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A warehouse lease: finding the walk-away point

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The prompt

A Singapore food distributor must renew its warehouse lease; the landlord asks SGD 1.2 million a year. Find its walk-away rent and the room for a deal.

The rent today is SGD 1 million a year on a three-year lease. The best alternative is another warehouse at SGD 0.95 million a year, plus SGD 0.3 million to move and about SGD 0.15 million of lost sales during two weeks of disruption. If the distributor leaves, the landlord expects the space to stand empty for six months, then to let it at SGD 1.2 million a year. All figures are illustrative.

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