[rabidrat]

It's a common fallacy that rents fall when demand drops. In fact, they often don't, particularly for commercial space; the owners choose instead to let the spaces go unused. I've seen this happen up close with several buildings my city, in several neighborhoods. There was an article a while ago about how Greenwich Village suffered a similar fate.

[mrep]

Got a source to back up that claim? Detroit for example has seen inflation adjusted commercial office space prices massively drop:

"Adjusted for inflation, the average office tenant paid a peak price of $34.34 per square foot during the fourth quarter of 2000, 65.5 percent more than the current average rate of $20.76, according to Newmark Knight Frank data. It's almost as deeply pronounced for Class A space — which has the best amenities and finishes. Today's Class A rental rate is $24.36 per square foot, but in the third quarter of 2001, tenants paid inflation-adjusted rent of $38.12 per square foot, 56.5 percent more than now" [0].

[0]: https://www.crainsdetroit.com/article/20170730/news/635141/d...

[rabidrat]

Here's The Atlantic article I was talking about, "How Manhattan Became a Rich Ghost Town" http://archive.is/PWOC2

And a NYTimes article similarly, "The Empty Storefronts of New York" https://archive.is/JnhDS

Basically rents are too high, so businesses won't rent because it won't be profitable. In 2018 when the NYT article was written, "about 20 percent of all retail space in Manhattan is currently vacant, compared with roughly 7 percent in 2016."

So maybe this is bimodal: you have "rich" areas like Manhattan and SF and Seattle, where rents stay high even with low occupancy (landlords sitting on empty properties and enjoying the free ride of increasing asset prices), and you have "poor" cities like Detroit, where no one wants it and you can't even give it away ("free" property still comes with liabilities like taxes and maintenance).

[nanidin]

I follow along in /r/realestate and it seems that part of the motivation for this behavior is that the owners are usually leveraged - they don't own the property outright, or if they do, they have taken a loan against the property. If they lower rents, it impacts the valuation more than staying vacant and waiting for a new tenant, which in turn has implications on the loan & ability to obtain loans in the future.

[chosenbreed37]

Can the city councils do anything to counter that? I wonder...I heard about Frome (Southwest England) where the local council took proactive steps to prevent the high street being filled with betting shops. I think they lowered business rates significantly and possibly other measures.

[aeternum]

A land value tax can help quite a bit. It can both prevent landlords from capturing all / most of the value when rents rise and also help act as a cushion when rents fall.

The current property tax system that most cities use make little sense. It penalizes people for improving and updating the structures on their land. Cities should be encouraging property improvements.