In business strategy, markets are often described through the concepts of red and blue oceans. Red oceans represent existing, saturated markets characterized by intense competition and a largely fixed customer base. Blue oceans, by contrast, refer to new market spaces where innovative products create competitive advantages and generate fresh demand. While most companies operate in red oceans, blue ocean strategies are relatively rare. Global examples include Netflix, IKEA, and ride-hailing platforms—businesses that introduced fundamentally new products and successfully established themselves in previously untapped markets.
A comparable blue ocean opportunity has emerged in Georgia’s commercial real estate leasing market through an innovative pricing product. To understand its significance, it is useful to first outline the prevailing red ocean strategy. In Georgia, it is widely assumed that both commercial and residential real estate prices are fundamentally denominated in US dollars. As a result, leasing contracts are typically signed in USD—a standard market practice today.
However, is the fundamental price of real estate truly dollar-based? For readers of TBC Capital, the answer is well known: it is not. Rental prices expressed in US dollars exhibit significant volatility driven by exchange rate fluctuations. This indicates that the fundamental value exists not only in USD, but also—perhaps even more so—in Georgian lari (GEL). If this is the case, should commercial property be leased in lari? This is where innovation enters the equation.
In practice, landlords and tenants often have opposing currency preferences: tenants generally favor lari, while landlords prefer US dollars. Consequently, exchange rate movements frequently necessitate repeated rent adjustments in dollar-denominated contracts. The innovative solution fundamentally changes this pricing model by introducing commercial property leasing in inflation-indexed lari—a denomination that has historically demonstrated far greater stability than the US dollar.
This product offers clear advantages to both parties. Tenants are protected from exchange rate volatility and benefit from greater predictability, while landlords preserve purchasing power without the need for frequent price revisions. Crucially, this approach is not only more stable but also more profitable. Although outcomes depend on the analysis period, long-term data show that between 2005 and 2025, rental income generated through inflation-indexed lari leasing would have been twice as high as income denominated in US dollars.
Skeptical readers may argue that inflation-indexed rent is not a genuine innovation, as it is widely used across Europe. While this is true, the product is innovative in the local context, where Georgia’s market remains highly dollarized. Although this is not the creation of an entirely new market, but rather a fundamentally new product, the conclusion remains unchanged: a differentiated strategy delivers superior results. Naturally, currency choice is only one of many factors influencing business decisions, but given its significant potential benefits, it warrants particular attention.
Beyond pricing, TBC Capital emphasizes that an optimal currency structure for financing should be based on a comprehensive framework that includes:
- Corporate finance indicators for managing currency risk;
- Consideration of business cyclicality and price elasticity of sales;
- Financing costs such as interest rates and currency conversion expenses; and
- Exchange rate equilibrium assessments and forecasts.
Within this framework, leasing commercial property in lari serves as a natural hedge for lari-denominated loans—unlike USD-based leases. The issue of fixed versus floating interest rates is also critical. While floating rates are generally perceived as riskier, in this case they are linked to the monetary policy rate, which typically rises during periods of high inflation. Inflation-indexed rent therefore offsets higher interest costs. At the same time, inflationary environments often lead to higher prices for tenants’ goods and services, preserving their purchasing power—unlike scenarios where the lari depreciates while rent remains dollar-denominated.
Although borrowing in lari provides natural currency hedging when the fundamental price is lari-based, TBC Capital typically recommends multi-currency financing in both Georgia and other dollarized economies. A diversified loan structure helps reduce interest costs and improve debt service ratios. Moreover, lari depreciation against a multi-currency basket is usually associated with inflationary episodes, during which inflation-indexed rent increases as well, mitigating risk.
According to TBC Capital’s assessment, the most optimal loan basket at present consists of lari, US dollar, euro, and yuan. This structure enables higher borrowing capacity alongside lower interest expenses. While foreign-currency borrowing entails conversion costs when revenues are lari-denominated, these costs are generally outweighed by interest savings. Additionally, a significant portion of corporate expenses is often denominated in foreign currencies, further reducing effective conversion costs.
Finally, exchange rate equilibrium assessment and forecasting—the fourth pillar of the framework—remain critical. Over the past five years alone, applying this component could have generated GEL 6.5 billion in potential benefits for Georgia’s corporate sector, compared to an average corporate loan portfolio of GEL 16.9 billion during the same period. The recent strengthening of the euro further validates the framework’s effectiveness, aligning with TBC Capital’s earlier recommendations to maintain a lower euro share relative to the dollar in foreign-currency loan baskets.
In conclusion, TBC Capital continues to engage with stakeholders to further integrate macroeconomic analysis into strategic business decision-making. The company expresses its gratitude to partners and reaffirms its readiness for continued cooperation.
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