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Easier said than done. Limited space == Higher rent. People are downvoting me, but not really understanding what I'm saying. Even if there is more empty space,

Easier said than done. Limited space == Higher rent. People are downvoting me, but not really understanding what I'm saying. Even if there is more empty space, what is happening is that landlords are leaving them empty, which keeps the rents higher because there is still limited effective availability. They aren't going to rent to a small business because they don't want to get locked into a 5-10 year lease on a small business when they can potentially wait a bit and rent to a larger business who will pay more and likely survive longer.

wewtyflakes 3y ago
Isn't the main thrust of the argument that supply has outpaced demand in commercial real estate?
profile53 3y ago
Isn’t the problem that there is more empty space than needed now so the rents *should* fall?
- latchkey 3y ago
  Retail != Office Retail rent will fall because nobody is in the offices. Retail business will close because of less traffic, and thus there will be more space. But, retail leases are typically 5-10+ years. Why would a landlord lower the rent now to a small business and get stuck in a long lease, when they don't know if the office space will recover and the big businesses will want to come back? It is a game of chicken.
  - profile53 3y ago
    A lot of those five-year contracts were negotiated before Covid and I suspect they will expire in the next year or two. After a certain point, the building owner will have to choose between lowering rents, or having the building foreclosed on due to having no tenants. Also, at the beginning of Covid, several big businesses just refused to pay retail rent as a negotiating tactic. It would not surprise me if that happens again.
    - latchkey 3y ago
      I'm not talking about past, I'm talking about current and future. "Why would a landlord lower the rent now to a small business" now.
      - ImPostingOnHN 3y ago
        as the post you responded to said: > After a certain point, the building owner will have to choose between lowering rents, or having the building foreclosed on due to having no tenants
        latchkey 3y ago
        Except that isn't their only choices. It'll depend on their finances as well as the market futures. Many many buildings sit empty for ages for a whole bunch of different reasons. Can't just generalize into a binary like that.
        ImPostingOnHN 3y ago
        given the choice between no money and money, most will choose money, and no amount of 'it depends' will change that the fact that some people let some buildings sit empty for some time doesn't mean most will let most sit empty for most of the time after all, the next best alternative for building owners is foreclosure or abandonment or sale at a loss, the next best alternative for businesses is 1 of a thousand different places, or just a remote workplace
        latchkey 3y ago
        > given the choice between no money and money, most will choose money They might not have the choice. Nobody is going to rent ground floor retail space in an area with no foot traffic. It is a race to zero all around.
        ImPostingOnHN 3y ago
evilduck 3y ago
Space may be limited but it's not utilized. In my local metro's business district around 60% of storefronts are sitting vacant and yet rent for these spaces is still astronomical. And it's been that way since 2020. The push for a return to the office is a clear cash grab.
- latchkey 3y ago
  That's because we are in a game of chicken right now.
  - lotsofpulp 3y ago
    I think it is because property (specifically land value) taxes are far too low. The under taxation of land results in land owners squatting on it without doing anything that society benefits from.
    - lamontcg 3y ago
      It is also because loans are still locked in to ZIRP-era rates. That keeps the cost of capital low and businesses that own those properties have a lot of room for them to be wildly unprofitable. It will take awhile for those loans to roll over to higher rates.
eftychis 3y ago
Well the space is not limited anymore, as the commenters suggest. The natural progression is for rents to go lower. The problem is that would mean that the valuation of the real estate would need to change, which would imply debt repayment, and given higher interest rates: default or finance under onerous terms or being cash rich already. At the end (as the Fed expects): defaults => lower real estate value ^ rents => cheaper food options. And that is where usually executive is going to come in to save Government Supported Real Estate (GSE), and throw a wrench to Feds approach. tl;dr: the government supports this situation it will come to make it worse once again /s.
bluecheese452 3y ago
That is the point right? There isn’t limited space as evidence by those areas sitting empty.
deleted 3y ago
[deleted]

wewtyflakes 3y ago

Isn't the main thrust of the argument that supply has outpaced demand in commercial real estate?

profile53 3y ago

Isn’t the problem that there is more empty space than needed now so the rents *should* fall?

latchkey 3y ago
Retail != Office Retail rent will fall because nobody is in the offices. Retail business will close because of less traffic, and thus there will be more space. But, retail leases are typically 5-10+ years. Why would a landlord lower the rent now to a small business and get stuck in a long lease, when they don't know if the office space will recover and the big businesses will want to come back? It is a game of chicken.
- profile53 3y ago
  A lot of those five-year contracts were negotiated before Covid and I suspect they will expire in the next year or two. After a certain point, the building owner will have to choose between lowering rents, or having the building foreclosed on due to having no tenants. Also, at the beginning of Covid, several big businesses just refused to pay retail rent as a negotiating tactic. It would not surprise me if that happens again.
  - latchkey 3y ago
    I'm not talking about past, I'm talking about current and future. "Why would a landlord lower the rent now to a small business" now.
    - ImPostingOnHN 3y ago
      as the post you responded to said: > After a certain point, the building owner will have to choose between lowering rents, or having the building foreclosed on due to having no tenants
      - latchkey 3y ago
        Except that isn't their only choices. It'll depend on their finances as well as the market futures. Many many buildings sit empty for ages for a whole bunch of different reasons. Can't just generalize into a binary like that.
        ImPostingOnHN 3y ago
        given the choice between no money and money, most will choose money, and no amount of 'it depends' will change that the fact that some people let some buildings sit empty for some time doesn't mean most will let most sit empty for most of the time after all, the next best alternative for building owners is foreclosure or abandonment or sale at a loss, the next best alternative for businesses is 1 of a thousand different places, or just a remote workplace
        latchkey 3y ago
        > given the choice between no money and money, most will choose money They might not have the choice. Nobody is going to rent ground floor retail space in an area with no foot traffic. It is a race to zero all around.
        ImPostingOnHN 3y ago

evilduck 3y ago

Space may be limited but it's not utilized. In my local metro's business district around 60% of storefronts are sitting vacant and yet rent for these spaces is still astronomical. And it's been that way since 2020. The push for a return to the office is a clear cash grab.

latchkey 3y ago
That's because we are in a game of chicken right now.
- lotsofpulp 3y ago
  I think it is because property (specifically land value) taxes are far too low. The under taxation of land results in land owners squatting on it without doing anything that society benefits from.
  - lamontcg 3y ago
    It is also because loans are still locked in to ZIRP-era rates. That keeps the cost of capital low and businesses that own those properties have a lot of room for them to be wildly unprofitable. It will take awhile for those loans to roll over to higher rates.

eftychis 3y ago

Well the space is not limited anymore, as the commenters suggest. The natural progression is for rents to go lower. The problem is that would mean that the valuation of the real estate would need to change, which would imply debt repayment, and given higher interest rates: default or finance under onerous terms or being cash rich already. At the end (as the Fed expects): defaults => lower real estate value ^ rents => cheaper food options. And that is where usually executive is going to come in to save Government Supported Real Estate (GSE), and throw a wrench to Feds approach. tl;dr: the government supports this situation it will come to make it worse once again /s.

bluecheese452 3y ago

That is the point right? There isn’t limited space as evidence by those areas sitting empty.

deleted 3y ago

[deleted]