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This paper examines the changes in the length of commercial property leases over the last decade and presents an analysis of the consequent investment and occupational pricing implications for commercial property investments. It is argued that the pricing implications of a short lease to an investor are contingent upon the expected costs of the letting termination to the investor, the probability that the letting will be terminated and the volatility of rental values. The paper examines the key factors influencing these variables and presents a framework for incorporating their effects into pricing models. Approaches to their valuation derived from option pricing are critically assessed. Simulation methododology is applied to the rental and capital valuations of short leases and properties with break clauses. It is concluded that in addition to the rigour of its internal logic, the success of any methodology is predicated upon the accuracy of the inputs.

It can be argued that the property valuation profession has historically relied upon uniformity as the basis of all capital and rental valuations. Within each property sector, differences in location and design were secondary to the underlying fundamental that the lease contracts for the properties were the same. During the 1980s most leases, in all sectors, were of 25‐year duration with the tenant being responsible for all outgoings. In the early 1990s the lease length reduced but most other terms remained constant. Rental valuation could therefore be made by direct comparison on a pro‐rata basis. Similarly, capital valuation would be made either by direct capital comparison, or by reference to a comparable rent and yield to determine the capital value by the investment method. Comparison was still the principal tool of analysis and this relied upon uniformity of leases within the market. In the late 1990s, the business environment experienced substantial structural change and tenants began to demand bespoke leases to suit their particular requirements. This has led to a plethora of different lease contracts, as tenants require shorter leases, the ability to expand and contract, break clauses and upwards/downwards rent reviews. The market is now as diverse as it was uniform in the 1980s. However, as pricing models relied upon comparison, valuers were reluctant to accept tenants’ new demands for flexibility as it was difficult to price these new contracts. This paper reviews the change in market conditions and equates the new requirements of the tenants with an increase in the uncertainty in the market. It argues that this uncertainty can be built into pricing models using probability‐based models and provides a scenario analysis to price a flexible lease contract.

Leasing evaluation is a subject that has drawn significant interest in economic circles for many years. The numerous models proposed in the literature have approached the topic from a variety of outlooks and approaches. The contributions made to date, however, all share what would appear to be an unwritten premise: namely, that leasing evaluation logically occurs prior to the start of the leasing relationship. The purpose of this paper is to eliminate this premise, in order to take an in‐progress approach to the evaluation of leasing.

The evaluation approach is based on a model that takes into account both the real factors (the market value of the asset) and the financial aspects of the lease (interest rates on the market). The leasing price is arrived at by taking the sum of: the advantage offered by the leasing, as compared to potential purchase of the asset on the spot market; and the added yield provided by the leasing, as compared to alternative investments.

The paper finds that an in‐progress approach allows measurement of the value of a leasing even if the lessor and the lessee have already decided to initiate the leasing relationship. This approach is called for when one of the parties (the lessor or the lessee) is replaced, as well as in cases where pathological situations lead to the interruption of the relationship, plus instances where it is necessary to carry out estimates for accounting purposes. The need to evaluate the leasing in terms of its different components (real and financial) also emerges from the instructions contained in the IAS17 regarding leasing.

The contribution of the work to the leasing evaluation theme can be identified in a different perspective that can be useful both in a financial point of view and in an accounting one.

Automated valuation models (AVMs) are statistical asset pricing models omnipresent in residential real estate markets, where they inform property tax assessment, mortgage underwriting and marketing. Use of these asset pricing models outside of residential real estate is rare. The purpose of the paper is to explore key characteristics of commercial office lease contracts and test an application in estimating office market rental prices using an AVM.

The authors apply a semi-log ordinary least squares hedonic regression approach to estimate either contract rent or the total costs of occupancy (TOC) (“grossed up” rent). Furthermore, the authors adopt a training/test split in the observed leasing data to evaluate the accuracy of using these pricing models for prediction. In the study, 80% of the samples are randomly selected to train the AVM and 20% was held back to test accuracy out of sample. A naive prediction model is used to establish accuracy prediction benchmarks for the AVM using the out-of-sample test data. To evaluate the performance of the AVM, the authors use a Monte Carlo simulation to run the selection process 100 times and calculate the test dataset's mean error (ME), mean absolute error (MAE), mean absolute percentage error (MAPE), median absolute percentage error (MdAPE), coefficient of dispersion (COD) and the training model's r-squared statistic (R²) for each run.

Using a sample of office lease transactions in Sydney CBD (Central Business District), Australia, the authors demonstrate accuracy statistics that are comparable to those used in residential valuation and outperform a naive model.

AVMs in an office leasing context have significant implications for practice. First, an AVM can act as an impartial arbiter in market rent review disputes. Second, the technology may enable frequent market rent reviews as a lease negotiation strategy that allows tenants and property owners to share market risk by limiting concerns over high costs and adversarial litigation that can emerge in a market rent review dispute.

In United States v. United Shoe Machinery Corp., United Shoe Machinery (USM) was found guilty of illegal monopolization due to its leasing practices. Existing scholarship on this case largely focuses on the issue of leasing versus selling. In this article, we provide a more comprehensive analysis of this important decision. In addition, we examine USM’s antitrust experience before and after the famous 1953 case. We find that USM’s business practices were largely procompetitive and, therefore, did not warrant condemnation.

Lease contracts at the time of sale influence buyers' expectations about future returns of farmland ownership and may thus contribute to price dispersion. This paper investigates the conjecture that existing land lease contracts influence buyers' and sellers' costs of being information deficient and thus their bargaining position, their expectation formation about future returns, and thus ultimately the farmland price.

The authors link different levels of information, search, and bargaining costs to three buyer types and their land use intentions. Relying on a rich dataset of farmland transactions in the German Federal State of Saxony-Anhalt from 2014 to 2019, the authors use a hedonic pricing model to investigate five hypotheses applying multivariate one-sided tests.

The authors find buyer-specific effects related to lease status and lease term of a lot. Tenant buyers pay less than non-farmer buyers for leased lots, whereas non-tenant farmers pay a markup. While prices decrease for all buyer groups with an increasing lease term, this effect is the strongest for non-tenant farmer buyers. This study’s results suggest that an existing lease contract impacts buyers' costs of being information deficient, their bargaining positions and expectation formation, and ultimately the price discovery process.

To the authors’ knowledge, this is the first study that decomposes the effects of tenancy on farmland prices by buyer type and lease term. The study provides insights into price dispersion for identical characteristics of farmland and explains why empirical studies have found mixed or no empirical evidence that lease contracts influence the price discovery process.

Commonly shared logistics services help manufacturing companies to cut down redundant logistics investments while enhance the overall service quality. Such service-sharing mode has been naturally adopted by group companies to form the so-called headquarter-managed centralized distribution center (HQ-CDC). The HQ-CDC manages the common inventories for the group’s subsidiaries and provides shared storage services to the subsidiaries through appropriate sizing, pricing and common replenishment. Apart from seeking a global optimal solution for the whole group, the purpose of this paper is to investigate balanced solutions between the HQ-CDC and the subsidiaries.

Two decision models are formulated. Integrated model where the group company makes all-in-one decision to determine the space allocation, price setting and the material replenishment on behalf of HQ-CDC and subsidiaries. Bilevel programming model where HQ-CDC and subsidiaries make decisions sequentially to draw a balance between their local objectives. From the perspective of result analysis, the integrated model will develop a managerial benchmark which minimizes the group company’s total cost, while the bilevel programming model could be used to measure the interactive effects between local objectives as well as their final effect on the total objective.

Through comparing the numerical results of the two models, two major findings are obtained. First, the HQ-CDC’s profit is noticeably improved in the bilevel programming model as compared to the integrated model. However, the improvement of HQ-CDC’s profit triggers the cost increasing of subsidiaries. Second, the analyses of different sizing and pricing policies reveal that the implementation of the leased space leads to a more flexible space utilization in the HQ-CDC and the reduced group company’s total cost especially in face of large demand and high demand fluctuation.

Several classical game-based decision models are to be introduced to examine the more complex relationships between the HQ-CDC and the subsidiaries, such as Nash Game model or Stackelberg Game model, and more complete and meaningful managerial implications may be found through result comparison with the integrated model. The analytical solutions may be developed to achieve more accurate results, but the mathematical models may have to be with easier structure or tighter assumptions.

The group company should take a comprehensive consideration on both cost and profit before choosing the decision framework and the coordination strategy. HQ-CDC prefers a more flexible space usage strategy to avoid idle space and to increase the space utilization. The subsidiaries with high demand uncertainties should burden a part of cost to induce the subsidiaries with steady demands to coordinate. Tanshipments should be encouraged in HQ-CDC to reduce the aggregate inventory level as well as to maintain the customer service level.

The proposed decision frameworks and warehousing policies provide guidance for the managers in group companies to choose the proper policy and for the subsidiaries to better coordinate.

This research studies the services sharing on the warehouse sizing, pricing and common replenishment in a HQ-CDC. The interactive decisions between the HQ-CDC and the subsidiaries are formulated in a bilevel programming model and then analyzed under various practical scenarios.

Option to review land rents to prevailing market rents and option to renew leases for another term are two important options embedded in the public industrial land leases in Singapore, managed by the Jurong Town Corporation (JTC). The land rents of JTC leases are reviewed every year subject to a cap on the land rent increase. The rent cap, which is historically lower than the prevailing market growth rate, widens the gap between the contract rent and the prevailing market rent as the lease progresses. This creates disincentives to the lessor for not exercising the rent review option, because the option is in‐the‐money. The rent gap, on the other hand, is also translated into substantial profit rents for lessees who hold onto the leasehold interests of industrial lands. By assuming two different probability distributions for the ex‐ante prevailing market rents, the profit rents were simulated to derive at the values of a hypothetical 30‐year lease, which range from US$47.93 (S$86.45) per square meter (psm) (Sungei Kadut, Kranji) to US$236.05 (S$425.74) psm (West Coast Highway). Based on these simulated 30‐year leasehold values and assumptions of other input parameters: equated yield (e = 10 percent), risk free rate (R_f = 4.52), volatility of leasehold value (σ = 15 percent), term of lease (T = 30 years) and rental growth cap (g = 7.6 percent), the premiums for the lease renewal options were estimated to be in a range of US$4.55 (S$8.21) psm to US$22.26 (S$40.15) psm.

Believes that a feature of most closed‐end automobile leases is the right to purchase the car for a specified price at the termination of the lease. This characteristic of a closed‐end autombile lease is similar to a European call option and is transferred to the lessee at no explicit charge. Develops a methodology to calculate the value of the call option feature embedded in closed‐end automobile leases. Concludes that the rational lessee should lease autos that generate low option values.

This paper aims to compare and review alternative ways to adjust public ground leases.

Based on principles derived from a review of scientific literature, alternatives for the extension of leases are discussed based on the case of Amsterdam.

Many alternatives lead public ground-lease systems to produce results that are the opposite of what they are intended to be (as inspired by Henry George): new improvements result in higher rent, but additional location values do not result in higher rent. One exception is the lease-adjustment-at-property-transaction alternative, which may nevertheless result in fewer transactions.

Public leasehold systems are highly contested with regard to the extension of leases. Such systems are often aimed at capturing land-value gains. In practice, however, this tends to be more difficult than expected. Value capture by authorities, as intended by the system, results in counter-movements of lessees, who often gain public support to set lower leases. These political processes may even result in the termination of such public ground-lease systems. This paper reports on a search for possible solutions.

The comparison of various alternatives to ground-lease extension based on principles derived from literature is new, and it contributes insight into public ground-lease systems.