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Why do commercial spaces sit vacant? (2025)

freerange.city

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Re: Why do commercial spaces sit vacant? (2025)

#81

Post by alper »

NoboruWataya wrote: post #55
alper wrote: post #34

Earlier quoted context omitted.

The whole goal is not to write off the value of the property which you have to do if you rent it for less money than initially planned. That's not that difficult to understand is it?

I mean, it's highly unintuitive, which I would say makes it difficult to understand. The main weirdness is that lowering the rent would force a revaluation whereas letting the building sit vacant for an extended period of time apparently would not. If this is truly driven by regulatory capital requirements, then it seems like a gap in the regulations. Also foreclosure generally isn't the only option: the borrower cou…

> lowering the rent would force a revaluation

Commercial leases are often for say 5+5 years, so once you lock it in, you know for sure what the property revenue is going to be for the next so many years. Your uncertainty equation has collapsed.

I think the main insight here is that commercial real estate is an entirely different animal than the residences that you may be used to.

You can apply this same reasoning to the "back to the office" pushes done on behalf of the institutional investors who have exposure to large commercial properties in inner cities. That too is a financial house of cards built on assumptions and vibes.

Re: Why do commercial spaces sit vacant? (2025)

#82

Post by alper »

I'm in Berlin where there's a glut of offices which are all sitting empty. I'm living next to a top line historic renovation/office space and it took them 8-9 years to complete the renovation at probably an astronomical cost and now it's been sitting empty for a year or so.

This financial model is also the main reason why it's so hard to convert these buildings to residential. Somebody has to eat the markdown.

Re: Why do commercial spaces sit vacant? (2025)

#83

Post by grebc »

em-bee wrote: post #76
grebc wrote: post #64

Earlier quoted context omitted.

Comments below. There’s no actual problem here to be solved. If people feel they have better uses for a property they should put their money where their mouth is.

there is a problem to be solved. empty shops make shopping areas unattractive. walking through a half empty mall or shopping street is depressive. i see this all the time in china and in developing countries in general. they build huge malls, and then they can't fill them because there are not enough businesses who can pay the rent being asked. at least there is growth and the place will fill up eventually. but until…

If you think there’s a better use it’s a free market. It’s even up for lease, you don’t even need to buy it ;)

Re: Why do commercial spaces sit vacant? (2025)

#84

Post by em-bee »

probably_wrong wrote: post #80
em-bee wrote: post #77

Earlier quoted context omitted.

do you have a better explanation?

It's on the person who willingly took the public stage to prove that their ideas have merit. I don't know much about microbiology, but that shouldn't stop me from asking someone who "did their own research" to shut up and let the experts talk.

they already gave their explanation. if you disagree then it is on you to provide a counter argument otherwise anyone could just shoot down any argument by claiming that it has no merit.

at best you could say that you do not find the argument convincing, but even then you should explain why. you are not even claiming that the argument in question is wrong, you are only questioning the credentials of the author. that's appeal to authority, and therefore not a valid argument. https://youtu.be/N5k4yUSPHI8

I don't know much about microbiology, but that shouldn't stop me from asking someone who "did their own research" to shut up and let the experts talk.

yes it should, unless you can provide a convincing argument that the person is wrong, expert or not.

on the internet anyone can claim to be an expert and nobody can prove it.

Re: Why do commercial spaces sit vacant? (2025)

#85

Post by senordevnyc »

em-bee wrote: post #84
probably_wrong wrote: post #80

Earlier quoted context omitted.

It's on the person who willingly took the public stage to prove that their ideas have merit. I don't know much about microbiology, but that shouldn't stop me from asking someone who "did their own research" to shut up and let the experts talk.

they already gave their explanation. if you disagree then it is on you to provide a counter argument otherwise anyone could just shoot down any argument by claiming that it has no merit. at best you could say that you do not find the argument convincing, but even then you should explain why. you are not even claiming that the argument in question is wrong, you are only questioning the credentials of the author. that'…

I’m agreeing with the person I first responded to about why I don’t find this explanation credible. I don’t feel the need to reiterate what they said.

AND I’m also saying I’m tired of non-experts giving their theories on this particular phenomenon, since they never make much sense.

Re: Why do commercial spaces sit vacant? (2025)

#86

Post by em-bee »

grebc wrote: post #83
em-bee wrote: post #76

Earlier quoted context omitted.

there is a problem to be solved. empty shops make shopping areas unattractive. walking through a half empty mall or shopping street is depressive. i see this all the time in china and in developing countries in general. they build huge malls, and then they can't fill them because there are not enough businesses who can pay the rent being asked. at least there is growth and the place will fill up eventually. but until…

If you think there’s a better use it’s a free market. It’s even up for lease, you don’t even need to buy it ;)

no, i can't. the rent is to high. which means the rent is not market-rate. the free market was supposed to correct that, but it doesn't, so maybe this is not a free market after all.

Re: Why do commercial spaces sit vacant? (2025)

#88

Post by doctorpangloss »

alper wrote: post #34
jwarden wrote: post #12

This explanation seems very implausible to me. By lowering the rent by X%, and therefore reducing annual revenue by X%, you admit the building is worth X% less. But by leaving the building X% vacant, also reducing the annual income stream by X%, you and the bank can somehow pretend the building is worth what it would be if full? I doubt owners and banks actually believe this. Is there some policy that forces this?

The whole goal is not to write off the value of the property which you have to do if you rent it for less money than initially planned. That's not that difficult to understand is it?

Nobody said commercial real estate was risk free free money in some abstract financial product, other than the doofus who wrote this long "note." The hard fact is these are real buildings in real places that aren't really fungible at all. So it seems kind of ridiculous that CRE investors should be insulated from every possible externality. Obviously the right thing to do is to tax vacant properties, and then we shall see how many stay vacant and how many foreclosures there are (hint: owners suddenly find capital and are able to pay the tax or rent things out and nothing ever gets foreclosed in every one of these scenarios where it actually happens).

Re: Why do commercial spaces sit vacant? (2025)

#89

Post by fl4regun »

AnthonyMouse wrote: post #26
makeitdouble wrote: post #16

Earlier quoted context omitted.

Here the bank cares less about annual income than future income. Keeping it vacant only impact current income, lowering rent impacts future forecasts.

> Keeping it vacant only impact current income, lowering rent impacts future forecasts. Does it though? Suppose you can't find a tenant right now because the market is soft but is predicted to improve in a few years. If you leave the unit vacant, you lose money right now. If you rent it out with e.g. a 3-year lease, you make more for the next 3 years than you would with a vacancy, and if the market price has increase…

it's because the expected future income is based on what current tenants are paying, extrapolated to the number of units in the building, ignoring vacancies. I get what you are saying, it should be based on total rental income from the building - full stop - but that isn't how it is done, and this is the result.

Simply stated, if you rent a new unit for 25% lower, then the value of the building just dropped 25%. If you don't rent to a new tenant, your value must be the same, that's what the existing tenants are paying (not that I agree with this, it's just how it works right now).

It's similar to how people holding low liquidity assets will claim they are "worth" whatever the last person who paid for this assert, even if the real value of it is dropped, the "book value" is still sky high.

Re: Why do commercial spaces sit vacant? (2025)

#90

Post by jen20 »

bandrami wrote: post #27
AnthonyMouse wrote: post #26

Earlier quoted context omitted.

> Keeping it vacant only impact current income, lowering rent impacts future forecasts. Does it though? Suppose you can't find a tenant right now because the market is soft but is predicted to improve in a few years. If you leave the unit vacant, you lose money right now. If you rent it out with e.g. a 3-year lease, you make more for the next 3 years than you would with a vacancy, and if the market price has increase…

Humans are not Pareto efficient. If my wife and I are at the airport, and the gate agent offers me (and only me) an upgrade on the flight, your logic says I should take it since that's strictly better than both of us flying economy.

> If my wife and I are at the airport, and the gate agent offers me (and only me) an upgrade on the flight, your logic says I should take it since that's strictly better than both of us flying economy.

This has happened many times to me - the answer is to take it and give the upgrade to your traveling companion if you are the one who flies a lot.

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