Corona virus has shown us so many things that are wrong with our society. We are of course outraged about it all and each of us wants to see a whole bunch of different changes. Rents for small business is one of the things Adriano Espaillat, our local congressman, was mentioning on the radio this morning.

Here Sarah McNally explains to us in The New York Times (1 June issue) why it is that rents for retail stores hardly ever go down. Although vacancies in New York City retail space roughly doubled between 2007 and 2017, rents did not fall as economic theory might suggest: in Manhattan they actually went up by 22%. The reason for this is that reducing rent on a single store would impact the mortgage holder’s valuation of the landlord’s entire portfolio in the area. So it’s usually cheaper for the landlord to keep a space empty with a notionally higher rent than to allow the total value of their portfolio to go down by showing a lower rent rate. If the overall rental potential of the portfolio goes down this will incur higher mortgage costs. So the financial industry is what’s keeping rents artificially high.

There are a few rumblings at various levels of government, but there’s no immediately visible solution, and when we come out of lockdown lots of businesses are not going to be able to come up with back rent which will become due. No doubt many will opt to cease trading. Ms McNally’s suggestion makes sense, and has precedent. “We could solve our vacancy problem for good if all landlords simply charged their tenants a fixed percentage of what stores actually make, perhaps in addition to a modest base rent. This is common in shopping malls, which try to create a bustling, diverse row of shops. Why isn’t our city government invested in the same thing? I have two stores in malls — at City Point in Brooklyn and at the Seaport — and they will survive the lockdown because my landlords and I are partners. That’s how it should be for every bookstore, restaurant and bodega across the city.”

However, at a time when there will be demand for so many changes —  a public health system, reform of medical coverage, policing reform, residential rent assistance, employment rights and unemployment compensation, public transport safety and traffic control, etc., all creating yet more new complications during reopening, this seems a bit of a long shot. Government at all levels is going to be fixated on repairing a disastrous fiscal situation. But that’s not a reason to stop pushing for what you believe in. The next few years will be fascinating.

See also Bookstore rents.