[latchkey]

> We don’t need a Chipotle on every corner. We don’t need another $20 box salad store.

These are the only types of business that can afford the rents though. Even if you get another lower cost place in there, they have to cut corners on quality and end up going out of business or just being really bad food. How do you overcome that?

[lotsofpulp]

Lower the rent.

[latchkey]

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.

[evilduck]

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]

That's because we are in a game of chicken right now.

[lotsofpulp]

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]

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.

[wewtyflakes]

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

[profile53]

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

[latchkey]

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]

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]

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.

[bluecheese452]

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

[eftychis]

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.

[EMM_386]

> How do you overcome that?

It will lower itself naturally.

Less people in office buildings means less foot traffic to stores, which means less fewer stores will be enticed to rent.

If nobody's renting, eventually the owners and investors will have to realize some rent is better than no rent, even if it means they are going to take a loss.

Then rents start dropping back to earth.

[latchkey]

That doesn't mean the people will come back to support those businesses though. In the case of SF, since there is only office space downtown and almost zero housing, this is going to be a problem of finding tenants than it is about lowering rents. Who's going to want to open a retail space where there is no foot traffic?

[HWR_14]

The usual solution to that is that someone (maybe the owner of many buildings in an area) finds several tenants to open at the same time, and thus tries to produce a retail destination. So no one wants to open a bar near 30 empty offices, but if I tell you I am getting 4 restaurants, 3 art galleries, another bar and a theater to all open in the same area than you all can feed off each other. Or instead of a lot of little things, tries to get one big draw to open. You can imagine that opening a bar next to a movie theater is better than not near one.

[latchkey]

I opened a night club on a block in SF that had lots of other bars. Unfortunately, we also picked the one spot on the block that was also next door to a liquor store.

I can't tell you how much that cost us because people would just go next door, get a small bottle of something for cheap, down it while they were out on their smoke break and then come back to the show in my place.

It really sucked honestly.

[fragmede]

Which one? Butter? The moves California ABC made during Covid were interesting.

[latchkey]

Same block. I have stories about the ABC for days, evil evil humans work there. If meter maids had a place to graduate to, this is where they go.

[HWR_14]

I can see how that's bad placement. Did you try a cover with no-reentry to at least cut down on that?

But, yeah, it can be harmful like that or positive in that maybe there are restaurants next door where people eat before they come to your bar for drinks and a show.