It sort of is. When a property owner has loan against a commercial property, the lender uses the monthly rent to calculate how much they will loan you. The rent number they use is the last paid rent.
So you, the property owner, end up in a situation where if you lower rent to attract a new tenant, the bank will recalculate your loan, potentially ending in a margin call.
Because you are a heavily leveraged house of cards, a rug pull on a few of these loans could cause a cascade liquidating your commercial inventory. Your business is buy a property, take a loan against it, use that loan to buy a property, etc etc.
Therefore it becomes worth it to carry vacant properties, because they are acting as the stilts holding up your money making properties. The vacancy becomes a cost of doing business, and gets factored into the rent of places that are getting leased.
The current location my office is in, was vacant for 12 years before we signed a lease, owned by a big name commercial real estate firm.
Given what seems like a high rate of vacancies in a lot of markets maybe its time for those landlords to be wiped out, the loans defaulted, and the buildings sell to get back to their real valuations.
But no, we can't have wealthy people lose some money or the banks take a loss, that'd be terrible. We'll just continue crushing the middle class and poor with high rent costs and empty properties.
In an ideal situation, cities should be placing pressure on property owners and businesses to lease out vacant space because otherwise they are effectively offloading the negative externalities of empty space to the city and its tax base. If the city isn't going to outright buy vacant property for the sake of development, then it should heavily tax property owners for leaving said property empty or undeveloped.
That might help a little, but you won't notice. Beating such taxes is done with low value businesses. A mattress store is a typical case, good for holding larger spaces with almost no capital cost: a low overhead business used to hold a retail property until values appreciate. Smaller spaces are held with little clothing stores nobody shops at, or wire transfer shops and such. There is a plethora of such operations holding real estate everywhere, barely breaking even or losing modest amounts of money.
It's compelling to imagine there is some brilliant tax fix for every ill, but investors are a lot more agile than tax authorities; they make their living solving these impediments. Handling food is one the costliest ways to hold a commercial property, so that's rarely how its done.
I don't disagree, but even a low overhead business is still going to be better than an empty storefront (since it means creating some business and employment than none) and a reasonable % of said vacant businesses will be turned into decent value for the community. It's something especially apparent because even the local mattress stores have closed and left said space vacant.
Ok, but you're not going to get a nifty $4 lunch bowl shop. The properties are held until Starbucks or H&R Block or whatever wants to expand. Maybe said tax makes the mattress store reopen with its one minimum wage cashier poking at their phone all day, but you won't get more than that. The investors are holding out for the big money.
The business model works because when a buyer appears looking for numerous sites for expansion, they can deal with a professional investor group that can close deals in a cinch. This greatly lowers costs, because otherwise said buyer has to employ a small army of expensive people and take years to acquire or develop properties themselves. The buyer pays a premium for the value of foregoing all that. The price covers all the years of expenses; minimum wage labor, taxes, upkeep, and a good deal of profit, after years or even decades of squatting.
Nowhere in any of this is there someone with dreams of $4 lunch bowl shops.
> so why would they need to rent to a business with low operating costs
If you're asking why the landlord doesn't just leave the site vacant? They're offsetting costs or obviating vacancy taxes or both. There are a lot of reasons why it's beneficial to keep the lights on and babysit a place.
If you're asking why the landlord minds having a real tenant instead? The landlord doesn't want a real lessor that actually values the location, holds a 10+ year lease, invests money for improvements, makes weird modifications, etc. They want a junk business they can kick to the curb when the time comes.
Often the landlord and the placeholder business are the same, behind the scenes, renting from themselves. No hassle when it's time for the deep pocketed tenant/buyer to move in. All you need is a low cost property manager to look in on the place once a week, make sure the "staff" are actually showing up, and keep the plumbing/heat/electrical working.
So you, the property owner, end up in a situation where if you lower rent to attract a new tenant, the bank will recalculate your loan, potentially ending in a margin call.
Because you are a heavily leveraged house of cards, a rug pull on a few of these loans could cause a cascade liquidating your commercial inventory. Your business is buy a property, take a loan against it, use that loan to buy a property, etc etc.
Therefore it becomes worth it to carry vacant properties, because they are acting as the stilts holding up your money making properties. The vacancy becomes a cost of doing business, and gets factored into the rent of places that are getting leased.
The current location my office is in, was vacant for 12 years before we signed a lease, owned by a big name commercial real estate firm.