A cross-sectional model of rents in urban retail centres

Abstract

This paper sets out to assess the underlying influences on urban retail rents. A cross-sectional model of retail rents is developed and tested for 29 Scottish towns in 1989 using regression analysis. A series of specific variables are constructed for these towns partly by reference to a gravity submodel. The model attempts to assess the relative significance of demand in the form of local turnover and supply constraints, and demonstrate the role of business rates in the determination of urban retail rents. The results reveal the dominant influence of demand/turnover on local urban rents. The analysis also shows, through the improved explanatory power of the regression model incorporating business rates, the role of the rent surplus theory in the determination of rents. Finally, the retail stock at the margin is also found to be a significant, if minor factor, in the determination of urban rents. There are difficulties in interpreting this in cross-sectional analysis, but it does, at least, indicate that development constraints mean that supply does not necessarily adjust to demand.