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

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  • Koster, Hans R. A.

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.

Suggested Citation

  • Koster, Hans R. A., 2013. "Rocketing rents the magnitude and attenuation of agglomeration economies in the commercial property market," LSE Research Online Documents on Economics 58531, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:58531
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    Cited by:

    1. Paul Verstraten & Gerard Verweij & Peter Zwaneveld, 2018. "Complexities in the spatial scope of agglomeration economies," CPB Discussion Paper 376.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    2. László Czaller & Zoltán Hermann, 2022. "Return to skills and urban size: Evidence from the skill requirements of Hungarian firms," CERS-IE WORKING PAPERS 2205, Institute of Economics, Centre for Economic and Regional Studies.
    3. Paul Verstraten & Gerard Verweij & Peter Zwaneveld, 2018. "Complexities in the spatial scope of agglomeration economies," CPB Discussion Paper 376, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Paul Verstraten & Gerard Verweij & Peter Zwaneveld, 2017. "Understanding employment decentralization by estimating the spatial scope of agglomeration economies," CPB Discussion Paper 342.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Paul Verstraten, 2018. "The scope of the external return to higher education," CPB Discussion Paper 381.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Paul Verstraten & Gerard Verweij & Peter Zwaneveld, 2017. "Understanding employment decentralization by estimating the spatial scope of agglomeration economies," CPB Discussion Paper 342, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Paul Verstraten, 2018. "The scope of the external return to higher education," CPB Discussion Paper 381, CPB Netherlands Bureau for Economic Policy Analysis.

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    More about this item

    Keywords

    commercial buildings; hedonic pricing; agglomeration economies; spatial decay; kernel densities;
    All these keywords.

    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

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