Property-Speciﬁc Factors and the Term Structure of Commercial Oﬃce Rents in Central London
48 Pages Posted: 30 Nov 2017
Date Written: November 19, 2017
This paper explores the term structure of commercial office rents using a unique data set constructed from marketing materials published by several brokers in the London market. Consistent with prior studies, OLS specifications yield estimates of a significantly positive, time-invariant term structure. However, the effect disappears after controlling for heterogeneity at the property level, suggesting that the term effects uncovered in similar studies may be the result of omitted variables bias. The preference for shorter leases in older, lower quality properties is consistent with landlords maximizing the value of their redevelopment option. Short leases are preferred at times when the property is expected to require redevelopment in the near future.
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