Results: What Happened in Uzbekistan's Real Estate Market and What to Expect in 2024

Spot, together with Denis Sokolov, General Director of Commonwealth Partnership (CMWP), reflects on the past year for the residential and commercial real estate markets: how retail companies and international brands are driving demand for warehouse spaces, how prices have changed, and what lies ahead for real estate in 2024.

Spot continues its year-end reviews across various industries. This time, together with Denis Sokolov, General Director of Commonwealth Partnership (CMWP), we will explore trends, price changes, and forecasts for the residential and commercial real estate markets.

Market Overview

According to Denis Sokolov, 2023 was a stable year for the real estate market. Most indicators showed acceleration, including construction rates and the announcement of new projects.

"As a result, we can talk about quantitative growth, but unfortunately, qualitative growth is still premature. However, the classification of office buildings by the American Chamber of Commerce (AmCham Uzbekistan) is a significant milestone for Tashkent’s market," notes Sokolov.

He explains that real estate typically follows the economy’s trajectory. If the economy grows, the real estate sector often leads in development; stagnation or a downturn in the economy frequently results in a crisis in the real estate market. In 2023, macroeconomic indicators were positive: GDP growth was 5.5%, inflation was about 10%, and the Uzbek sum lost approximately 10% against the US dollar. The Central Bank's key interest rate remained at 14%.

"In real estate, 2023 marked the beginning of market consolidation, with rental rates and prices gradually leveling out. The market has fewer extreme price points, and buyers and tenants have become more discerning. They are no longer willing to accept any price—they are gradually improving their qualifications as investors. Just a few years ago, properties (offices, shops) were bought with the sole intent of selling them for a higher price. In conditions of scarcity, this approach worked, with some projects seeing prices double from their initial sales. However, high construction rates have led many investors to cash in their assets bought two years ago, creating competition for the primary market. Those unwilling to sell their properties are seeking rental income, enabling more realistic evaluations of their properties based on investment potential. When buyers and sellers align in their market perspectives, it becomes easier to agree on price and deal terms," explains Sokolov.

Residential Real Estate

According to the Center for Economic Research and Reforms, in November, the average price of secondary housing in Tashkent was $1,100 per square meter, a nearly 23% increase over the year. Across the country, the average cost of housing rose by 18.2%.

Meanwhile, rents in the capital fell by 9.2% to $9.3 per square meter since the beginning of the year. Prices have been declining since last year, following a sharp spike triggered by the relocation of Russians to Uzbekistan.

"Tashkent is actively building new housing projects, driven by fundamental demand fueled by urbanization, internal migration, and the fact that apartments remain an unmatched investment asset," notes Sokolov.

In 2022, the Central Bank warned that a "price bubble" might form in Tashkent’s housing market. The Central Bank explained that the "bubble" is expanding because people expect housing prices to continue rising, which further increases demand. In turn, this persistent price growth attracts investors seeking profit, driving prices even higher regardless of fundamental factors.

This year, individuals without formal income also gained access to mortgages, further stimulating housing demand.

Despite the construction of new housing, prices continue to rise. The Central Bank attributes this to the combination of investment-driven demand and the lack of alternative savings instruments.

The persistent demand for housing, coupled with limited supply, suggests that the growing imbalance between demand and supply could further inflate the housing bubble, according to the Central Bank.

At the same time, the Central Bank Governor Mamarizo Nurmuratov stated that a maximum mortgage loan limit of 440 million UZS has been established, reducing the risk of a "bubble."

"We set a maximum loan limit regardless of the cost of housing when issuing a mortgage. The goal is to prevent negative impacts on banks if the 'bubble' bursts. Even if a house costs 1 billion UZS, the loan provided by the bank in Tashkent will not exceed 440 million UZS. This mitigates the risk of a 'bubble,'" he explained.

S&P also forecasted that real estate prices in Uzbekistan would not cause economic imbalances in the near future.

Offices

The office real estate market spent the year anticipating the launch of key projects in Tashkent. However, expectations were only partially met. Projects like the Summit Business Center (about 30,000 sq. m of usable space within Tashkent City Mall) and several office towers (over 150,000 sq. m of usable space in Tashkent City Lot 6) did not materialize, significantly impacting the delivery of Class A+/A spaces this year.

"One key event was the introduction of office spaces at the Trilliant project. This is significant because it provides a substantial supply of ready, high-quality spaces in a prime location. Currently, this asset sets the upper limit for rental rates. Future buildings entering the market in 2024 will have to compete with it. Marketers and agents face a challenging task in leasing these spaces in a competitive market," notes Sokolov.

According to preliminary calculations by CMWP analysts, the total amount of quality office space in Tashkent at the end of the year was 97,400 sq. m for Class A+/A (compared to 45,000 sq. m at the beginning of the year) and 313,800 sq. m for Class B+/B (compared to 279,500 sq. m at the start of the year). The actual increase in office space in 2023 was 117% in Class A+/A and 11% in Class B+/B.

In the second quarter, rental rates for Class A+/A offices were $34.6 per square meter, while Class B+/B spaces were $21.8 per square meter. The vacancy rate was 3.18% for Class B/B+ offices and 17.41% for Class A/A+ offices.

Retail

The retail real estate market saw the least growth in 2023. Preliminary calculations by CMWP’s research and analytics department show 500,500 sq. m of space in shopping centers by the end of 2023.

This year, only one project, Tashkent Expo, was launched, but it can only partially be considered a formal shopping center. Including this project, the total increase in retail space was less than 4%.

The market had expected the completion and opening of several shopping centers this year, including Alfraganus, Tashkent City Mall, and Central Plaza. While construction and finishing work on the first two projects were completed, they have yet to open. Currently, Alfraganus and Tashkent City Mall are in the process of securing tenants, while Central Plaza remains under construction.

"Tashkent’s shopping centers desperately need reconceptualization and new retail operators. However, this segment is 'on hold' as the market awaits the opening of Tashkent City Mall. This landmark project for Central Asia could reshape consumer behavior, making it logical for other shopping center owners to delay reconceptualization to better position themselves in the market afterward," says Sokolov.

He also notes active changes in street retail driven by shifts in consumer traffic patterns. "Shopping corridors" are emerging—streets with high concentrations of retail outlets and specific specializations. For example, Taras Shevchenko Street is becoming a popular restaurant street, where numerous dining establishments attract visitors, boosting property value and attractiveness.

Warehouses

By the end of the year, the total warehouse space in Tashkent and its surrounding areas amounted to 320,000 square meters, while storage facilities (i.e., non-professional spaces not intended for logistics operations) accounted for 970,000 square meters.

"E-commerce saw significant growth in 2023, with the number of pick-up points (PUPs) increasing exponentially. Logistics center projects have been announced, and major e-commerce operators are actively entering the market," noted Sokolov.

The largest marketplaces operating in the country—Uzum, Wildberries, and Ozon—have announced plans to build their own logistics centers in various regions.

This year, spaces in the Tashkent Index commercial and industrial complex continued to open. The complex includes light industrial spaces ranging from 500 square meters to 1,200 square meters per unit. The introduction of modern Class A warehouse spaces is expected in 2024.

According to NF Group analysts, the rental price for Class A spaces is $124 per square meter annually, while Class B spaces cost up to $55. In 2024, the average asking price is expected to reach $130 per square meter annually.

Julia Tokareva, Head of Strategic Consulting at Commonwealth Partnership, stated that the volume of warehouse real estate in the country will increase 50-fold over the next 10–15 years. The most rapid growth will occur by 2030, driven by a low starting base and the active development of the market. After this, growth dynamics will slow slightly.

What to Expect in 2024

Denis Sokolov,

General Director of Commonwealth Partnership / Uzbekistan

De-dollarization and digital transactions. The real estate market will continue shifting from cash transactions to bank settlements, favoring transactions in the national currency (UZS). This transition will require players to account for inflation and discount rates in financial modeling, creating opportunities for business education and financial literacy growth.

Introduction of landmark architectural projects. Developers will need to enhance competitiveness by engaging world-class architects to design iconic projects representing the capital.

Activation of the secondary market. Systems for real estate listings and transactions need to be developed to address investor challenges in selling properties.

Boom in e-commerce and logistics services. The shift from traditional markets to online marketplaces will intensify competition among major players, spurring the logistics sector.

Urban environment transformation. Changes in transportation flow algorithms, organized parking systems, and public transport development are expected.

Development of New Tashkent. Although full-scale construction is still far off, developers, architects, and consultants will begin considering New Tashkent's growth potential in 2024.

"We do not expect significant changes in pricing or rental rates in 2024. However, we anticipate a substantial increase in commercial lease and sale transactions. Overall, the market is poised for an exciting and productive year."

Source: Spot.uz