How can valuable retail real-estate stay vacant for an extended period of time? Anecdotally, the story often goes like this:

A land owner leases his commercial retail space at an expensive price. The place stays vacant for months or years at a time. Eventually someone decides to lease the place. The rents are very expensive and eventually the leaser goes out of business. 


This article goes someway to describing the phenomenon I am looking to explain
This article has the Leichhardt mayor signal an attempt to address the problem.


There are many other families like the Wakils, who are content leaving their property vacant. This example is largely relating to Australia but it does happen elsewhere. 

Why would they do that? Surely any rent earned would be better than no rent.

My thoughts are:


There could be some sort of tax concession in place. If a landowner tries to lease for \$5k a month, the tax write-off could make the owner better off than if they actually leased it for \$4k a month. The below suggests this happens to at least some degree.


  Leichhardt mayor is calling for a range of legislative changes to allow rates to be increased and tax concessions reduced for landlords who leave their shop fronts empty unnecessarily... there is currently no allowance to reduce rates for those property owners who keep their properties tenanted or to increase rates for landlords who are using their properties as a tax write-off.

The returns to land-price speculation make leasing a secondary priority.
Structural change in how valuable retail space is. With the increase in grocery deliveries and other forms of online shopping, maybe people don't have as much need to shop. This, coupled with possible stickiness in rental prices will result in a significant drop in quantity demanded.
Some people just don't care. (I find this particularly unsatisfying considering the magnitude of the values involved)


To me, it is clear there is at least some form of regulatory failure present here. If these places were rezoned into residential, they would get filled very quickly as this phenomenon seems primarily restricted to commercial real-estate. The council (and probably the community) would prefer to have this area remain commercial but residential is surely better than vacant.
Before applying irrationality to explain the phenomenon, consider the following simplistic model of a rational owner: assume there is the high rent $R^h$ and the low rent $R^{\ell}$. The owner faces the prospect of earning either

$$V(h) = \sum_{t=1}^{T_1} \beta^{t-1}R^h + \sum_{t=T_1+1}^{T_2} \beta^{t-1}\cdot 0+ \sum_{t=T_2+1}^{T_3} \beta^{t-1}R^h +...$$

or

$$V(\ell) = \sum_{t=1}^{\infty} \beta^{t-1}R^{\ell} = \frac{1}{1-\beta}R^{\ell}$$

Favor the "low-rent" scenario by ignoring all terms in $V(h)$ except the first sum (this reflects that the property may go unleased for "many years", so remote-future income gets fully discounted). Based on these considerations alone, if we observe the "high rent" scenario, it must be the case that

$$V(h) &gt; V(\ell) \implies \frac{1-\beta^{T_1}}{1-\beta}R^{h} &gt; \frac{1}{1-\beta}R^{\ell} \implies R^{h} &gt; \frac{1}{1-\beta^{T_1}} R^{\ell}$$

which can be re-arranged to give

$$\beta &lt; \left(\frac {R^h-R^{\ell}}{R^h}\right)^{1/T_1}$$

The right hand side can be estimated by real world data: obtain average magnitudes for the high and the low rent, as well as the average time a business under the higher rent pays it prior to fold (the $T_1$ parameter). These will lead to an estimation of the upper bound for $\beta$ in order for the above inequality to hold, and justify the "high rent" scenario observed.
Then one can examine this upper bound and contemplate whether it appears "reasonable".
As a numerical example, assume $R^h = 2R^{\ell}$ and $T_1=2$ (say years). Then it must be the case that 

$$\beta &lt; (1/2)^{1/2} \approx 0.71$$ 

"Too low" (i.e. too high discounting) one would tend to say. But don't look at benchmark values of $\beta$ that are used in macro-models. Try to think what the discount factor attempts to capture here.  And in any case, a person with very high discounting, is not "irrational" -this is how he experiences the world.

And then, there are other considerations: accepting low rents tends to drive the asset values down. Also, It may be the case that this is incremental income for land owners, above some comfortable level from other sources, meaning declining utility of wealth may kick in. Further, constant occupation physically wears the asset down faster. Etc.  

My point is, "people are just jerks" (i.e. arguing for irrationality) can explain everything - and so it really explains nothing.