A Theory and Empirical Test of Retail and Office Lease Contracting.

Abstract

This dissertation describes how retail and office lease provisions can be written to minimize contracting issues between transacting parties. Testable hypotheses regarding the allocation of risks and the reduction of opportunistic behavior, by lease provisions, are proposed. An empirical model which uses Rosen's (1974) well-known theory of hedonic price estimation is developed to test for the economic impact of specific retail and office lease provisions. Two unique data sets are employed which minimize non-provision variation between leased spaces. The first data set contains one hundred and three shopping center leases from neighborhood and community shopping centers which are all of strip design and are located within a three mile radius in the same geographic area of a city. The open air shopping centers are comparable in size, architecture, occupancy, and amenities. The second data set includes three hundred and twenty-two office leases situated in five multitenant buildings that are similarly located in a prominent part of a city and within a quarter mile radius. The office buildings are comparable in size, number of floors, architecture, occupancy, and amenities. The empirical results provide strong evidence that the lessening of contracting problems associated with the retail and office lease process is important in understanding how landlords and tenants structure leases, including provisions.