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
Scarcity has to be manufactured in order to maintain an artificially higher level of demand for which you can charge otherwise non-sensical prices.
Eat the rich.
If you rent it out for 1k a month within 1 day you make 24k in in two years
If you manage to rent it out for 1.5k im 4 months you make 27k in the remaining 18 months and 500 more every month in the future.
Lots of commercial property is bought as capital investment for balance sheets.
If you buy it and set a nominal rental value for it then you have an asset on your books at that value.
You can then borrow money against that asset for investments that have a great return.
If you rent out your property for less than what you say your property commands, then your ability to borrow money for those other investments is deplinished.
So better to keep your property empty with a nominal rent than demonstrate an accurate valuation of the asset you purchased.
Or it’s the other nonsense comments. Think about what is more likely.
Scarcity has to be manufactured in order to maintain an artificially higher level of demand for which you can charge otherwise non-sensical prices.
Eat the rich.
As far as I can tell… Rich people would rather loose money than make “not enough money”. NYC has the same exact problem. They think the building is worth X per Y, and if they don’t get X, they get mad. So they’d rather just sit on the asset and do nothing with it. Rich people do not see their building as a building. They see it as an investment. So they think it’s fine to just sit on it and do nothing if they can’t leverage that asset for the wealth they “deserve”.
It’s kind of insane, and makes rents and market rates for real estate INSANE. So much so that IMO there should be a law preventing people from sitting on properties for more than a couple months.
The same reason why over 99.99% of the world’s diamonds are stored in lockers and have never been sold after getting mined. Same reason why OPEC leaves most of their oil in the ground even though they have excess capacity to extract it.
Manufactured scarcity.
Alot of these people don’t Need the money, they Want it.. Ibiza where I live now is terrible for it , landlords would rather have noone than to lower their rent even a touch… I know bar owners that rent the space who have been kicked out because the landlord wanted to up the rent,, the building usually stays empty for another 6months
The rental return is, for your bank, the real value of the asset. If I go to the bank and ask to borrow money against a property returning $100,000 a year in rent, they will calculate my ability to make payments, pay for maintenance , taxes, etc, along with interest rate hikes, and lend me, say, $1,000,000. If I were to drop the rent to $80,000, by their formulas, I can now only afford an $800,000 loan, and they will demand I stump up $200,000 immediately
The same reason why over 99.99% of the world’s diamonds are stored in lockers and have never been sold after getting mined. Same reason why OPEC leaves most of their oil in the ground even though they have excess capacity to extract it.
Manufactured scarcity.
Alot of these people don’t Need the money, they Want it.. Ibiza where I live now is terrible for it , landlords would rather have noone than to lower their rent even a touch… I know bar owners that rent the space who have been kicked out because the landlord wanted to up the rent,, the building usually stays empty for another 6months
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