Pricing the Options Inherent in Leased Commercial Property: a UK Case Study

Andrew Baum (a.e.baum@reading.ac.uk)
Additional contact information
Andrew Baum: Department of Real Estate & Planning, University of Reading School of Business

Real Estate & Planning Working Papers from Henley Business School, University of Reading

Abstract: This paper sets out the findings of a group of research and development projects carried out at the Department of Real Estate & Planning at the University of Reading and at Oxford Property Systems over the period 1999 - 2003. The projects have several aims: these are to identify the fundamental drivers of the pricing of different lease terms in the UK property sector; to identify current and best market practice and uncover the main variations in lease terms; to identify key issues in pricing lease terms; and to develop a model for the pricing of rent under a variety of lease variations. From the landlord's perspective, the main factors driving the required 'compensation' for a lease term amendment include expected rental volatility, expected probability of tenant vacation, and the expected costs of tenant vacation. These data are used in conjunction with simulation technology to reflect the options inherent in certain lease types to explore the required rent adjustment. The resulting cash flows have interesting qualities which illustrate the potential importance of option pricing in a non-complex and practical way.

Pages: 17 pages
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.reading.ac.uk/LM/LM/fulltxt/0903.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rdg:repxwp:rep-wp2003-09

Access Statistics for this paper

More papers in Real Estate & Planning Working Papers from Henley Business School, University of Reading Contact information at EDIRC.
Bibliographic data for series maintained by Marie Pearson (marie.pearson@henley.ac.uk).