Lease Incentives and Effective Rents: A Decapitalization Model

Abstract

Reviews recent New Zealand legal cases involving CBD office building leasing incentives, the efficacy of confidentiality agreements and current practical valuation problems arising when analysing office rentals. Takes a controversial stand in postulating that customary methods of decapitalizing incentives in use by the valuation profession lead to errors in calculating effective rentals. Suggests a new break‐even method to analyse lease incentives. Presents a “user‐friendly” step‐by‐step spread‐sheet goal‐seeking model to undertake the complex calculations required. The model shows graphically the explicit rental forecasts required and the resulting effective analysis alongside the results of applying customary methods. Aims to bring some balance to this area of current valuation controversy and to provide a powerful new tool to analyse accurately incentive‐induced office, retail or industrial rentals.

Citation

Jefferies, R.L. (1994), "Lease Incentives and Effective Rents: A Decapitalization Model", Journal of Property Valuation and Investment, Vol. 12 No. 2, pp. 21-42. https://doi.org/10.1108/14635789410055868