Retail Leasing: The Determinants of Shopping Center Rents

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. Copyright American Real Estate and Urban Economics Association.

Contracts, Externalities, and Incentives in Shopping Malls

“…Pashigian and Gould (1998) did not examine contractual specifications, and used aggregated rent and sales data by product category to examine the pricing of externalities. Benjamin, Boyle, andSirmans (1990, 1992) examined contracts for stores in a very limited number of small shopping centers, not a large sample of large malls as in our case, and did not have data on actual sales. A more recent study by Wheaton (2000) uses data on contractual specifications, but his data also are missing actual sales performance.…”

Strategic segmentation using outlet malls

“…These issues are fully discussed inMiceli, Sirmans, and Stake (1998), Gerbich (1998),Benjamin, Boyle, and Sirmans (1990), andColwell and Munneke (1998). Moreover,Hendershott, Hendershott, and Hendershott (2001) note that Qwhile overage rent clauses are found in more than 95% of mall leases, the option is generally set sufficiently out of the money such that less than half of the tenants ever pay overage rents(Eppli, Hendershott, Mejia, & Silling, 2000).Q…”

Open for business? Effects of Los Angeles Metro Rail construction on adjacent businesses

“…They are also more vulnerable to construction nuisances because they rely on street traffic and spur of the moment decision-making. Tenure is an issue as well, as many retail establishments operate with shorter leases than more capital-intensive sectors like restaurants (Benjamin, Boyle, & Sirmans, 1990;Main, 1989). Wholesale establishments face similar obstacles, though they are somewhat less vulnerable to construction nuisance as they rely less on street traffic.…”