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Retention rates, reinvestment and depreciation in European office markets

Retention rates, reinvestment and depreciation in European office markets The retention rate of a company has an impact on its earnings and dividend growth. Corporate management has control over this. However, lease structures in some real estate markets reduce the control of investment managers and force them to adopt full distribution policies and a passive management style. This is likely to impact the rental performance of the real estate by permitting depreciation to go uncorrected. This paper examines several European office markets across which lease structures and retention rates vary. It then compares depreciation rates across these markets. It is concluded that there is evidence of a relationship between retention and depreciation. Markets with particularly inflexible lease structures clearly exhibit low retention rates, and we can tentatively suggest higher levels of rental value depreciation. This poses interesting questions concerning the relationships between lease structures in different markets and their impact on expenditure by owners, and also concerning the impact on building depreciation and property performance. While longer and deeper datasets are necessary to establish direct linkages between lease structures and performance, this paper raises important issues for global investors. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Property Investment & Finance Emerald Publishing

Retention rates, reinvestment and depreciation in European office markets

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Publisher
Emerald Publishing
Copyright
Copyright © 2004 Emerald Group Publishing Limited. All rights reserved.
ISSN
1463-578X
DOI
10.1108/14635780410538159
Publisher site
See Article on Publisher Site

Abstract

The retention rate of a company has an impact on its earnings and dividend growth. Corporate management has control over this. However, lease structures in some real estate markets reduce the control of investment managers and force them to adopt full distribution policies and a passive management style. This is likely to impact the rental performance of the real estate by permitting depreciation to go uncorrected. This paper examines several European office markets across which lease structures and retention rates vary. It then compares depreciation rates across these markets. It is concluded that there is evidence of a relationship between retention and depreciation. Markets with particularly inflexible lease structures clearly exhibit low retention rates, and we can tentatively suggest higher levels of rental value depreciation. This poses interesting questions concerning the relationships between lease structures in different markets and their impact on expenditure by owners, and also concerning the impact on building depreciation and property performance. While longer and deeper datasets are necessary to establish direct linkages between lease structures and performance, this paper raises important issues for global investors.

Journal

Journal of Property Investment & FinanceEmerald Publishing

Published: Jun 1, 2004

Keywords: Retention; Europe; Leasing; Real estate; Office buildings

References