Or robust depending on your point of view. The consequences for running out of cash are simply not that severe.
Let’s say you own a restaurant, your revenue goes to zero. You pay wages owed, then stop. Unemployment picks up a part of the loss for employees, their landlords feel the pain. Food goes bad, restaurant takes a loss on that. Rent doesn’t get paid, landlord foots the bill. Utilities go to nearly zero, etc.
By the time this is all over, we will see 3 things:
1) we will learn where safety nets did and didn’t work
2) landlords will have to lower rent to account for periodic lost income over the next 2 years or they will have to agree to self insure for losses during times of shutdowns.
3) we will have insights in to which countries have functioning healthcare systems and which don’t. Also which are efficient and not. Hopefully the globe can improve their policies.
Rent is determined by what businesses believe they can make in profit. If businesses believe they will be shut down periodically because of SIP orders, they will need a discount to today’s rent all else equal
Rent is determined by a fairly complex interplay between what landlords believe they could collect from some hypothetical tenants, and what tenants believe they could afford to pay based on some hypothetical level of business.
Granted, not many tenants will choose to pay rent that exceeds what they think they can pay, but it may certainly exceed what they are actually able to pay.
And plenty of landlords keep premises empty because they want to wait for some other tenant who will pay them what they think they can get, rather than accept the rate real potential tenants are prepared to pay.
If you mean that rents may find a new equilibrium at a lower price where the demand and supply curves cross that’s how markets usually clear. At least in textbooks. :-)
Tbh, it’s exactly what I mean. The important distinction is that nothing has changed except willingness to pay so... rents have to go down to clear transactions.
Overtime, some landlords will hold out, but by doing so, they may lose money vs what they would make if they sign lower deals.
Bingo. If a landlord owns 50 restaurant spaces that are fully occupied and one restaurant starts having financial problems, the landlord doesn’t care, he can let them close down and find a new tenant.
If all 50 restaurants start having problems, he now is going to be super motivated to figure out a way to help them all stay in business.
Yea but this not a permanent shock, it's a temporary disruption. As soon as this passes over, rents will likely revert back to where they were before.
In NYC there are many vacant commercial spaces because landlords hold out for the highest paying tenants. You're overestimating the desperation of landlords.
or rather the small business goes bust and in a few months, when people can finally come out, you have high streets full of closed shops and restaurants.
Let’s say you own a restaurant, your revenue goes to zero. You pay wages owed, then stop. Unemployment picks up a part of the loss for employees, their landlords feel the pain. Food goes bad, restaurant takes a loss on that. Rent doesn’t get paid, landlord foots the bill. Utilities go to nearly zero, etc.
By the time this is all over, we will see 3 things: 1) we will learn where safety nets did and didn’t work
2) landlords will have to lower rent to account for periodic lost income over the next 2 years or they will have to agree to self insure for losses during times of shutdowns.
3) we will have insights in to which countries have functioning healthcare systems and which don’t. Also which are efficient and not. Hopefully the globe can improve their policies.