Lease Maturity and Initial Rent: Is There a Term Structure for UK Commercial Property Leases?
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Seminal work by Grenadier (J. Financ. Econ. 38:297–331, 1995) derived a set of hypotheses about the pricing of different lease lengths in different market conditions. Whilst there is a compelling theoretical case for and a strong intuitive expectation of differential pricing of different lease maturities, to date the empirical evidence is inconclusive. Drawing upon a substantial database of commercial lettings in central London (West End and City of London) over the last decade, we investigate the relationship between rent and lease maturity. In particular, we test whether building quality, credit risk and micro-location variables omitted in previous studies provide empirical results that are more consistent with the theoretical and intuitive a priori expectations. It is found that initial leases rates are upward sloping with the lease term and that this relationship is constant over time.
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- Lease Maturity and Initial Rent: Is There a Term Structure for UK Commercial Property Leases?
The Journal of Real Estate Finance and Economics
Volume 36, Issue 4 , pp 451-469
- Cover Date
- Print ISSN
- Online ISSN
- Springer US
- Additional Links
- Term structure of leases
- Office rents
- Industry Sectors
- Author Affiliations
- 1. Department of Land Economy, University of Cambridge, 19 Silver Street, Cambridge, CB3 9EP, UK
- 2. The Smeal College of Business, The Pennsylvania State University, State College, PA, USA
- 3. Global Corporate Services, CB Richard Ellis Ltd, Kingsley House, Wimpole Street, London, W1G 0RE, UK
- 4. Department of Real Estate and Planning, The University of Reading, P.O. Box 219, Whiteknights, Reading, RG6 6AW, UK