Land Market Impacts of Urban Rail Transit and Joint Development: An Empirical Study of Rail Transit in Washington, D.C. and Atlanta

This paper examines the effects of joint development programmes, like air-rights leasing, on local land markets as well as the cash flows of transit operators. Joint development takes place because both the public and private sectors recognize the potential financial rewards of coordinating projects. A variety of urban rail-related joint development programmes exist across the U.S., with around two-fifths involving forms of cost-sharing (e.g., sharing construction expenses) and about one-fifth involving revenue-sharing (mostly transit property leases and station connection fees). A healthy regional economy and conducive local land use regulations are important precursors to negotiating formal joint development agreements. To date, joint development cost-savings have comprised less than 1% of most U.S. transit properties' total capital expenditures. New York City's MTA has experienced cost savings of over $62 million, constituting about 4% of the agency's total capital outlays since 1984. Leasing revenues make up less than 1% of most rail systems' annual operating budgets. Among U.S. cities with rail systems, Washington, D.C. and Atlanta have been most successful at leasing station-area property and air-rights. Using data across five Washington, D.C. and Atlanta transit stations with joint development projects, this paper examines how transit investments in general and joint development in particular affected various indicators of office market performance. Average office rents near stations were found to increase with systemwide ridership; joint development projects added more than a $3 premium to office rents, controlling for other factors. Moreover, office vacancy rates were lower, average buildings were bigger, and shares of regional office growth were larger in station areas and when joint development projects were generating income. Overall, where regional market conditions are favorable, such as those found in the Washington, D.C. and Atlanta areas during much of the 1980s, rail transit appears capable of enhancing station area commercial real estate markets. Combining transit investments with private real estate projects through joint development ventures appears to further increase these benefits. Given the current saturation of most office markets in U.S. cities, a significant policy challenge for the 1990s will be to apply joint development to residential projects. This would not only enhance revenues, but would likely lead to denser urban forms and more efficient, bi-directional use of rail transit facilities.