Business Rent Rates May Drive More People Out of Work

Caption During the economic crisis triggered by COVID-19, business rent can be a determining factor in a business staying open or having to shut down and laying off employees. Photo: Thmey Thmey.

As soon as the Coronavirus Diseases 2019 (COVID-19) started to spread at an alarming pace, there has been ongoing closures of businesses due to this outbreak while some businesses remain open as a way to test the market. However, many of those still in operation have a crucial decision to make every time they open their doors: Should they keep on facing bankruptcy while their landlords continue to impose high rent rates during this pandemic? If they decide to shut down, the unemployment rate will keep on climbing over the upcoming months. What is the problem and what are the possible solutions to address the situation? 



COVID-19, which has shaken the entire world, has been an extremely painful surprise. This health issue has plunged countries in about every part of the world into an economic crisis. And each country has come up with its own strategy to deal with the situation. 

In Cambodia, the government has reduced taxes for a specific period of time in response to the struggle in the tourism sector, and has set aside a portion of the national budget to be ready to help garment factory workers who are on the verge of losing their jobs. In addition, the government, through the National Bank of Cambodia, has called on commercial banks and microfinance institutions to consider postponing loans payments for a period of time.

Regarding rent for businesses, Prime Minister Hun Sen has called for a rent reduction, asking landlords to help rescue businesses and slow down the rate of bankruptcy during and in the aftermath of the pandemic. In response to his appeal, some landlords have agreed to lower rent by 10 to 30 per cent. However, a number of landlords have refused to grant even a minute rent reduction.

Rent costs can be vital for a business—like blood to the body—determining its chances of survival and growth. Most businesses will plan their budget and operations based on the rent they must pay. 

Considering the number of bankruptcies due to businesses struggling with their rental costs amidst COVID-19, one may first argue that the party who sustains the most impact is business owners. However, the ripple effect goes much further. The true victims are the employees who are hardly able to escape unemployment. The rate of bankruptcies increases alongside the unemployment rate, creating a heavier burden for the government. 

Would it be financially brutal for landlords to grant 50 or even 70 percent rent cuts? 

The answer is simply yes. In this challenging scenario, all parties must agree to lose some portions of their revenues. Business owners have the responsibility of providing their workforce with appropriate salaries while meeting their expenses, including rent.  By lowering businesses’ rents, landlords would make a huge contribution and help rescue businesses that are on the verge of collapse in the middle of the pandemic. The financial impact would be more or less sustainable for the landlords if they decided to lower their rental income, since it is just a one-sided loss. At the other end of the spectrum, bankrupted businesses will further raise the unemployment rate and increase economic losses. 

Avoid the avoidable: Serving the nation’s common interest in a time of crisis is a must. 





  

 


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