Tenant Features and their Impact on the Office Sector Rent: Evidence from Milan

The hedonic price models on the office sector demonstrate the existence of a link between the rent and the vacancy of the area (Wheaton and Torto, 1988), the characteristics of the building (Clapp 1980) and the characteristics of the area (Gardiner and Henneberry, 1988). The role of each feature and the significance of the hedonic price models depends on the characteristics of the market analyzed (Atilla and Pekdemir, 2006).The theoretical and empirical models suggest that the interaction between demand and supply could impact on the rent price and the final rent will be defined on the basis of a negotiation process (Tsolacos, Keogh, McGough, 1998). Empirical evidence on the role of tenant features in explaining a misalignment respect to a fair rent defined on the basis of the property and area features is still limited.Using a proprietary database, representative of Milan, on the time horizon 2000-2011, provided by BNP Paribas Real Estate, we collect all information about all tenants' features (balance sheet data) for a set of 800 contracts and the information about the property and the rent. We compute the difference between the real rent and the expected rent defined on the basis of the hedonic price model constructed on the buildings features and the geographical area and we study the role of tenant features in explaining the gap measure. The results provide some interesting evidence on the role of tenant features that could explain the divergence of the rent respect to its expected value.