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Negotiating office lease contracts: From a game‐theoretical towards a behavioural view

Dominique C. Pfrang (International Real Estate Business School, University of Regensburg, Regensburg, Germany)
Silke Wittig (International Real Estate Business School, University of Regensburg, Regensburg, Germany)

Journal of European Real Estate Research

ISSN: 1753-9269

Article publication date: 9 May 2008

Abstract

Purpose

The paper aims at modelling a game‐theoretical framework that covers the basic mechanisms of lease contract negotiations while making allowance for relevant behavioural aspects.

Design/methodology/approach

Based on a review of literature about negotiation processes the work initially models, analyses, and solves lease contract negotiations as basic non‐cooperative game situations. It develops a game‐theoretical model based on the simple bi‐matrix normal form and the Rubinstein bargaining game while successively approximating real estate practice by integrating behavioural concepts.

Findings

On a conceptual level the work demonstrates that a game‐theoretical modelling of lease contract negotiations allows for a systematic structuring of the conflict situation between landlords and tenants. Different market situations that affect the perception of utility of the negotiating parties, as well as the consequences of mutual concessions and the creation of additional negotiation subjects that enhance the perceived contract utility can be taken into account by integrating simple mental models. On a practical level the paper shows that brokers' influence on the behavior of the negotiating partners can contribute to the efficiency of negotiation processes and the perceived contract utility. It identifies mutual concessions and the creation of incentives and additional negotiation subjects as possibilities to improve the attractiveness of a lease contract and to reach more beneficial contract provisions.

Originality/value

The paper offers a systematic examination of bargaining processes between landlords and potential tenants which can help professionals to understand lease contract negotiations as conflict situations and reach more profitable and satisfying results.

Keywords

Citation

Pfrang, D.C. and Wittig, S. (2008), "Negotiating office lease contracts: From a game‐theoretical towards a behavioural view", Journal of European Real Estate Research, Vol. 1 No. 1, pp. 88-105. https://doi.org/10.1108/17539260810891514

Publisher

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Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited