Monday
Commercial premises are built (or bought) with the expectation that they can be let to tenants at a rate that exceeds the construction costs (or purchase price), maintenance and rates and taxes.
As more and more dollars are set aside to service the accelerating debt, so there is less and less to spend on goods and services. Thus, commercial real estate is struggling. Tenancies are, at best, moving downmarket (with an appropriate drop in rent) and, at worst, have vanished leaving the eyesore of an empty shop, office or factory.
The rental income may decrease or be entirely lost, but the cost of borrowing and the cost of government rates and taxes grind remorselessly on. The phrase ‘between Scylla and Charybdis’ comes to mind.
When it happens across the economy, then the value of commercial real estate plummets.
When that happens, and it will, then it seems reasonable to assume that residential real estate will follow. No scenario exists whereby businesses are failing en masse, yet the jobs necessary to pay off a mortgage are increasing.
When either or both do collapse, then the ripple-out effects will become a cascade of defaulting debt.
That will be a problem that cannot be ignored.