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The Commercial Office Market and the Markup for Full Service Leases

Author

Listed:
  • Jonathan A. Wiley

    (Georgia State University)

  • Yu Liu

    (Georgia State University)

  • Dongshin Kim

    (Georgia State University)

  • Tom Springer

    (Clemson University)

Abstract

Because landlords assume all of the operating expense risk, rents for gross leases exceed those for net leases. The markup, or spread, for gross leases varies between properties and across markets. Specifically, the markup is expected to increase with the cost of real estate services at the property, and to be influenced by market conditions. A matching procedure is applied to measure the services markup as the percentage difference between the actual rent on a gross lease relative to the actual rent on a net lease in an office building with similar property and locational characteristics. Using a data set of 3,548 gross lease observations at office properties in six major U.S. office markets, we estimate a model for the determinants of the gross rent markup and find statistically significant evidence supporting the posited effects.

Suggested Citation

  • Jonathan A. Wiley & Yu Liu & Dongshin Kim & Tom Springer, 2014. "The Commercial Office Market and the Markup for Full Service Leases," Journal of Real Estate Research, American Real Estate Society, vol. 36(3), pages 319-340.
    • Handle: RePEc:jre:issued:v:36:n:3:2014:p:319-340
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    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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