Percentage Leases and the Advantages of Regional Malls

Abstract

The differences in the ownership structures of downtown retail districts and shopping centers may give rise to varying space allocations and rental contracts found in these markets. This article specifically examines the value-enhancing aspects of percentage leases and explores the mechanisms of tenant mix, risk sharing and rent discrimination through which this value is created. The use of percentage leases may lead to superior returns by allowing a rent structure that approaches perfect price discrimination. Risk sharing through the use of percentage leases may also create value for the property owner and lead to lower rents for tenants.