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Operating Leverage For Commercial Real Estate

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  • Stellan Lundström
  • Christina Gustafsson

Abstract

The rapid globalization of the commercial real estate market opens up for new research question such as effects of specific local definitions of market rent and net operating income. An ongoing harmonization of definitions is driven by the need for return and risk measures for real estate that is in line with the rest of the financial sector. This paper is about the effects of different definitions of market rent and customs for distribution of the responsibility for operating and maintenance cost between the owner and the space user. The rather extreme case of Sweden is taken as an illustration of a special case for risk ñ operating leverage. E.g. is an UK lease contract often only compensation to the owner for capital cost while the property owner in a Swedish lease contract also provides full operating and maintenance service. The UK and Swedish lease contracts are two extreme cases that are discussed with respect to definitions of rents, net operating income, yields and expressions for risk.

Suggested Citation

  • Stellan Lundström & Christina Gustafsson, 2008. "Operating Leverage For Commercial Real Estate," ERES eres2008_201, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2008_201
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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