Realist, not conformist analysis of the latest financial, business and political news

But Why Would New Landlords Raise The Price Of Railway Arches?

Once again we seem to have one of these misunderstandings of how business works. People are really likely to buy lots of commercial property in order to leave it empty, aren’t they? So, railway arches changing hands will mean that, in a field where there’s empty stocks, rents will rise?

The Conservatives have always prided themselves on being the champions of enterprise but thousands of small businesses are under threat as a result of a government decision to encourage Network Rail to sell off its commercial property portfolio. From London to Manchester, Bristol to Leeds, family-run garages, pop-up restaurants and specialist motorbike repair shops that are based in railway arches say their livelihoods are at risk.

Umm, why? Are we saying that Network Rail doesn’t currently run them all as a profit maximising business? If we are saying that then why have we allowed that to happen? And, given that we do desire all assets to be put to their most valuable uses then we’d hope that it is sold off so that it does become profit maximising, right?

Network Rail is the country’s biggest landlord for small businesses. All 5,500 of the railway arches in England and Wales, home to 4,400 traders, are being sold to the highest bidder in one enormous block, valued at £1.4 billion. Final bids will be submitted by the end of this month and the preferred bidder announced soon after that. With the shortlist of potential investors made up of global private equity companies and real estate firms, many tenants fear that the asset sale will end the arches’ role as affordable incubators of innovation.

If we assume, contrarily, that Network Rail has been profit maximising then why should the new owners be able to raise rents? They’ll be stuck facing exactly the same demand with the same available supply, prices won’t change a bit, will they?

The complaint simply doesn’t make sense either way. If it’s not charging market rents then we want it to, if it is then they can’t rise.

Having paid so much for the properties, the new owners, acting in the interests of their shareholders rather than society, will understandably seek to maximise profits. The danger is that the entrepreneurs who have traditionally rented these often damp and dingy spaces for their startups will be priced out of the market and the railway arches will become — like so many high streets — homogenised strips of chains.

If Network Rail was already operating in the interests of taxpayers then prices won’t change, will they?

Quite frankly the whole story’s drivel.

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5 years ago

Network Rail owns the arches because of the frightening complexity of owning a viaduct without owning the land and space underneath it. I was hit with this years ago when I couldn’t insure my shop until I bought the buttresses on the adjoining land holding the building up.

5 years ago

Whether rents rise or not (and how can we be so callous as to force renters to live “under threat” of their own “fear”?), we are moving from a system where Network Rail faced no pressure to set correct prices, to a system where the new landlord will. No, wait, sez Network Rail was “acting in the interests of…society” by not charging full rent — as one can make a “social” rationale for any government giveaway. “Fear that the asset sale will end the arches’ role as affordable incubators of innovation” rather assumes that the nation will have no business… Read more »

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