The profitable influence of lease incentives for new office developments: A research on the phenomenon of office real estate developments (out)competing existing assets on effective rent levels without loss of quality

The profitable influence of lease incentives for new office developments: A research on the phenomenon of office real estate developments (out)competing existing assets on effective rent levels without loss of quality

Harding, B.T.

Remøy, H.T. (mentor)
Koppels, P.W. (mentor)

Architecture

Real Estate & Housing

Real Estate Management

2012-10-31

Dutch developers are thought to have been able to outcompete the owners of existing office space on rental pricing (the phenomenon). For tenants it was more inexpensive to move to newly proposed (not yet existent) office space than to remain where they are, or move to other existing office space. Three theoretical reasons were identified for the phenomenon to exist: 1) rent price lagging of existing assets to new market information, 2) lower production costs for the new development and 3) the creation of margin between development costs and asset selling price. Especially the latter has had influence on the phenomenon's existence. Three main aspects are identified for the creation of margin: 1) A period of Yield Compression (2004-2008) enabled great selling prices to be obtained. Thereby margin was created. It also led to a decrease in financing costs and allowed for the neglect of given lease incentives by developers, 2) the use of the normative residual land value method enabled margin to exist altogether and allowed for additional margin to be created, and 3) the use of Lease Incentives by the developer has shown to have an amplifying effect: Profit Sharing/the High-Low Method effectively lowers the rent level of the tenant by making maximum use of the created margin. Sources used: literature, expert interviews, key-actor interviews, dataset analysis and sensitivity analysis.

incentive
lease incentive
effective rent
contract rent
market rent
high-low method
hoog-laag
price lagging
yield compression
real estate
office
vacancy
normative residual land value
residual land value
residual land value method
municipal competition

http://resolver.tudelft.nl/uuid:7479f3ec-c1ad-4076-be86-d4c02e548d6c

2012-10-31

Student theses

master thesis

(c) 2012 Harding, B.T.