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Currency depreciation puts tenants, landlords in difficult situation

The depreciation of most currencies in the CEE region in the last couple of months puts both landlords and tenants in a difficult situation, according to research by Colliers International.

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In "CEE Special Insights Series: Covid-19 – Opportunities and Challenges in Extraordinary Times", Colliers International takes a look at the effects of the coronavirus crisis on the real estate market.

Countries that have not adopted the euro, or are not pegged to it, have each seen a 10% depreciation in currency value, during the last two months, with the exception of the Romanian leu, which has depreciated just 1%, largely due to central bank intervention.

The research points out that as the majority of leases in CEE are denominated in euros, this can come as an additional strain to occupiers, particularly those whose income is largely collected in local currencies (CZK, PLN, HUF & RON). 

"On top of the forced or voluntary operational closures for retail, F&B, entertainment, hospitality, offices and some manufacturing and production facilities, to safeguard people’s health, this puts both landlords and tenants in a very unfortunate predicament," says Kevin Turpin, regional director of research, Colliers International.

"This is indeed uncharted territory, as the pandemic and subsequent states of emergency are restricting ‘business as usual’ for so many individuals and businesses. Therefore, reaching a mutually ‘best of a very bad situation’ compromise is surely one way to help protect all of our interests in the long run," he adds. 

While landlords will want to collect their rents to protect their investments, occupiers will try to focus on securing the future of their businesses and people. Colliers argues that a future where properties have no businesses to occupy them and where businesses have no properties to operate from does not paint a very good picture for anyone. 

Luke Dawson, managing director and head of capital markets CEE, Colliers International says, "Loan repayment holidays and/or other financial measures, including government aid packages across the region are hopefully in the making and until these are more clear, it is essential that we find workable solutions that will work alongside these, assuming of course that whatever support is provided, it will not provide a ‘miracle cureʼ." 

The research argues that at the moment, landlords are considering short-term rental holidays or bringing forward any contracted rent-free periods instead of diving head-first into legal disputes. In return, Colliers expects tenants to increase their lease lengths by the compromised period or more.

More information and recommendations for business during the coronavirus epidemic by Colliers is available here.