Urban Density, Law and the Duration of Real Estate Leases
52 Pages Posted: 26 Jan 2011 Last revised: 9 Sep 2014
Date Written: September 2012
This study explores the relationship between a country’s legal system and how its cities develop by examining the considerable variations in commercial real estate lease duration (or term) across both countries and cities. We find that the cross-country variation in lease duration and building construction is related to the content (common versus civil law) and efficiency (integrity and enforceability) of the legal system in the respective countries. First, we find that countries with a common law system and lower levels of corruption tend to have longer leases. Second, we find that in the United States, high-rise Class A office buildings tend to have tenants with longer term leases, suggesting that the advantages associated with being able to write and enforce a long term lease is particularly important for the development of high-rise office buildings. Finally, we find that there are in fact more high-rise office buildings in countries with more efficient legal systems.
Keywords: Real estate, Lease duration, Law, Corruption, Urban density, Skyscrapers
JEL Classification: K00, R33
Suggested Citation: Suggested Citation