Colliers warns that Romanian currency weakening could increase rental costs

The local real estate market could be affected this year by the potential depreciation of the Romanian national currency, in an already volatile context generated by the Covid-19 epidemic, according to real estate consultancy firm Colliers International.

The depreciation of the Romanian currency (RON) has been minor so far - a bit above 1% against the euro in the last couple of months -, compared to other countries in the region, like Poland, Czech Republic or Hungary, where national currencies are up to 10% weaker against the euro.

Should the RON face a similar depreciation, the cost to rent a property would increase substantially, leading to up to EUR 25,000 extra costs per year for a prime 1,000 sqm office space in Bucharest, with service charges included, Colliers International consultants estimate.

“In such an extreme risk scenario of a 10% depreciation of RON against the euro, real estate property costs would increase with the equivalent of EUR 25 per square meter per year, which is a significant price increase especially in the current context. In theory, this would have to be covered solely by the tenant, but the extraordinary circumstances in the market mean that landlords, particularly from retail and office segments, may not be in an overly dominant position to negotiate,” says Silviu Pop, Head of Research at Colliers International.

New kinds of burden sharing arrangements could be established between landlords and tenants. Landlords could consider short-term rental holidays or even bringing forward any contracted rent-free periods which are typically added at the end of a lease. In return, tenants could be expected to increase their lease lengths by the compromised period or more, according to Colliers.

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