Negative externalities of structurally vacant offices: the story continues

"Numerous office locations in the Netherlands are confronted with high structural vacancy rates. These spatial concentrations of vacant office buildings might cause an urban area to degenerate and as a consequence might result in depreciation of real estate values. While the relationship between vacancy rates and rent indexes developments has been extensively analysed, the influence of the proximity of structurally vacant buildings on the performance of surrounding buildings has received less attention. The assumed negative externalities of structurally vacant office buildings are different than the normally assumed vacancy rent relationship (rental adjustment equation) based on the fact that the effect is assumed ""local"" and that the vacancy must be ìvisibleî and ìlong lastingîù. This study attempts to isolate the negative externalities of structural vacancy from effects related to changing (local) market conditions. In this paper, the influence of the proximity of structurally vacant office buildings on tenantsí willingness to pay for offices is investigated by means of a hedonic pricing approach. For this purpose, a dataset that contains location and building features generally assumed to influence the rent level, has been collected. The supposed negative externalities are measured by a spatially weighted (lagged) structural vacancy variable. The specification of this variable is based on a series of assumptions: an office building is considered structurally vacant if the building was at least 50% vacant for a period of three or more consecutive years. In addition, the impact of structural vacancy is assumed to depend on the building size (m2 GFA). Moreover, the specifications used differ in type of distance-relationship (constant or linear), and the maximum distance of the effect (250, 500, 750m). By specifying the spatially lagged structural vacancy variable in different ways, this paper attempts to understand the negative externalities associated with structural vacancies and the underlying spatial process."