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Rent is determined by what businesses believe they can make in profit. If businesses believe they will be shut down periodically because of SIP orders, they wi
by wtvanhest 7y ago
Rent is determined by what businesses believe they can make in profit. If businesses believe they will be shut down periodically because of SIP orders, they will need a discount to today’s rent all else equal
- PaulDavisThe1st 7y agoThat's a little simplistic. Rent is determined by a fairly complex interplay between what landlords believe they could collect from some hypothetical tenants, and what tenants believe they could afford to pay based on some hypothetical level of business. Granted, not many tenants will choose to pay rent that exceeds what they think they can pay, but it may certainly exceed what they are actually able to pay. And plenty of landlords keep premises empty because they want to wait for some other tenant who will pay them what they think they can get, rather than accept the rate real potential tenants are prepared to pay.
- UncleOxidant 7y agoAdd to this mortgages on rental space. Mortgages already in place based on the valuations of a more prosperous time. Many will be defaulted on.
- kgwgk 7y agoIf you mean that rents may find a new equilibrium at a lower price where the demand and supply curves cross that’s how markets usually clear. At least in textbooks. :-)
- wtvanhest 7y agoTbh, it’s exactly what I mean. The important distinction is that nothing has changed except willingness to pay so... rents have to go down to clear transactions. Overtime, some landlords will hold out, but by doing so, they may lose money vs what they would make if they sign lower deals. Bottom line, on the margin, rents will be lower.