alt Hacker NewsThis is a vexing problem I was made aware of by friends that are in the retail business, renting their stores from landlords. It's really brutal. Retailers take on all the risk, put in the work to revitalize a neighbourhood, and their reward is that when lease renewal comes up in 10 years, it spikes and they're faced with a choice of being displaced or handing over an enormously increased part of their margins to the landlord which has done literally nothing.
The others that benefit are the nearby condo developers, that take photos of cool retail in the area to put into their brochures in order to help sell their product. They benefit from the land speculation and the work from others.
I don't really have a solution except that I can see that the landlords benefit from scarcity, and their leverage and ability to raise rents would be lessened if there was more viable retail spaces to take advantage of.
So the city could help retailers by dramatically liberalizing retail zoning and allowing more competitive high streets to develop. This could take the edge off being forced to move by a landlord jacking up rent.
Replies
> Retailers take on all the risk
> landlord which has done literally nothing
This isn't really accurate. It actually takes a decent amount of work and capital input to get a set of retail buildings into usable shape and keep them that way. The internet caricature of landlords is that the buildings just popped into existence one day and the landlords rent them out, but there's obviously more to it. I know several attempts at retail real estate development that flopped and lost investors a lot of money.
There's also a risk involved in renting out the properties. Not all tenants will pay the rent, and when they stop paying for long enough you have to evict. It takes a long time to get someone's business out and turn the property over so a new business can move in. The rents have to be adjusted to compensate for some of that loss, but in a downturn (e.g. COVID) the losses can all sync up at once and torpedo the financial model used by the landlord.
Retail spaces also need to be kept up. It's common in my area for groups to buy out blocks of spaces and overhaul the old parking lots, landscaping, lighting, traffic patterns, and security so that they go from being sketchy run-down locations to something safe and inviting.
I'll probably get downvoted for trying to add some balance to the conversation because this is an internet comment section and my comment wasn't "landlords bad", but retail property investment isn't really a magical safe investment like everyone assumes. Keep that in mind if anyone hits you up for an investment opportunity related to one.
There seems a bit of inner conflict in what you're saying. If retailers "revitalizing a neighborhood" leads indirectly to them getting priced out due to rising land values, isn't it also true that poor people living in the neighborhood get priced out at the same time? Is it a good or bad thing to make a neighborhood more hip, is the retailer a hero or a villain?
Retail condos avoid this problem, although require the business to have access to more capital.
https://shoppingcenterbusiness.com/retail-condominiums-break...
But in general most US cities have an excess of retail space. Eliminating a lot of it would probably be a net positive.
I've seen a similar thing happen (though more rarely) where a retailer owns the building or space, and after 10 or so years, looks up and realizes they could make more take-home by renting it out.
On paper though, if the area becomes nicer, they should be raising their prices to reflect that. The landlord asking for a larger cut because the value of the storefront has increased, should be a signal to raise your prices to pass the cost along.
As a bit of a "cute downtown" junkie, I can assure you that those quaint town stores have crazy prices, but people pay them.
Anybody who has entered the retail business as a renter for the past 15 years has made a mistake. Because land lords do this to everybody. If their goal wasn't to suck the lifeblood of people and businesses, then they would have invested their money into something different than becoming landlords.
If you have a great retail idea, then you need to get investors behind you so that your company can outright own the stores. Otherwise you will be leeched on endlessly. It's incredibly hard to get on top if you're depending on the good will of landlords.
Solution: Online shopping until the bubble collapses.
It's almost like you could describe the physical store as the means of production so what we're talking about is the worker's relationship to the means of production.
You might say: but what abou the owners? Many such small businesses are just jobs you buy. Many don't survive when the owners don't move on or the business sells for what's a relatively low price given the turnover.
I'll give you another real world example of this distortion: NYC"s so-called "zombie stores" [1].
I keep thinking about a statement made by Xi Jinping in 2016: houses are for living, not for speculation [2]. Many China critics liked to point to the Evergrand collapse as some gotcha but what really happened is that the CCP intentionally just popped the real estate bubble, taking the position that affordable housing was more important than inventor returns.
Why do I bring up housing? Because as intentional policy decisions increase the cost of construction, it also makes commercial real estate more expensive. Even if you ignore the increased construction cost, every commercial space becomes more expensive because it's an opportunity cost to not build housing there in a speculative market.
Increased rent and increased property costs are an input into everything you buy and are killing the businesses people seem to like and the so-called "third spaces" a lot of people talk about.
And why? Because a plurality of Americans (if not an outright majority) see themselves as "temporarily embarrassed millionaires" [3] and future real estate moguls.
[1]: https://www.nytimes.com/2024/08/06/nyregion/pharmacies-vacan...
[2]: https://en.wikipedia.org/wiki/Houses_are_for_living,_not_for...
[3]: https://www.goodreads.com/quotes/328134-john-steinbeck-once-...
Stop densifying cities and start building out suburbs where the land is cheap.
Using all kinds of regulations to ignore the market signals usually points out that you're doing something wrong (not _always_).
> Retailers take on all the risk, put in the work to revitalize a neighbourhood, and their reward is that when lease renewal comes up in 10 years, it spikes and they're faced with a choice of being displaced or handing over an enormously increased part of their margins to the landlord which has done literally nothing.
This happens on the personal side as well, where property tax rates are artificially depressed - or more accurately, subsidized - until the property changes hands. When we bought our nearly 30 year old house that had had zero improvements, additions, or renovations since initial construction, our property tax bill increased 300% and has since "stabilized" to +10% a year.
What is truly insidious about this is that it's impossible to guess or estimate until you've already purchased the home, and by then it's too late to do anything about it except complain at the courthouse, which might get you a year's abatement if you're lucky.
If we let property taxes just be whatever they "should" be without penalizing home-buying in the process you could at least know what you'd be paying rather than having to factor in a 3-5x increase.