Comment by BrenBarn
2 days ago
Totally agree. I think another angle to look at it is not "a couple sectors" but "a certain scale", as suggested by your remark about how companies consolidate. When businesses are small and need every customer, they are motivated to do a good job at what they do, build goodwill, protect their reputation. The larger they become, the more they tend to work against their customers rather than for them. They cross multiple markets, making them less responsive to the demands of any one. They become "too big to fail". And so on.
What we see in the modern era is a system in which success is defined as becoming large enough that your customers have no other option but to deal with you. That's not a healthy system.
You see that scale problem everywhere. Once a business has become large, it no longer cares about “small” costs like unused buildings. That’s basically the reason so many buildings in towns and cities can be left unused for decades.
The impact it has on that town is often huge. But for the business, it’s just a small overhead. A small landlord couldn’t afford to leave their asset unproductive. A multinational conglomerate can.
The death of local high streets is in part due to the unwillingness of landlords to actually rent their properties out for market rate.
I don't understand how massive corporations are both ruthless slash and burn cost-cutting profit optimizers and sloppy businessmen who don't care about the small things, even in aggregate.
What's the economics of not renting out high street retail properties? There must be millions of them across the first world, with a theoretical annual rent roll in the 11 or 12 figures. Are they owned by a million multinational conglomerates foregoing a hundred grand each? In that case we are stretching the definition of "multinational conglomerate". Or are they concentrated in the hands of the same hundred companies? In that case they are each missing out on ten billion a year in opportunity. There isn't a company in the world where you couldn't make your name as Head of Global Unused Property managing ten billion a year of revenue.
I don't have an answer for this either, but it must be more complicated than "they're all owned by multinationals who don't care about such small numbers" - the point of multinational companies is that those numbers are no longer small at scale.
Well, one relevant angle may just be that the companies are big enough to have an incentive calculus that's not aligned with the effects on local areas where such unused businesses are. They can maybe take some kind of tax writeoff, hold it as a hedge in case land values rise, etc. But the basic idea is they are using the property in a manner that crosscuts multiple markets, whereas for average citizens in the town with the vacant building, it's just a vacant building. It's not good for the scale of business operations to diverge so much from the scale of ordinary humans.
Many commercial properties are on relatively short-term mortgages and are remortgaged regularly. If they rent it out cheaply, then the paper 'value' of the building has dropped, which can make it difficult or impossible to remortgage. It's why you see so many high rent but 'free for the first year' deals - it technically isn't reducing the rent on paper, but many of the tenants vanish 13 months after moving in
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