Why commercial rents are rising in a recession

2024-02-28 21:15:44

Although it is sometimes lost sight of in the real estate business, the Cordoba downtown has the second most important pedestrian street in the country in operation, with premises that hardly look unoccupied.

But what is happening at this moment, with “stagflation” nipping at the heels of almost all economic activities and a decrease in sales that is obvious.

The activity comes from two years of “great demand, with little supply”, due to the confluence of several factors, says Eduardo Honigman, one of the area’s main references in real estate matters.

One of them is that, in dollars, the prices of the locations are “at a much lower value than historical values”, with a drop in profitability for the owner.

There is also the fact that the contracts were made approximately 18 months ago, with an update calculation of 25% every six months in most cases.

This percentage is contrasted with merchandise that has increased much more in price due to the effect of inflation, even above it.

“No matter how much you put the real ratio, the calculation methods make rents relatively cheaper,” adds Honigman.

Reasons of both parties

As a counterpart, after the electoral passage of the “small money” plans, sales are now declining, which means that many prices are no longer validated. On the other hand, owners hope to recover and minimally sustain their income so as not to lose to inflation. Others go further and aim to try to recover their capital in hard currency (dollars).

“Then a situation appears where both parties have their reasons: as the much-feared stagflation is clearly at the beginning, the unnatural phenomenon occurs of having to renew contracts at prices perhaps higher than applying inflation, with a drop in sales that It’s been going on for three months now,” points out the real estate operator.

February rose a little compared to January, “but it is only enough for a faint optimism.” “And in many cases what the owners receive, since it was greatly devalued, makes them lose the fear of the premises being unoccupied,” Honigman points out, which is another form of reasoning.

There are also situations linked to the political-economic context. The average merchant is a little afraid of change and stability given that the other context, that of inflation, “disguises purchasing errors and minimizes the cost of purchasing.” stock”.

With a single maneuver, delaying payment to suppliers, “you already obtain part of your profitability”, which improves even more if you give your own credit to the client and even build customer loyalty.

Another situation is that there are “owners hurt by taxes” in the Córdoba market. They are those who have to deduct from their income for having essentially laundered dollars in 2016.

The same thing happens with premises that are family assets that come from two or three generations, the division of the rent leaves income equal to or lower than that obtained by renting a common apartment, “which almost never happened,” says Honigman.

“But there are always crisis businesses and young, new entrepreneurs who ‘see it’ and are successful, which is why it is difficult for values ​​to fall” in the rentals of the downtown area of ​​Córdoba.

Furthermore, since the most dynamic microcenter, the one with the largest audience, never expands, scarcity plays a role: “They are unique stores in the best pedestrian areas of the second city in the country. And they will always be rented again,” concludes the real estate operator.

Vacancy in commercial premises

The latest report from the Real Estate Activity Monitor, prepared by Economic Trends for the College of Real Estate Professionals (CPI), warns that in January the vacancy level in Córdoba Capital in commercial premises was 4.4%, a level that was above the second half of last year. However, this is due to seasonal issues; In fact, it was below January 2023 (5.4%) and much less than January 2022 (11.2%).

95.7% of merchants paid their rent in full in January, the highest level of the series that began in January 2022.

1709155574
#commercial #rents #rising #recession