques of and cafés. The Aword says risk is part of every business, but they also say that they will balance their books over the next seven to eight years after a nearly $50 million dollar investment.
Meanwhile, Hyatt International is partnering with International Estate Investments-Georgia, to develop and operate the Park Hyatt hotel in the Georgian capital. The 183-room hotel will be one of a quintet of buildings in the center of the city that will be operated by Hyatt. The other buildings will be a conference center, an office complex, a restaurant and a spa. The man behind the Park Hyatt project is Roman Pipia, a Russian businessman of Georgian origin, who's reportedly investing $150 million of his personal fortune into this project according to web site
Natia Turnava, a former first deputy minister of economy in Georgia, now is executive director of Industrial group of Georgia says that before entering any market, investors weigh all pros and cons. According to Turnava, the first thing to consider is a supply-and-demand principle. The supply on Tbilisi's hotel market includes two famous brands (Marriott and Sheraton), and others that were relatively unknown. The demand for hotels is much higher, she says, and very often the top-level hotels would have no room for top-level business or political activities
Turnava believes that liberalization of the Georgian economy is playing a role in the hotel boom in Tbilisi. The Georgian economy is more liberal then that of the neighboring Caucasian states and its capital is gradually becoming an economic center for the region, she said. The prices here match those on international market and even though the competition is growing, she believes it risk will be covered by demand. And finally, she said, the customers' habit worldwide is to choose the famous brand rather than its unknown competitor.
The question of many foreigners visit Georgia annually is not easily answered. According to statistics from the Georgian border police, which records passages in and out of the country, the number of foreigners who entered Georgia increased from 560, 021 in 2005 to 983, 114 in 2006.
This is 76 percent increase - almost unheard of in the tourism business. But this number includes those who might have crossed the border several times over the course of a year.
But the Department of Tourism says that this possible multiple counting does not temper the positive character of what's going on, because even if a person arrives in a country on several different occasions, he spends several times more than he would have spent had he arrived only once.
Mariam Slowinsky Georgian Tourism official believes that the growing competition on a 5-star hotel market will create new jobs for highly qualified personnel and will significantly improve the level of service.
They also say the competition will reduce prices for 5-star service in Tbilisi.
In addition, tourism officials say, the hotel boom of brand operators will change the image of inexpensive Georgia as expensive country and will eventually attract more tourists.
The Department of Tourism also expects more investments in lower level hotel market. After completion of all 5-star hotels, Tbilisi will have more luxury rooms available than cheaper rooms, if no new, smaller hotels are built.

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