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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
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.
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