Table 3 Definition of terms

R

Initial rental payment

P

Initial property price of office with a lease

\(T_{1}/T_{2}\)

Expected transaction costs for a renewal lease/new lease for the landlord at the end of Lease 1

\(S_{1}/S_{2}/S_{3}\)

Expected transaction costs for a renewal lease/new lease/office purchase by the tenant at the end of Lease 1

\(E\left( R \right)\)

Expected rental payment of a lease (renewed or new) at the end of Lease 1

V

Expected vacancy costs in one period between two consecutive contracts

W

Expected vacancy period/waiting time between the two consecutive contracts

\(E\left( {r_{1} } \right)\)/\(E\left( {r_{2} } \right)\)

Expected opportunity cost of capital invested by tenant/landlord in the office asset

\(E\left( d \right)\)

Expected depreciation rate of the office

π

Expected capital investment (property price) in the office at the end of Lease 1

\(q_{1}/q_{2}\)

Tenant’s probability to purchase under the influence of market risk with a renewal option/no renewal option

\(q_{3}\)

Tenant’s probability to renew under the influence of private risks

\(q_{4}\)

Probability of renewal faced by the landlord (to estimate payoffs with the option)

\(ECO/ECL_{1}/ECL_{2}\)

Expected equivalent user cost of owning/leasing for the renewed lease/leasing for the new lease at the end nodes of the tenant’s decision tree

ECE

Expected certainty equivalent; equivalent payoffs that are projected from ECL₁ and ECL₂

EPL₁/EPL₂

Expected equivalent rental income from renewal/a new lease at the end nodes of the decision tree for the landlord