Eli5: Why are so many office blocks and retail shops in UK that are ” to let” remain empty for months, rather than to reduce rent ? Why do landlords do this?
In: 1189
A pretty substantial amount of the commercial space in the UK is “owned” by the UK’s old aristocracy, but controlled by an intermediary class of landlords whose predecessors rented that space on perpetual leases in the 1800’s or early 1900’s.
The intermediary landlords’ perpetual leases only require them to pay rent to the actual owners if the premises is being used by someone – if the premise is vacant then they don’t pay anything. What this creates is a somewhat bizarre situation where the commercial space is being rented out by middlemen who have a minimum monthly rent they have to charge to make money – if they charge less than that minimum, they lose money.
These perpetual leases have clauses that index the rent to inflation based on whatever it was when the lease was originally entered into >100 years ago. Any building that is currently in a downtown urban area are in areas that were fabulously wealthy back then, though many are not so wealthy now. This results in the inflation indexed minimum rent being far too high for the current economic status of those areas, hence the space remains vacant.
Or to put it more simply, for historical reasons, most of the commercial space in the UK is currently controlled by middlemen who quite literally cannot rent the space at its market rate without losing money, but who don’t have to pay anything if the space just lays vacant.
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