[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.

[ImPostingOnHN]

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]

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.

[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.