Office rents, mixed-use developments, and agglomeration economies: a panel data analysis

Purpose - The purpose of this paper is to investigate the relationship between office rents and mixed-use development in the context of agglomeration economies. Design/methodology/approach - Using a sample of 10,209 observations in 100 Grade A office buildings in Hong Kong from January 2001 to June 2011, the authors estimated office rent regression using unbalanced panel data analysis. Findings - The results show that rents decreased with an increase in distance from retailers and hotels. Furthermore, the results revealed that,ceteris paribus, office tenants were willing to pay higher rents in a mixed-use than in a single-use office development. Research limitations/implications - There is an existence of agglomeration economies due to the clustering of various industries in mixed-use developments, which allow for their close proximity to potential clients. Practical implications - The diversity of activities in a mixed-use development benefit its tenants and, thus, convince them to pay higher rents. Higher rents generated by a mixed-use facility will attract more investors to it. Investors should seek opportunities to capitalize on their equity in mixed-use developments. Originality/value - This paper attempts to uncover a relationship between office rents and mixed-use developments by drawing on the concept of agglomeration economies.