I have been wondering this for 25 years. Now I understand why New York City has so damn many empty buildings.
Why do commercial spaces sit vacant? (2025)
151–160 of 258 posts
Re: Why do commercial spaces sit vacant? (2025)
#152Earlier quoted context omitted.
> The other side of this is that landlords hate to reduce rent to rent vacant spaces because their paying tenants will demand rent reductions or move. Since when have tenants known each other's rents?
The current tenants will see the listing for the vacant unit.
Fair point.
Re: Why do commercial spaces sit vacant? (2025)
#153Article is from 2025, and "extend and pretend" is coming unglued.[1] Extend and pretend was big around 2024.[2] The other side of this is that landlords hate to reduce rent to rent vacant spaces because their paying tenants will demand rent reductions or move. That can crash the rental market. A building half rented at rent X is more profitable than a building fully rented at rent 0.5 X. [1] https://propmodo.com/the-…
> That can crash the rental market.
At this point I think that's exactly what we need in a lot of places.
Re: Why do commercial spaces sit vacant? (2025)
#154The key analysis is how does the system manage the risk that a building's equilibrium rent goes down or turns out to be lower than assumed when writing the loan. The system described in the article is basically that the risk is not explicitly planned for, and just washes out that it is managed by a vacancy and building owners eating the cost of the vacancy. Any solution needs to provide a new answer for how that risk…
My preferred solution is "whoever has the most money gets the risk".
Re: Why do commercial spaces sit vacant? (2025)
#155Land value tax would fix this
Re: Why do commercial spaces sit vacant? (2025)
#156Earlier quoted context omitted.
What is a better option? Before your answer, remember it sometimes really is the case that the economy is down and in two years things will recover and everything will rent out again. Your answer needs to smooth that out.
Rolling average including vacant months as $0? And if that isn't smooth enough, add some smoothing factor, count vacant months as 10% of the last paid value, or maybe the first vacant month as 50% with further months decaying. Or some other fancy accounting that makes more sense than the current method.
Nothing will happen until wealthy people are negatively affected.
Re: Why do commercial spaces sit vacant? (2025)
#157Oh my goodness, thank you. My wife had to move her store in 2020 in the midst of lockdown; you'd think rents would have been low, but no. Since then, many of the places that wouldn't lower the rent then, have sat empty ever since. This is in Austin, TX, a town that has had a healthy economy during that entire time.
Weirder still, many of them were on the market, theoretically for rent, but if you called them up it turned out they weren't actually available, and the landlord wasn't interested in renting them. I couldn't figure out why you would pretend something was for rent at $X, and let it sit empty for years, rather than actually rent it at something <$X. Now it makes sense.
Re: Why do commercial spaces sit vacant? (2025)
#158Article is from 2025, and "extend and pretend" is coming unglued.[1] Extend and pretend was big around 2024.[2] The other side of this is that landlords hate to reduce rent to rent vacant spaces because their paying tenants will demand rent reductions or move. That can crash the rental market. A building half rented at rent X is more profitable than a building fully rented at rent 0.5 X. [1] https://propmodo.com/the-…
This just says that they have too much power and society would be better off having a vacancy tax that aimed to reduce abuse by landlords while at the same time ensuring the city doesn't look like post crisis Detroit, which makes it worse for everyone.
Most of the US does, its called property tax. Or in some cases, land value taxes.
Re: Why do commercial spaces sit vacant? (2025)
#159Earlier quoted context omitted.
How, specifically? If they refuse to acknowledge the building is worth less than they expected, they aren't going to sell it to you at a price where you can make money either.
Have you ever considered that your opinion, that it’s worth less, is incorrect?
That's another way of phrasing what I asked you to explain, without actually answering.
Re: Why do commercial spaces sit vacant? (2025)
#160Earlier quoted context omitted.
Not if the economy actually does recover, or at least "looks" like it recovered on paper. Inflation helps with that. The average inflation over the last 10 years has been just north of 3%. If you have tenants today that are paying $500k/year, in 10 years they should be paying almost $700k/year with 50% occupancy. If you can string the bank along for another loan then your valuation is $28M instead of $20M. As the own…
But how does it help the bank to require that? Suppose the landlord lowered rents to raise occupancy so they could get $700k now instead of after several years of inflation. If all goes according to plan then the bank gets its interest payments either way, and then the landlord would be making $900k with full occupancy instead of $700k with half occupancy. But if the value doesn't recover then the landlord is still o…
The problem is the bank didn’t leave a buffer to meet their requirements, so arbitrage between reality and official reality comes to the rescue.
If a bank only loaned 60% of a buildings value, it could be devalued, the operator would eat the shortfall, but the bank could reappraise, with the loan continuing as before.
[So a regulation setting a banks maximum loan percentage, at a percentage less than they are required to maintain, is an obvious regulatory fix.]
However, another way to look at this from a banks point of view is while they may loan 80%, they might have been happy to loan 100% but for regulations. So perversely, they may not be as concerned about this happening as it appears.
For them, the 80% max loan is already providing a buffer, in terms of the risk they would be happy to take. So if they can avoid acknowledging they have loans that have risen in percentage terms, it is in their business interest to encourage, facilitate, giving operators breathing room.
And in the meantime, inflation, property value growth, and future demand increases provide three statistically “expected” ways for the situation to self-correct over time.
For financial investment products, all value is “expected” value.
And the operator may not be losing money, so much as paying for the buildings accrued value growth. Which would be a wash, but avoids the practical problems of defaults. Not the best, but not losing (as much) money as it appears.
And for the bank, if the loan payments are made there is no problem.
So there are two hidden buffers: banks willingness to loan more than regulators want them to, and natural property value increases, lowering rent prices (i.e. inflation) over time.