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.
The Journal of Real Estate Finance and Economics – Springer Journals
Published: Oct 18, 2004
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