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Rocketing Rents The magnitude and attenuation of agglomeration economies in the commercial property market

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  • Hans R. A. Koster

Abstract

Rocketing rents in urban areas are likely explained by agglomeration economies. This paper measures the impact of these external economies on commercial property values using unique micro]data on commercial rents and employment. A measure of agglomeration is employed that is continuous over space, avoiding the modifiable areal unit problem. To distinguish agglomeration economies from unobserved endowments and shocks, I use temporal variation in densities and instrumental variables. The spatial extent of agglomeration economies is determined by estimating a spatial bandwidth within the model. The results show that agglomeration economies have a considerable impact on rents: a standard deviation increase in employment density leads to an increase in rents of about 10 percent. The geographical extent of these benefits is about 15 kilometres. The bias of ignoring time]invariant unobserved endowments and unobserved shocks seems to be limited.

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Bibliographic Info

Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0125.

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Date of creation: Jan 2013
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Handle: RePEc:cep:sercdp:0125

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Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

Related research

Keywords: commercial buildings; hedonic pricing; agglomeration economies; spatial decay; kernel densities;

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  1. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle.
  2. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent & Roux, Sébastien, 2008. "Estimating Agglomeration Economies with History, Geology, and Worker Effects," CEPR Discussion Papers 6728, C.E.P.R. Discussion Papers.
  3. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2004. "Spatial Wage Disparities: Sorting Matters!," CEPR Discussion Papers 4240, C.E.P.R. Discussion Papers.
  4. Davis, James C. & Henderson, J. Vernon, 2008. "The agglomeration of headquarters," Regional Science and Urban Economics, Elsevier, vol. 38(5), pages 445-460, September.
  5. Matthew P. Drennan & Hugh F. Kelly, 2011. "Measuring urban agglomeration economies with office rents," Journal of Economic Geography, Oxford University Press, vol. 11(3), pages 481-507, May.
  6. Martijn J. Burger & Frank G. van Oort & Bert van der Knaap, 2010. "A Treatise on the Geographical Scale of Agglomeration Externalities and the MAUP," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 9(1), pages 19-39.
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