Retail Leasing: The Determinants of Shopping Center Rents |
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| Authors: | John D. Benjamin Glenn W. Boyle C. F. Sirmans |
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| Affiliation: | Department of Finance and Real Estate, The American University, 4400 Massachusetts Avenue, NW, Washington, DC 20016.;Department of Finance, College of Business Administration, Louisiana State University, Baton Rouge, Louisiana 70803. |
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| Abstract: | The determinants of lease rentals are of fundamental importance to real estate researchers and practitioners. Retail leases are unique in that they typically have two rental components: a base rent and an "overage" rent equal to a percentage of the tenant's gross sales above some threshold level. In this paper, we develop and test a simple cash flow model of retail lease valuation that predicts that base rents are lower with higher percentage rent rates and are higher with greater threshold levels of sales. Using a sample of shopping center leases, regression analysis indicates that these tradeoffs are observed in the market. |
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