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
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 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
I’ve seen this in Australia as well and I suspect it has to do with the long length of the leases. Typically a lease will be for up to 20 years. (5 years with with 3 x 5 year options or similar). This means that if the landlord drops the price he can be stuck with low rent for twenty years. The annual rent increases are based on the original rent. Staying empty for a year is still better than dropping the rent any more than 5% over the 20 years.
In tight times you will sometimes see landlords offering incentives up front such as a rent free period or free fit out. After that the rent is at the standard rate for 20 years if the tenant decides to stay that long.
There is a lot of mis information and “fake” info on this thread.
The main reason shops are empty is supply and demand. No one wants them.
If a shop isnt going to have customers it doesnt matter how cheap the rent is people wont want it. Supermarkets move out of town, you cant park on or near the high street so shoppers go to Tescos and get everything they need there or online. A shop keeper would still have the cost of fitting out, running costs, maintenance, insurance and rates (which arent negotiable like rents) So if the property is rated at £x per annum, doesnt matter what the rent is your still liable for the rates.
Talk of long leases, and aristocracy, has very little truth in them and certainly where they do exist the long leaseholder, would not be tied into an RPI rent review clause – partly because they are “relatively” modern and pretty uncommon. The only place i have come across them is in Bath where they were owned by a charity that has been around for 800 years (?) and would sublet on shorter term but they own the long lease and expect to be around for many years. If you take a very long term lease you wouldnt be paying a substantial rent – more likely a premium similar to buying the freehold.
Most property is owned by companies, charities and pension companies. Some is owned by people like the Duke of Westminster but this is a very small percentage and it wouldnt be in their interest to have empty property as they would be liable for rates and maintenance and would devalue other shops they may own in the area.
Absolutely no conspiracy theories, illuminati links, nefarious deals. Just simply down to location and lack of demand.
I’ve seen this in Australia as well and I suspect it has to do with the long length of the leases. Typically a lease will be for up to 20 years. (5 years with with 3 x 5 year options or similar). This means that if the landlord drops the price he can be stuck with low rent for twenty years. The annual rent increases are based on the original rent. Staying empty for a year is still better than dropping the rent any more than 5% over the 20 years.
In tight times you will sometimes see landlords offering incentives up front such as a rent free period or free fit out. After that the rent is at the standard rate for 20 years if the tenant decides to stay that long.
There is a lot of mis information and “fake” info on this thread.
The main reason shops are empty is supply and demand. No one wants them.
If a shop isnt going to have customers it doesnt matter how cheap the rent is people wont want it. Supermarkets move out of town, you cant park on or near the high street so shoppers go to Tescos and get everything they need there or online. A shop keeper would still have the cost of fitting out, running costs, maintenance, insurance and rates (which arent negotiable like rents) So if the property is rated at £x per annum, doesnt matter what the rent is your still liable for the rates.
Talk of long leases, and aristocracy, has very little truth in them and certainly where they do exist the long leaseholder, would not be tied into an RPI rent review clause – partly because they are “relatively” modern and pretty uncommon. The only place i have come across them is in Bath where they were owned by a charity that has been around for 800 years (?) and would sublet on shorter term but they own the long lease and expect to be around for many years. If you take a very long term lease you wouldnt be paying a substantial rent – more likely a premium similar to buying the freehold.
Most property is owned by companies, charities and pension companies. Some is owned by people like the Duke of Westminster but this is a very small percentage and it wouldnt be in their interest to have empty property as they would be liable for rates and maintenance and would devalue other shops they may own in the area.
Absolutely no conspiracy theories, illuminati links, nefarious deals. Just simply down to location and lack of demand.
In New York it’s a bit different.
Basically if you keep rent high nearby places get high rent. But if a place is too expensive and goes unrented then your property valuation drops. You pay taxes based on property valuation not the land.
For land owners they basically get to make their other stores pay more and they pay less taxes. So it’s kind of a win win.
There’s a federal probe over some software that basically uses ai models to say which rent should be raised and which lots to keep empty to maximize profit. And it works.
Because if a Landlord says “you can rent this for less for the moment” then the tenants gonna be like “well why is the rent so high if you can clearly make it work with less” and then it’s outed that the landlords scamming.
In New York it’s a bit different.
Basically if you keep rent high nearby places get high rent. But if a place is too expensive and goes unrented then your property valuation drops. You pay taxes based on property valuation not the land.
For land owners they basically get to make their other stores pay more and they pay less taxes. So it’s kind of a win win.
There’s a federal probe over some software that basically uses ai models to say which rent should be raised and which lots to keep empty to maximize profit. And it works.
Lots of business reasons. Several unrented months would cost less than years of substandard rent, plus the leaving occupant may be obligated to pay out the remainder of the lease until it is rented, so there is no financial need to discount, as there is no loss occurring.
Latest Answers