Full Bank Accounts, Empty Storefronts: The Economics Of High-Rent Blight

Illustration for article titled Full Bank Accounts, Empty Storefronts: The Economics Of High-Rent Blight

Urban blight is nothing new. The signature image of plummeting real estate is block after block of properties vacated as businesses move out. Now the high price of real estate in American cities is creating a new phenomenon: In otherwise healthy economic areas, the rents are climbing so high they’re driving businesses away—and no other businesses can afford to move in.


Tim Wu explores the economics behind this creeping problem in the New Yorker. As an example, he uses a neighborhood which has been praised in the past for preserving its eclectic mix of locally owned businesses: the West Village. We all know that large chains have since infiltrated the Village, but now rents are skyrocketing so high that some of those chains are priced out—even Starbucks is shuttering some Manhattan locations.

The story behind these vacated spaces, as Wu discovers, is kind of depressingly fascinating. Landlords are sitting on their empty properties and raising the rent higher and higher, gambling on the fact that they can eventually entice some business to pay the insanely high rents and make up for all the lost income. It’s hedge-fund urbanism:

There are potentially some tax benefits for the owners of empty storefronts. But the more likely explanation is that landlords are willing to lose a tenant and leave a storefront empty as a form of speculation. They’ll trade a short-term loss for the chance eventually to land a much richer tenant, like a bank branch or national retail chain, which might pay a different magnitude of rent. If you’re a landlord, why would you keep renting to a local café or restaurant at five thousand or ten thousand dollars a month when you might get twenty thousand or even forty thousand dollars a month from Chase? In addition, if a landlord owns multiple properties, dropping the price on one may bring down the price for others. That suggests waiting for Marc Jacobs instead of renting to Jane Jacobs.

Snap! Jane Jacobs was, of course, the writer who described the economic vibrancy of the West Village and its “sidewalk ballet” of walkable urbanism as the standard by which great cities should be measured.

But there’s another issue, which is pushing the Marc Jacobs Village even further from the Jane Jacobs Village: Many of the residential properties in the city’s more expensive neighborhoods are increasingly not owned by people who live or work there. This is a huge concern for some of the residential supertalls being constructed in Manhattan since these absentee owners are only using the apartments part-time, if at all. These also aren’t the people who are likely contributing to that sidewalk ballet by patronizing the local coffee shops and family-owned businesses. Neighborhoods like the West Village are not as much transforming into havens for the ultrarich as they are becoming empty wastelands.

Like the squatters who would live rent-free in the blighted downtown buildings of the past, there’s a new breed of squatters that are hoarding the most high-priced real estate. The difference is that by actually living there, the old school squatters helped to eventually transform these areas into viable neighborhoods, while these invisible tenants are slowly turning the best neighborhoods into ghost towns—with a Chase bank on every corner.

[New Yorker]

Photo by Stonestreet Properties




One super obvious thing for me is a small corner storefront that had a mom and pop “grocery” business. I liked it because at the time it was 100 feet away from my apartment and I could go get veggies or something last minute. They ended up closing and moving because the rent was getting too high. Fast forward 12 years later, that property is still empty. It was never rented for that whole duration. Not once.
I’m no genius but any rent over break-even would have been a welcome addition to income. Maybe the owners are so filthy rich they don’t give a fuck about this one of their 200 revenue streams, but it is a stupid move nonetheless.