Rent at Public Markets

(Photo: Alpha)

At the Queen Victoria Market, an immense city-run collection of stalls and shops in Melbourne, Australia, a fishmonger at a prime corner is paying $5,500 per month to the City to operate there.  Since other fishmongers pay less, much of this payment is economic rent — payment for the visibility/access at this corner. But is the City extracting all the rent, or is it giving the fishmonger a good deal? 

This fishmonger has been in business at this location for a very long time.  That fact suggests that at most the City is not overcharging him, and perhaps it isn’t even extracting all the rent.  Whenever many public lessees in competitive businesses stay in business a long time, the public agency is probably granting them excess profits — at the public’s expense.

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  1. James says:

    I would agree that the market might not be charging the max IF it were a private rental space, but the government doesn’t have the overarching mandate to increase profits. They have a mandate to support the public welfare (a bit more difficult to measure than profit, I admit) and there’s a certain amount of sense in maintaining a public space that provides a sense of continuity and community. The “cost” of lost rents to the public is minimal and diffuse, while there are likely some additional spillover benefits to the neighborhood around the market space that are difficult to quantify so simply (increased business foot traffic, reinvigoration of local rental market, increased apartment rental price, etc.). Apart from that, the benefits of local markets like these (or community gardens, public parks, etc.) go beyond quantifying income and include things like the attractiveness of neighborhoods to potential residents, the ease of acquiring healthy food, the willingness of businesses to locate there, the ability to serve a diverse, stable local population, traffic congestion, and general “quality of life.” It strikes me as rather short-sighted to expect this local government market owner to “act like a business” when they don’t have the same overarching goals.

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  2. Marshall says:

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    • James says:

      I won’t argue the morality of it, but I think that there is a strong argument to be made that the diffuse cost to the public (very small on a per capita basis) can be an investment in ancillary benefits not captured by a pure income-to-potential income measure. To categorize it immediately as “waste” is short-sighted. Also, there is risk involved with removing a stable and productive tenant (not to mention labor costs, advertising costs, etc.) that would be a defensible reason for not maximizing rental income. Caleb makes a point similar to mine below.

      And, not to move the conversation off-topic, but the benefits provided to large-scale businesses in the form of publically paid-for benefits (tax breaks for hiring, relocation, investment in capital, etc.) FAR exceed that granted to “small” or “local” businesses.

      In short, I’m making neither a moral argument nor one based on business “type”. I’m making a practical argument that forgoing a relatively small amount of increased rents (and, as a side effect, granting a local business slightly higher profits) can be a very defensible means of encouraging a number of other positive benefits.

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  3. caleb b says:

    Maybe they are just really good tenants. Good tenants with staying power aren’t easy to find. Just because they might be getting a good deal, doesn’t mean that the public is getting the shaft.

    Some places become anchors that draw crowds…so it could be a strategic move to have a somewhat artificially low rent for the anchor that helps drive higher rent and less vacancy in other spaces. Without knowing more, it would be difficult to be able to draw any conclusions.

    Example: Café Du Monde in New Orleans is a huge tourist draw.

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    • James says:

      In addition, there are costs to the city (or to any entity renting things) for getting new tenants. Suppose (to create an extreme case) they were to auction off every spot in the market each week. That would impose considerable overhead in holding the auction, additional traffic congestion as each vendor figured out how to get to their new space, confusion among shoppers as they try to find out where their favorite fishmonger is this week, etc.

      The moral here is that in the long run, it seldom pays to try to squeeze out every possible short-run dollar.

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  4. greg says:

    I think paying below market rents is fine if you have a market with a particular ethos and that is a draw for people to come to the city centre etc.

    However I don’t think they should have guaranteed roll over of the pitch, there is a covered market in Oxford and going there for the first time, there was a lot not to like as well as a lot to like. A lot of the businesses proudly stated how long they’d been there and when they were established. But to me that just seems like there isn’t a high enough turnover in some of the stalls. Particularly when some of them don’t seem to be good and rely largely on one off tourist trade rather than local repeat customers.

    It had previously been independent only, although when one trader went bust a couple of years ago a card chain rented their lot and now it lo0ks like the council will be increasing rents 25-70%.

    Now I’m wondering if the higher rent (as long as they keep it to independent traders and it doesn’t just become an odd shopping centre) might encourage new better businesses that will not be able to survive on tourist trade and that will need to bring in locals regularly.

    Or if they could keep the lower rents but limit tenancies and be far more selective about who they rent to so they get a better group of traders that is not static. Or do things like offer 6 months low rent tenancies for new stalls upping to full tenancies after that period and they should be no longer than a year. Possibly even auctioning some off.

    My favourite market is the wonderful Borough Market in London and that seems to do both, charge a lot of rent and be very particular who they let have a stall. As a result it’s a destination for Londoners and tourists and visitors.

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  5. Jeff says:

    This seems to assume that the only reason a fishmonger could stay on business this long is because the rent is lower than it should be. But there are certainly other factors such as payroll costs, quality of service and products, coat of products and and quality of the management that probably have more to do with longevity than the rental rate.

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  6. Joe says:

    I think you miss a significant factor here: the lessee (or contractee, in the inverse case of a company contracted by a public agency to perform a service for a fee) might continue renewing even at somewhat excessive rents (or too-low fees), as long as they are not too excessive, because of two factors:

    * The lessee might have higher costs to move than the discrepancy in rent to optimal rent – either in losing regular customers who no longer know where to find the lessee, or building/tear down costs in the case of a building renter, or set up costs for a job for a contractor.
    * The lessee might prefer to continue doing business that is generating known/safe profits rather than take the risk of moving, even if that is not a rational decision.

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  7. Six_By_Nine says:

    The Queen Vic Market is also one of Melbourne’s top tourist destinations, so there might be benefits to that that need to be taken into the equation.

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  8. Andrew says:

    This seems like a bizarre view. How is it relevant that the fishmonger is paying rent to a public entity? There are hundreds of businesses near me that have been in the same location for decades, and many of them pay rent. Any retail space in a mall, for instance. I agree that it seems like the fishmonger isn’t being overcharged, but that’s as far as I’m willing to go. I suppose it would be a “better” sign in some sense if the tenant changed each month as the rent increased ad infinitum, but it seems implausible that there would be no months without a tenant at all. As James said, they could hold auctions in advance to ensure tenancy, but it doesn’t seem worth the cost.

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