Real Estate Rental Payments: Application of Stock-Inventory Modelling
Posted: 7 Oct 2003
This paper analyses 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.
Suggested Citation: Suggested Citation