Lease expiration management for a single lease term in the apartment industry

Lease expiration management (LEM) in the apartment industry aims to control the number of lease expirations and thus achieve maximal revenue growth. We examine rental rate strategies in the context of LEM for apartment buildings that offer a single lease term and face demand uncertainty. We show that the building may incur a significant revenue loss if it fails to account for LEM in the determination of the rental rate. We also show that the use of LEM is a compromise approach between a limited optimization, where no future demand information is available, and a global optimization, where complete future demand information is available. We show that the use of LEM can enhance the apartment building’s revenue by as much as 8% when the desired number of expirations and associated costs are appropriately estimated. Numerical examples are included to illustrate the major results derived from our models and the impact on the apartment’s revenue of sensitivity to the desired number of expirations and associated costs.