Rocketing Rents The magnitude and attenuation of agglomeration economies in the commercial property market
AbstractRocketing 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 InfoPaper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0125.
Date of creation: Jan 2013
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commercial buildings; hedonic pricing; agglomeration economies; spatial decay; kernel densities;
Find related papers by JEL classification:
- R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-26 (All new papers)
- NEP-GEO-2013-01-26 (Economic Geography)
- NEP-URE-2013-01-26 (Urban & Real Estate Economics)
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