Abstract
This paper analyzes the rental term structure taking into account the opportunity costs faced by the tenant for varying lease lengths. The analysis involves the application of a multi-period stock inventory model. The implication of the model is that the term structure of rents is determined by a clientele effect that can bias the occupancy value derived from using rational-expectations in the term structure relationship. The model does, however, reveal the characteristic stock-inventory U-shaped function that will determine the optimal lease length for a given tenant.
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McCann, P., Ward, C. Real Estate Rental Payments: Application of Stock-Inventory Modeling. The Journal of Real Estate Finance and Economics 28, 273–292 (2004). https://doi.org/10.1023/B:REAL.0000011157.78122.6c
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DOI: https://doi.org/10.1023/B:REAL.0000011157.78122.6c