STANDARD LITERATURE REVIEW

Standard Literature Review

Standard Literature Review

Introduction

Each investment class has different features that make it more or less attractive to a range of investors with different requirements (Dubben and Sayce, 1991; Hargitay and Yu, 1993; Hoseli and MacGregor, 2000). Although some wealthy individuals are active in investment markets, the dominant investors tend to be large national and international organisations. These include insurance companies, pension funds, investment trusts, savings banks, building societies and property companies (MacGregor and Nanthakumaran, 1992; Lee et al., 1996; De Wit, 1996). They tend to be intermediaries through which most people invest in real estate, albeit indirectly. In effect, individuals have transferred responsibility for their investment strategies to the institutions (Hoseli and MacGregor, 2000).

First, critically to analyse and compare, with specific emphasis on lease patterns, recent office transactions undertaken within four major UK cities over the period 2001-2004. Second, to examine the structure of leasing arrangements for office occupiers in Belfast and to draw inferences as to any changes that have occurred to meet their needs. The paper is organised as follows: the next section provides through a review of literature, the role of the UK lease within a global perspective and examines the changes in lease structure. The following section outlines the methodology underlying the empirical analysis and surveys employed. The next section focuses on the desktop study, while the penultimate section presents the results of an office occupier's survey carried out in Belfast. The final section draws some tentative conclusions about the structure of commercial leases offered in the UK.

The History of Leasing

Lizieri et al. (1998) observed that the “institutional lease” i.e. the 25-year full repairing and insuring lease with upward-only rent reviews that was the de facto standard form in the 1970s and 1980s, appeared too inflexible to meet the needs of a more volatile economic environment. Pressure came from occupiers who had to trade and make profits in capricious and rapidly changing markets under adverse economic conditions. As a consequence, landlords resorted to a number of tactics to persuade tenants to take premises. Shorter leases, break clauses, capital payments, rent free periods and other inducements to let were identified as being common practice (IPF, 1993).

Pre-1990 lease terms appeared to be based purely on the market state, the breakdown of the institutional lease and the influence of foreign tenants and investors unused to the hegemony of long lease terms (Isaac, 1998). However, from about 1995 onwards, the lettings market began to recover and from 1996 to 1998, the major commercial property market indicators suggested a period of sustainable real growth (DETR, 2000). With market state being the main driver of lease terms, the expectation would have been that a recovery in the economy and the property market would precipitate a return to the bargaining strengths of landlords and tenants prior to the recession and a return to the terms of occupation which prevailed at that time.

Hoseli and MacGregor (2000) discuss in depth the important dimensions of leases, by comparing UK lease terms with various ...