The Economics of Commercial Real Estate Preleasing

The Economics of Commercial Real Estate Preleasing Preleasing of to-be-built commercial real estate space is a pervasive worldwide practice. Although such preleasing is an extensive and significant activity, it has not received adequate attention in the real estate economics and finance literature. Using an equilibrium micro-economic agency model, this paper examines the economics of commercial real estate preleasing. The equilibrium prelease contract rent is a function of several variables, including the expected spot market rent, financing benefits from preleasing, developer-lessor and tenant-lessee risk-hedging behavior, the interplay between lessor and lessee default options, and the market capitalization rate. Our paper demonstrates how the distribution of risk preferences for lessees (and lessors) generates separating market equilibrium for the prelease and spot lease. We also consider the impacts of developer default and the lessee cancellation clause on the prelease rent equilibrium. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

The Economics of Commercial Real Estate Preleasing

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Publisher
Springer US
Copyright
Copyright © 2015 by Springer Science+Business Media New York
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-015-9515-2
Publisher site
See Article on Publisher Site

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