The Optimal Length of Industrial and Commercial Leases: Pricing and Welfare Implications

Philip McCann (p.mccann@rug.nl) and Charles Ward

ERES from European Real Estate Society (ERES)

Abstract: Industrial or commercial tenancies incur costs to the tenant which are both directly and inversely related to the length of the tenancy. From optimisation theory, the result of this is that there is a unique optimum tenancy length for each tenant at each location, and tenants will be willing to pay rental premiums in order to ensure tenancies are close to their particular optimum lengths. The existence of an institutional standard lease length therefore imposes welfare costs on society, and the level of these welfare costs depends on the extent to which the institutional lease length differs from the market optimum. Moreover, for each lease length there will be a different current market price and by implication, a different growth trajectory.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2001-06-01
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Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2001_226

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