From: Valuing options to renew at future market value: the case of commercial property leases
States | Market vacancy expected to decrease | Market vacancy expected to increase |
---|---|---|
Tenant | Transaction cost: reduce more as tenants find it more difficult to find suitable premises | Transaction cost: reduce less as tenants find it easier to find suitable premises |
Option value: larger as tenants benefit more from the renewal | Option value: smaller as tenants benefit less from the renewal | |
Lease price: higher as tenants are willing to pay more for the renewal option | Lease price: lower as tenants are less willing to pay for the renewal option | |
Landlord | Transaction cost: reduce less as landlords find it easier to few tenants | Transaction cost: reduce more as landlords find it more difficult to find new tenants |
Option value: smaller as landlords benefit less from the renewal | Option value: larger as landlords benefit more from the renewal | |
Lease price: higher as landlords are less willing to offer discounts for the renewal option | Lease price: lower as landlords are willing to offer more discounts for the renewal option |