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The Optimal Time of Renovating a Mall

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Abstract

This paper presents a maximization model determining the optimal time at which a mall should be renovated. The analysis is constructed on the assumption of a decreasing rental income over time as a mall ages. It is then shown that the optimal renovation period achieves a balance between the marginal cost and benefits of delaying renovation. We show how this balance is affected by changes in the discount rate, net rental incomes, and renovation costs. Numerical simulations are used to demonstrate the method of estimating this optimal renovation time and to illustrate the sensitivity of the optimal renovation period to changes in economic factors such as the discount rate, the level and rates of change of renovation costs and rental incomes.

Suggested Citation

  • K.C. Wong & George Norman, 1994. "The Optimal Time of Renovating a Mall," Journal of Real Estate Research, American Real Estate Society, vol. 9(1), pages 33-48.
    • Handle: RePEc:jre:issued:v:9:n:1:1994:p:33-48
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    References listed on IDEAS

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    1. Clarke, Harry R. & Reed, William J., 1988. "A stochastic analysis of land development timing and property valuation," Regional Science and Urban Economics, Elsevier, vol. 18(3), pages 357-381, August.
    2. Anderson, John E., 1986. "Property taxes and the timing of urban land development," Regional Science and Urban Economics, Elsevier, vol. 16(4), pages 483-492, November.
    3. Arnott, Richard J & Lewis, Frank D, 1979. "The Transition of Land to Urban Use," Journal of Political Economy, University of Chicago Press, vol. 87(1), pages 161-169, February.
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    Cited by:

    1. John Corgel, 2007. "Technological Change as Reflected in Hotel Property Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 34(2), pages 257-279, February.
    2. Chebat, Jean-Charles & Michon, Richard & Haj-Salem, Narjes & Oliveira, Sandra, 2014. "The effects of mall renovation on shopping values, satisfaction and spending behaviour," Journal of Retailing and Consumer Services, Elsevier, vol. 21(4), pages 610-618.
    3. Song Zhang & Mark van Duijn & Arno J. van der Vlist, 2020. "The external effects of inner‐city shopping centers: Evidence from the Netherlands," Journal of Regional Science, Wiley Blackwell, vol. 60(4), pages 583-611, September.

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    JEL classification:

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

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