Determinants of industrial land prices

Almost twenty years ago, Needham (1992) introduced a theoretical approach to explain land prices when the supply of building plots in is in the hand of public agencies. In this situation, he argued it is not only certain economic principles (e.g. competition) which are of importance to explain prices, but also political choices made by the public agencies which sell the building plots. That is, maximum land prices which could be realized were especially affected by the political choices (i.e. prices) of other municipalities in the region (Needham, 1992). Public agencies (mainly municipalities) used to be involved in different market segments in the Netherlands, but over the years private parties have largely taken over this role in the residential and office markets. There is one market segment however in which municipalities continue to be fully active: the industrial land market. The theoretical approach coined by Needham will be applied to this particular market in order to explain empirically industrial land prices. Thus, the question that will be addressed is how municipalities determine eventual selling prices of land. To answer this question we empirically investigate land values, by means of regression analysis. The assumptions are that municipalities pitch in above prevailing regional selling prices of building plots when the quality of the land is significantly better than existing industrial land and that they pitch in below prevailing selling prices of building plots when there is strong competition from other municipalities in the regional market. Addressing this question has particular relevance for the Dutch industrial land market, since many believe that municipalities drop building plot prices even below cost price when they perceive high competition from other municipalities(see e.g. Needham & Louw, 2006). The results of this study can be of importance also to other countries where land is supplied publicly. Furthermore, we believe it is important to analyze more extensively the determination of land prices since there is a lack of empirical studies addressing developersí behavior in determining land prices, be they private or public (Leishman, Jones, & Fraser, 2000). Leishman, C., Jones, C., & Fraser, W. (2000). The Influence of Uncertainty on House Builder Behaviour and Residential Land Values. Journal of Property Research, 17(2), 147-168. Needham, B. (1992). A Theory of Land Prices When Land Is Supplied Publicly: The Case of the Netherlands. Urban Studies, 29(5), 669. Needham, B., & Louw, E. (2006). Institutional Economics and Policies for Changing Land Markets: The Case of Industrial Estates in the Netherlands. Journal of Property Research, 23(1), 75-90.