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Table 1 Situations and value for counterparties

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