Population of 3.5 million people, retail growth 8 times and new housing formats: the basic scenario for the future of Tashkent - Denis Sokolov

Denis Sokolov, CEO of Commonwealth Partnership, shared his thoughts with Spot.uz on how Tashkent might evolve over the next 5–10 years and what factors will influence the development of its real estate market.

Professional consultants approach any project by developing future scenarios. Whether it’s traffic management at an intersection, the creation of a public zone, or constructing an office building, the approach depends on forecasts: how many cars will cross that intersection in 10 years, the education level of public zone visitors, or the types of companies that will lease the office spaces.

Urban challenges have long-term effects and cannot be addressed without envisioning the future.

There are two types of forecasts: probabilistic and aspirational. Aspirational forecasts, which dominate in business media, depict the future we aim to create. For example, when a minister states that certain goals will be achieved by a specific year, they outline aspirations rather than probabilities.

On the other hand, probabilistic forecasts appear in internal company reports, investment bank analyses, or publications by major consulting firms and international business media like FT or Bloomberg. High-quality forecasting relies on building a foundation of critical thinking and infrastructure, ensuring that predictions can be adjusted based on real-world data discrepancies.

Tashkent’s Future Scenarios

The baseline scenario predicts economic liberalization and accelerated urbanization. Recent trends suggest that by 2030, Tashkent’s population will exceed 3 million, reaching 3.5 million by 2035. Natural population growth is expected to range from 1.5% to 2% annually, with net migration contributing 30,000–50,000 people per year.

Afterwards, the growth rate will slow down as the country faces a demographic transition in which life expectancy increases but the birth rate decreases.

Education is the main challenge with such rapid population growth and migration. Moscow, faced with a similar problem in the early 2000s, attracted mainly the most educated and energetic people from regional cities. This led to a “bleeding” of human potential in the regions and caused imbalances in the pace of development for the next 10 years.

Today Tashkent is experiencing a boom in educational services, and this is great. However, one must bear in mind the experience of China, where the “education bubble” created an unbearable burden on households who gave their last money to provide their children with educational advantages, so much so that the state had to intervene and begin strict regulation of this area.The migration potential from Russia, Belarus and Ukraine in this matter can be considered precisely as an opportunity to improve the skills of personnel for the urban economy.

The transition to a post-industrial economy requires a large number of jobs, including in the service sector. At the same time, there is a risk of “lumpenization”: the formation of a layer of low-skilled personnel who do not have opportunities for development. While in Europe, working as a courier or salesperson is a stage in the careers of many young people, in developing countries these types of activities can become a career dead end.

And this is where foreign companies, which are essentially social elevators, play a key role. The same McDonalds or Starbucks invest a lot of effort in the development of their staff, because only by ensuring the development of an employee can one expect conscientious work.It would seem that what kind of knowledge is needed in order to brew coffee, but such companies pass personnel through a selection sieve and the directors of coffee shops and restaurants are recruited precisely from those who stood at the counter yesterday.

The war in Ukraine greatly influenced the position of international businesses operating in the consumer market. If two years ago companies were aggressively looking for new markets for themselves and those top managers who could propose expansion strategies looked like heroes, then today risk managers rule the roost.And it’s not just the Russian experience: in China, consumer sector companies also face reputational problems and aggressive pressure from consumers and regulators.

This is why we are adjusting our forecasts regarding the expansion of global business in Uzbekistan: previously we assumed that we would see real activity in the consumer market already in 2023, but now the consumer revolution is postponed until 2024-2025. During this period, 2-3 new brands will come to the republic every month.

We expect retail trade turnover to grow at 20% per annum in the near future, then growth will slow to 10-12% by the 30s. By 2035, retail turnover per capita will increase 8 times and amount to about 160 million soums per year. Combined with population growth, this means a more than 10-fold increase in the capital’s retail market.

The main problem is inequality, which will persist until the middle class is formed. Much depends on government policy. The “New Uzbekistan” program as a whole sets the vector for the formation of the middle class. We believe that by 2035 the share of the middle class in Tashkent should reach 25%. However, this is not enough for sustainable development of the city.

How the real estate market will change

The housing market has been developing rapidly in recent years. Townspeople are worried about rising prices, but the market itself is still in its very early stages of development. At this stage, the apartment is considered by the buyer according to the principle “my home is my castle”, and not as a financial instrument, investment asset, or lifestyle.

In large cities, an apartment is not a place to sleep, but a ticket to the human capital factory that is the modern city. Yes, people are forced to pay three to four times more for housing in London than, for example, in the Scottish provinces. However, in London they have access to education, career opportunities, and social connections that are not possible in the provinces.

Housing developers have long been taking into account these requests, providing a product that best meets the buyer’s requirements, even those that the buyer himself is not yet aware of, since he lives in the usual paradigm.

The point is, on the one hand, to increase the price per square meter for the developer, and on the other hand, to minimize the complex cost of ownership for the buyer. This is why new formats are emerging, such as serviced apartments (a real estate format that requires full furnishings and the provision of household appliances - note Spot), student housing, studios, co-living (coliving - “shared living”, a type of inexpensive housing, in which like-minded people live together - approx.), multifunctional complexes.

Just in recent months, a number of developers from Russia have begun to consider Tashkent as a new market. We believe that the demand potential for Tashkent will be 1.5−2 million sq.m. housing per year.

However, without the development of mortgages, one can hardly expect outpacing market growth. Therefore, the main question is whether it will be possible to launch mass mortgage lending in 2023-2024. And here the main issue is the interest rate and lending currency.

International banks today, frightened by currency volatility in Turkey, Russia, and Kazakhstan, will not be ready to finance massive foreign currency mortgages due to the risks of devaluation. Therefore, the main task is to reduce rates in local currency. We believe it will take about three years to roll out mortgage lending. At the same time, individual developers will increasingly offer an installment plan system for the sale of housing.

From a price point of view, we expect relative stability in 2023 and accelerated growth by 2025. In general terms, we believe that housing has approximately double growth potential over a 10-year horizon.

We usually adjust forecasts and scenarios twice a year, and it is these adjustments that allow us to assess how dynamically the market is developing and what new business opportunities are opening up.

Source: Spot.uz
Photo: Radmir Khabibulin / Spot