It has nothing to do with productivity. When you have a lease for 20 years on very expensive downtown property and a whole department that manages that property and sr stakeholders that have investments in the commercial real estate. Then it all makes sense.
If all you have is a lease, then this is the sunk cost fallacy. Your paying the lease whether you use it or not, so that should not be a factor. Not using it is still cheaper as you do not have the overhead of keeping the space usable (electricity, janitors, etc), and eventually the lease will end. And, you might something else to do with the space that, while not worth the lease, still has non 0 value that you wouldn’t get if the space was being used for offices. Besides, at some point the lease would end.
Of course, if your board and executives have investments in commercial real estate, or industries that depend on it (restraunts in commercial areas, supplies of office grade toilet paper, etc), then they have a clear conflict of interest, and may want to sacrifice the interests of the one company to prop up their other investments. In theory, shareholders could sue over this. However, not only would this be very hard to prove, but almost all shareholders have the exact same conflict of interest.
I know commercial real estate contacts are more complicated than just a lease. Plus companies lose tax incentives from local governments that outweigh any any power and building staff costs. The problem is its not the lease that’s required to get those incentives. It’s butts in seats and with commercial real estate contacts they may have to pay a penalty if people are nit using the building because the building owner may have contracts with city to make sure that buildings traffic is supporting other businesses around the office building that may be owned by the same people. Note I think the whole system is stupid but it’s more complicated than just sunk cost.
It’s called going dark. Most businesses don’t own their property. So if they stop operating at a location, even if they still pay rent, there are consequences.
Say you own a strip mall with a grocery store. A selling point to getting restaurants and retail on around it is that the grocery is there. If the grocery store stops doing business there, all the other stores lose business.
I’m not sure your example tracks as there’d be no reason for a grocery store to pay rent without occupying the space. In this analogy, it would need to be some sort of office which would have some tangential effect on surrounding businesses (like restaurants), but those restaurants could just relocate to where the people are now in their homes.
The most common reason is a concept called “dark rent.”
Pharmacy companies are seeking to cut their losses by shuttering unprofitable stores that have high labor costs, Mr. Hill said, but in most cases they are obligated to continue paying the rent long after the store closes, or goes dark.
Most of the pharmacies that have closed in recent years were signed to 10-, 15- or even 20-year leases, at rents that often exceed today’s rates, brokers said.
In these cases, a landlord has almost no incentive to seek a new tenant, allowing the store to sit empty for months or years, said Aric Trakhtenberg, an associate director at Newmark, a real estate firm.
For the landlord, “it doesn’t make sense to make a deal,” Mr. Trakhtenberg said.
Because of zoning laws in a lot of places that’s not possible.
For instance, where I live, restaurants are restricted to commercial zones. Housing is restricted to residential zones.
That also gets into the question of “why” do we have zoning laws, and that gets complicated, because it was most beneficial in separating factories and utilities, and very noisy and polluty things from where people lived.
Unfortunately they also had the idea that any enterprise fell into this idea, and the other businesses didn’t want to mix with other polluters and residents and it became a big mess
You might also not want a bar opening its doors above your apartment because there’s no zoning laws… Or for all arable land to be converted to factories and shopping malls more than they’ve already been.
The problem, to me, is more that the people managing zoning aren’t doing it logically and, in some cases, don’t have enough control over what commercial zoning means.
Example from around here: Having two Best Buy a couple hundred meters from one another in a location where there’s no groceries makes no sense, but because it’s all commercial the city can’t prevent it? That’s bullshit.
If only bosses actually cared about productivity and free employee satisfaction.
It has nothing to do with productivity. When you have a lease for 20 years on very expensive downtown property and a whole department that manages that property and sr stakeholders that have investments in the commercial real estate. Then it all makes sense.
If all you have is a lease, then this is the sunk cost fallacy. Your paying the lease whether you use it or not, so that should not be a factor. Not using it is still cheaper as you do not have the overhead of keeping the space usable (electricity, janitors, etc), and eventually the lease will end. And, you might something else to do with the space that, while not worth the lease, still has non 0 value that you wouldn’t get if the space was being used for offices. Besides, at some point the lease would end.
Of course, if your board and executives have investments in commercial real estate, or industries that depend on it (restraunts in commercial areas, supplies of office grade toilet paper, etc), then they have a clear conflict of interest, and may want to sacrifice the interests of the one company to prop up their other investments. In theory, shareholders could sue over this. However, not only would this be very hard to prove, but almost all shareholders have the exact same conflict of interest.
I know commercial real estate contacts are more complicated than just a lease. Plus companies lose tax incentives from local governments that outweigh any any power and building staff costs. The problem is its not the lease that’s required to get those incentives. It’s butts in seats and with commercial real estate contacts they may have to pay a penalty if people are nit using the building because the building owner may have contracts with city to make sure that buildings traffic is supporting other businesses around the office building that may be owned by the same people. Note I think the whole system is stupid but it’s more complicated than just sunk cost.
Also they tend to be control freaks.
I know me, I’m a control freak
It’s called going dark. Most businesses don’t own their property. So if they stop operating at a location, even if they still pay rent, there are consequences.
Say you own a strip mall with a grocery store. A selling point to getting restaurants and retail on around it is that the grocery is there. If the grocery store stops doing business there, all the other stores lose business.
I don’t agree with it, but that’s how it is.
I’m not sure your example tracks as there’d be no reason for a grocery store to pay rent without occupying the space. In this analogy, it would need to be some sort of office which would have some tangential effect on surrounding businesses (like restaurants), but those restaurants could just relocate to where the people are now in their homes.
The Zombie Pharmacies That Are Holding Back New York City Retail
TL;DR
The most common reason is a concept called “dark rent.”
Pharmacy companies are seeking to cut their losses by shuttering unprofitable stores that have high labor costs, Mr. Hill said, but in most cases they are obligated to continue paying the rent long after the store closes, or goes dark.
Most of the pharmacies that have closed in recent years were signed to 10-, 15- or even 20-year leases, at rents that often exceed today’s rates, brokers said.
In these cases, a landlord has almost no incentive to seek a new tenant, allowing the store to sit empty for months or years, said Aric Trakhtenberg, an associate director at Newmark, a real estate firm.
For the landlord, “it doesn’t make sense to make a deal,” Mr. Trakhtenberg said.
Because of zoning laws in a lot of places that’s not possible.
For instance, where I live, restaurants are restricted to commercial zones. Housing is restricted to residential zones.
That also gets into the question of “why” do we have zoning laws, and that gets complicated, because it was most beneficial in separating factories and utilities, and very noisy and polluty things from where people lived.
Unfortunately they also had the idea that any enterprise fell into this idea, and the other businesses didn’t want to mix with other polluters and residents and it became a big mess
You might also not want a bar opening its doors above your apartment because there’s no zoning laws… Or for all arable land to be converted to factories and shopping malls more than they’ve already been.
The problem, to me, is more that the people managing zoning aren’t doing it logically and, in some cases, don’t have enough control over what commercial zoning means.
Example from around here: Having two Best Buy a couple hundred meters from one another in a location where there’s no groceries makes no sense, but because it’s all commercial the city can’t prevent it? That’s bullshit.
I work in commercial real estate. That was a real example. They continue to pay rent so they don’t have to pay termination fees.
And yes, personally I agree they should fail or relocate but that’s not what investors in the property think.