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Empirical Study on the Term Structure for Stockholm Commercial Property Leases
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management.
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management.
2019 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Over recent years, the economic climate on the Swedish office market has been advantageous,and, as a result, both property prices and market rents have been on a constant rise for almost adecade. Moreover, an increased demand for flexibility in lease terms has been seen on themarket, which begs the question; how would changing preferences in length of tenure affectrent levels? There exist several convincing theoretical cases that leases should yield differentpricing dependent on its maturity and expectation about future market conditions. Theconceptual framework developed by Grenadier (1995, 2005) has been used for the valuation ofgeneral leasing contracts and lease terms - applying an option-pricing approach. In total, threepapers have analysed the effect length of tenure has on office equilibrium lease rates. However,the empirical evidence, to this date, has been inconclusive in its result when trying to isolatethe effects.The purpose of this report is to investigate the relationship between rent and lease maturity. Ahedonic pricing model will be developed, which allows for different shapes of the term structurecurve, building on the model created by Gunnelin and Soderberg (2003), while controlling forprice-relevant characteristics omitted in previous research – such as, building quality, qualityof office premise, location, and tenant industry. The model will be used in an empirical studyapplied to commercial office contracts in Stockholm, Sweden, concluded between 2012 and2019.The data used in the regression comprise of 1 508 office leases, contracted on the Stockholmmarket during the investigated period. The result showed a significant term structure for 4 outof 8 years for the full sample, and 5 out of 8 years for the subsample only including leasessigned in the CBD. Concludingly, giving further evidence to the reasoning that the marketadjusts the rents after lease length, according to future market expectations.

Place, publisher, year, edition, pages
2019. , p. 62
Series
TRITA-ABE-MBT ; 19174
Keywords [en]
Office rent, Lease term, Term structure, Rental index
National Category
Engineering and Technology
Identifiers
URN: urn:nbn:se:kth:diva-254734OAI: oai:DiVA.org:kth-254734DiVA, id: diva2:1335022
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Available from: 2019-08-13 Created: 2019-07-03 Last updated: 2019-09-25Bibliographically approved

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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
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  • text
  • asciidoc
  • rtf