Lease Maturity and Initial Rent: Is There a Term Structure for UK Commercial Property Leases?

Posted: 30 Jan 2008

See all articles by Shaun A. Bond

Shaun A. Bond

UQ Business School

Pavlos Loizou

affiliation not provided to SSRN

Patrick M. McAllister

University of Reading - Department of Real Estate and Planning

Abstract

Seminal work by Grenadier (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.

Keywords: term structure of leases, office rents, London

JEL Classification: R33, C20

Suggested Citation

Bond, Shaun Alexander and Loizou, Pavlos and McAllister, Patrick M., Lease Maturity and Initial Rent: Is There a Term Structure for UK Commercial Property Leases?. Journal of Real Estate Finance and Economics, Vol. 36, No. 4, 2008, Available at SSRN: https://ssrn.com/abstract=1088767

Shaun Alexander Bond (Contact Author)

UQ Business School ( email )

The University of Queensland
Brisbane, QLD 4072
Australia

Pavlos Loizou

affiliation not provided to SSRN ( email )

No Address Available

Patrick M. McAllister

University of Reading - Department of Real Estate and Planning ( email )

Reading RG6 6AW
United Kingdom

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