Representatives of the hotel sector have noted a decline in the investment attractiveness of Georgia’s hotel business in recent years, with the primary reason being the increased payback period for investments.
Paata Kokaia, the founder of Inn Group, explained in an interview with BM.GE that the period for recovering investments in the hotel sector, which used to take 7-8 years in the past, has now extended to at least 17-18 years.
According to Kokaia, the supply of hotel rooms in Georgia has been increasing at a faster pace than the annual growth in the number of tourists.
“Both factors are at play here. Naturally, there is reduced demand from businesses for tourism and hotel investments because, while 10 years ago, it was possible to recover your investment in 7-8 years, now it takes at least 17-18 years. Moreover, there are ongoing wars around us, which further complicates the situation, and it may be that even 17-18 years will not be enough under current conditions. Banks are also cautious about these investments; many hotels have been sold, closed, or had their profiles changed,” Kokaia noted.
He emphasized that without loans, investors need about 17-18 years to recover their investments, and the situation becomes even more complicated with loans. The current interest rate on loans is over 9% in euros, meaning that if credit is involved, it may take 20-23 years to recoup the investment.
“At this point, we are not planning to build more hotels. The only investment will be in the ‘Iveria’ hotel in Tbilisi. Practically everywhere we have swimming pools, saunas, and gyms. The only thing missing at ‘Iveria’ is these amenities, so we’ll likely reinvest in that property. We have no plans to invest in any new construction at this stage,” Kokaia added.
Kokaia also mentioned that commercial banks are cautious about lending to the hotel sector due to the growing number of bankruptcies and closures in the tourism industry in recent years.
“Currently, banks will not give credit just based on the hope of a hotel business unless there is something else to back it up. You must present another business alongside the hotel to service the credit. It is almost impossible to get credit just on the hotel’s merits. If a bank saw that this was a very profitable business, it would approve the credit, as their primary role is to issue loans. But given the number of bankruptcies, banks are now more cautious,” he explained.
He further added that there is significant competition in Tbilisi and Kakheti, and that building hotels in these regions is currently unattractive. Since 2019, the number of hotels in both Tbilisi and Kakheti has grown so much that the number of tourists cannot keep up with the supply, leading to uneven growth.
