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I find this so strange because in residential real estate there’s seldom any real relationship between a property’s value and the rent the owner charges.
How on earth is it better for a property to sit vacant for months upon months with a rent too high for the market, than for it to be leased constantly at a lower rent?
Rent is definitely a factor along with interest rates but the article talks about it "The key reason why is to do with how retail properties are valued, which comes down to what the asking rent on the property.".
The issue is that if you were getting 1000/wk and then the tenant left you now have a temporarily vacant property if you lower the rent and get someone back in at 600/wk now your property valuation is 40% less which matters a lot for loans.
It's also worth noting that commercial leases are often much longer so they might be waiting for a rebound in the market before renting it out.
Unfortunately this can lead to death spirals in a lot of areas.
You almost got it. It's related to treating tenants worse than your "cruelty free foodlot" animals, and then getting pissed off when they act like animals.
The link between rental values and sales values is a real phenomenon. It would not be a landlord with a single property but with several properties in the district whose values they are trying to buoy.
I heard Marcus Westbury describe his Renew Newcastle project thus. His team offered low rent to corporations for disused shops in the CBD. They were playing go-between for creative types who wanted to start a novel business.
The corporations preferred to keep the shops empty so that the property value in the district would not fall.
Council wouldn't play ball either but for them the fear was not being able to reclaim the buildings when needed because of tenancy rights.
Ironically it was corporations who were more cooperative in the end. Marcus and his team hired a lawyer who arranged for a contract where the corporation would charge a tiny token amount (something like $50 per month) and the tenants would vacate with short no-cause (four weeks) notice.
CEO's enjoyed supporting quirky shops and the project revived the district, resulting in an increase in property prices (unfortunately spelling the end for most of the budding entrepreneurs but IIRC some were able to afford proper rent and continue).
Yeah I definitely think about this too. A string of vacant shops is like a cancer to a shopping strip: they just keep growing and growing in number.
OTOH if you lowered the rent temporarily to fill the shops, basically wouldn’t it be a case of a rising tide lifting all boats as you reinvigorate the area?
Shopping centres might do that or offer other incentives maybe like paying for advertising costs or something. If the shops are owned independently like the article's example then it's a bit harder because they need to cooperate.