Commercial real estate rents work differently, at least in America, because of how they’re financed. Unlike residential housing, commercial buildings are continuously refinanced. When the owner of a commercial building gets a new mortgage on their building, the potential for rent is weighed more by the banks than the current rent. The way the math works out, it’s much better for a commercial land lord to leave a unit empty for a surprising amount of time rather than reduce rent, because the impact on financing costs is typically larger than lost rent.
Really interesting. There's an empty spot in my building that's a coffee shop storefront. When we moved in, I saw that it was vacant (beginning of 2020) and asked about rent. It was $9k/mo. I offered them $5k and they declined. Still vacant. That's a lot of lost income, but perhaps it makes sense in the sense of commercial real estate.
if they can offset the cost of the lost income from the (lack of) rent with some other source of gains, they pay less taxes!
Also, if they accept a rent of $5k/m, it sets a new (lower) price ceiling, where as a $9k/m original price was the original ceiling which supports the current valuation. Thus the commercial real estate would have a harder time to capitalize on the equity. S
Therefore, the losses are more than just the $4k/m difference - it's lost capitalization/equity to which one may leverage against, and lost tax offset potential as well.
Here's a good comment covering it[0]. I got my summary slightly wrong; buildings aren't re-financed, but rather the owner has the ability to delay payment on any unleased units. Leasing a unit at a lower rate suddenly modifies the value of the building, which means signing a lower lease can put the loan underwater. The same basic motivation structure applies though, it is far better for the owner to leave a unit empty and pray that someone can rent it at market rates later than it is to lower rates and get a tenant now.
