This
paper analyzes the rental term structure taking into account the opportunity
costs faced by the tenant for varying lease lengths. The analysis involves the
application of a multi-period stock inventory model. The implication of the
model is that the term structure of rents is determined by a clientele effect
that can bias the occupancy value derived from using rational-expectations in
the term structure relationship. The model does, however, reveal the
characteristic stock-inventory U-shaped function that will determine the optimal
lease length for a given tenant.
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