Clustering Effects On Office Rents: Herding In The Amsterdam Market?

In this paper we examine the influence of location and clustering on office rents. We test for this influence in a longitudinal study for the city of Amsterdam over a distinctive property market cycle by means of a unique dataset which comprises the substantial majority of actual transactions. We extend the existing literature in this field by examining different phases over the office market cycle and for the first time applying geographic information system methodology to the premier office markets of the Netherlands. In line with Archer and Smith (2003) we study agglomeration effects by controlling for basic building features and focussing on location features and the effect of clustering. Differences in agglomeration effects are caused by larger demand economies of scale, such as services and amenities, and more potential for vis-‡-vis contact for offices in clusters. Because of the proposed importance of clustering and an expectation that the effect of clustering is stronger in weak office markets we hypothesise that these benefits make clusters relatively more valuable during times when vacancy rates are high. After a description of the Amsterdam office market and the methodologies used, we apply basic hedonic regression analysis to control for structural building characteristics and focus on the influence of location attributes. In this part we determine the influence of location features such as the proximity of public transport opportunities or highway junctions. Besides these usual suspects we also calculate the impact of clustering over the office market cycle. The combination of established statistical models and geographic information systems (GIS) enables us to extract relevant pricing information from a unique database which comprises virtually all transactions over the research period. Location patterns have been studied before, but, to our knowledge, we are the first to study agglomeration effects at different points of a very distinctive office market cycle. The results give more insight into the influence of location and clustering for commercial real estate developers and investors in office space under different market circumstances.