If they have been sitting on empty buildings for years, why would they want renters now? I expect they would just continue to keep their buildings empty and continue to be unaffected by this pandemic.
The thing you're seeing with covid is that places are empty for the same reason they became empty, and the owners are speculating that demand will rebound in the future (e.g. once there is a vaccine) so they have no reason to sell for less today.
If you change the zoning at a sufficient scale, rents would be expected to decline permanently, so there would be nothing gained by holding out until tomorrow.
There’s evidence of properties in NYC which have been vacant for 7+ years. These properties, even with the pandemic, have not budged their rent. They simply do not care if they’re not making money. They would rather preserve their capital, bank on appreciation, and not deal with tenants than fall prey to deflationary pressures.
The only explanation is the prevalence of some form of money laundering, an area I’m not an expert in.
they prefer to leave the building empty in anticipation of a higher priced long-term lease in the future. if you're already renting space to a profitable business that was stable before the crisis, the incentives are probably to work out an arrangement with the business that helps it not go under. now if you're already unsatisfied with the current tenant, you might see now as a good opportunity to kick them out and wait for someone willing to pay a higher price.
I think the post COVID-19 phase will actually be good for them in that regard. Companies switch to remote, at least a bit and cities will empty a bit more. This might make some more space for permantent tenants. But could be also completely wrong about that.
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.
It seems strikingly brazen for the landlords to start asking for full rent in this market. Even before covid, vacant storefronts were sitting on the market for months or years due to retail and banking moving online[1]. Good luck finding someone who wants to start a new restaurant in the next 9 months or so. Even if they think they can force the current tenant into bankruptcy and collect, there won't be much to collect after taking away the tenant's only income stream.
I doubt it. Where I live there are swaths of commercial real estate left vacant before the pandemic. Apparently the same few property brokers are buying up all property, raising commercial rents a ton, and just sitting on it. They don't even care if they have tenets because speculation is raising the values so much they still come out ahead.
It sounds nice, but the real question is why are people letting these building sit empty. There is probably a good reason for it. Maybe some renter protection laws that went too far?
The bizarre thing is that even before the pandemic I've seen popular Bay Area restaurants close down due to huge rent increases and then the spaces are still vacant years later. I don't understand what commercial landlords are thinking?
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.
I don't know how residential rent/lease works in comparison to commercial, but I have known office space to sit unused for years. They landlord would rather the space sit empty than lower the rate to find a tenant. I'm guessing there's a deduction for loss in taxes, so it might be in the landlord's interest to have a few empty properties. But that's just a wild ass guess
Not a surprise there. I was talking to a CEO friend of mine whose company had just leased a huge office right before the pandemic for five years. They closed all their small offices around town and moved everyone early during the pandemic, which means most people have never seen the new building. Their stuff is just in boxes on desks. They can't get out of the lease early, so for now the leadership shows up once a week for meetings and that's about it.
But in about three years they will ditch the lease, as will many other companies in similar situations. This is just the beginning.
On the plus side, here in Cupertino there has been an eternal debate what to do with the empty land the old mall used to sit on. They wanted to build 3M square feet of office space, but now they probably won't do that, which is a big win for the community who wants it to be retail or housing and not offices.
Your proposal is merely a preference for housing over commercial space. Presumably you have your reasons, but if covid sticks around a few more months (which it is certain to do) commercial space might be rented like crude oil: landlords paying tenants! We'll soon see office/retail space converted to expensive housing even without this aggressive intervention. Everyone is working from home now.
They sit empty because an empty apartment is still going up in value.
If you rent it out, there will be wear and tear (ie. after 5 years it'll need a full refurb), and you run the risk of having tenants stuck in your property if laws change and suddenly you aren't allowed to evict them.
Often the capital appreciation is so much greater in value than the rental income (after management, maintenance, etc) that it isn't worth risking the capital income for a tiny bit of rental income.
Won't happen because of the way commercial real estate has been financed.
An empty storefront is considered "rented, but temporarily empty, and can tack the lost rent onto the end of the mortgage". A storefront with a lower rent is considered "cost basis has changed and the mortgage holder can demand cash from you".
You can't put a barbershop into that slot as the barbershop will never meet the rent.
I was seeing a lot of empty storefronts in mixed-residential builds that hadn't been rented for years even before Covid. Covid is just going to supercharge that.
It’s the pandemic likely causing the timing, but not as a statement of remote vs not remote work: it’s just cheaper now with the pandemic to buy rather then rent in the medium-long term. So if they decided they need the space for 20+ years then they certainly have the cash to buy if they want to.
Or would hedge funds and REITs just buy these spaces (or keep them to rent out after building them—a common practice for developers) and continue to charge high rent with more empty storefronts?
I’ve thought for years that the growing number of commercial vacancies, even pre-Covid, would “sort itself out.” It certainly hasn’t yet.
Actually there are tons of empty office buildings and residential units.
It’s the same situation as in New York.
Plenty of landlords can afford keeping their prices high hoping for the eventual bite. If they lower their prices further they do a bigger damage to their portfolio for years to come once you factor in rent control.
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