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JUE insight: Are city centers losing their appeal? Commercial real estate, urban spatial structure, and COVID-19

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  • Rosenthal, Stuart S.
  • Strange, William C.
  • Urrego, Joaquin A.

Abstract

This paper estimates the value firms place on access to city centers and how this has changed with COVID-19. Pre-COVID, across 89 U.S. urban areas, commercial rent on newly executed long-term leases declines 2.3% per mile from the city center and increases 8.4% with a doubling of zipcode employment density. These relationships are stronger for large, dense “transit cities” that rely heavily on subway and light rail. Post-COVID, the commercial rent gradient falls by roughly 15% in transit cities, and the premium for proximity to transit stops also falls. We do not see a corresponding decline in the commercial rent gradient in more car-oriented cities, but for all cities the rent premium associated with employment density declines sharply following the COVID-19 shock.

Suggested Citation

  • Rosenthal, Stuart S. & Strange, William C. & Urrego, Joaquin A., 2022. "JUE insight: Are city centers losing their appeal? Commercial real estate, urban spatial structure, and COVID-19," Journal of Urban Economics, Elsevier, vol. 127(C).
    • Handle: RePEc:eee:juecon:v:127:y:2022:i:c:s0094119021000632
    DOI: 10.1016/j.jue.2021.103381
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    6. Bergeaud, Antonin & Eyméoud, Jean-Benoît & Garcia, Thomas & Henricot, Dorian, 2023. "Working from home and corporate real estate," Regional Science and Urban Economics, Elsevier, vol. 99(C).
    7. Daniel Broxterman & Tingyu Zhou, 2023. "Information Frictions in Real Estate Markets: Recent Evidence and Issues," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 203-298, February.
    8. Mounir Azzam & Valerie Graw & Andreas Rienow, 2022. "Challenges and Innovations of Real Estate for Achieving Spatial Balance in Post-Disaster Countries," Land, MDPI, vol. 11(5), pages 1-23, May.
    9. Agrawal, David R. & Zhao, Weihua, 2023. "Taxing Uber," Journal of Public Economics, Elsevier, vol. 221(C).
    10. Sandro Heiniger & Winfried Koeniger & Michael Lechner, 2022. "The Heterogeneous Response of Real Estate Asset Prices to a Global Shock," Swiss Finance Institute Research Paper Series 22-86, Swiss Finance Institute.
    11. Huang, Naqun & Pang, Jindong & Yang, Yanmin, 2023. "JUE Insight: COVID-19 and household preference for urban density in China," Journal of Urban Economics, Elsevier, vol. 133(C).
    12. Stijn Van Nieuwerburgh, 2023. "The remote work revolution: Impact on real estate values and the urban environment: 2023 AREUEA Presidential Address," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 51(1), pages 7-48, January.
    13. Scott Orford & Yingling Fan & Philip Hubbard, 2023. "Urban public health emergencies and the COVID-19 pandemic. Part 1: Social and spatial inequalities in the COVID-city," Urban Studies, Urban Studies Journal Limited, vol. 60(8), pages 1329-1345, June.
    14. Yijia Wen & Li Fang & Qing Li, 2022. "Commercial Real Estate Market at a Crossroads: The Impact of COVID-19 and the Implications to Future Cities," Sustainability, MDPI, vol. 14(19), pages 1-16, October.
    15. Gilles Duranton & Jessie Handbury, 2023. "COVID and Cities, Thus Far," Economic Policy Review, Federal Reserve Bank of New York, vol. 29(2), pages 6-52, October.
    16. van Vuuren, Aico, 2023. "Is there a diminishing willingness to pay for consumption amenities as a result of the Covid-19 pandemic?," Regional Science and Urban Economics, Elsevier, vol. 98(C).
    17. Jinwon Kim & Dede Long, 2022. "What Flattened the House-Price Gradient? The Role of Work-from-Home and Decreased Commuting Cost," Working Papers 2205, Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy).
    18. Malik, Khyati & Kim, Sowon & Cultice, Brian J., 2023. "The Impact of Remote Work on Green Space Values in Regional Housing Markets," 2023 Annual Meeting, July 23-25, Washington D.C. 335486, Agricultural and Applied Economics Association.
    19. Lei Ding & Jackelyn Hwang, 2022. "Has COVID Reversed Gentrification in Major U.S. Cities? An Empirical Examination of Residential Mobility in Gentrifying Neighborhoods During the COVID-19 Crisis," Working Papers 22-20, Federal Reserve Bank of Philadelphia.
    20. Jan K. Brueckner & Stuart S. Rosenthal, 2022. "Tenant Riskiness, Contract Length, and the Term Structure of Commercial Leases," CESifo Working Paper Series 10189, CESifo.

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    More about this item

    Keywords

    COVID-19; Commercial real estate; Agglomeration; Urban spatial structure;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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