KNOW WHAT YOUíRE LOOKING FOR: A THEORETICAL FRAMEWORK FOR HEDONIC OFFICE STUDIES

Abstract

Hedonic pricing studies of commercial real estate, specifically offices, have been popular since the 1980ís. Since then, numerous hedonic office studies have been published. However, the theoretical underpinnings of these models often seem lacking. The inclusion of location and building variables is commonly driven by data availability and not based on theoretical footing. This is illustrated in the extreme number of employed variables and their diverse interpretation. Furthermore, while urban economics, specifically location theory, provides a sound and valid theoretical underpinning for location characteristics, this is often not true for building features: explaining office usersí willingness to pay for building features could be be strengthened using corporate real estate management theory. Under the assumption that office firms are profit maximising entities, the increased willingness to pay for specific location characteristics and office features, can only be explained by perceived productivity gains related to those aspects. Location theory provides sound theoretical footing regarding the influence of location choice on productivity, whereby the dependence of service organisations on face-to-face contact is often stressed. However, the influence of office features on productivity is less clear and remains an active area of research. Some evidence exists that comfort level of the office environment might influence employee productivity. Furthermore, a flexible office layout might decrease the space use per employee and more sustainable properties reduce energy costs. Both effects decrease the occupancy cost for the organisation. This paper presents a theoretical framework illustrated and supported by an empirical analysis of the Amsterdam office market. The framework draws on urban economic and corporate real estate management theory to identify theoretical relationships between office location and building characteristics and productivity gains. In the first part of the paper urban economic and corporate real estate management theory is reviewed and combined in a theoretical framework. Consequently, an extensive hedonic office rent literature review is presented that identifies the used variables and discusses their interpretation in the analysis. The paper is concluded with an empirical investigation of the Amsterdam office market employing the proposed framework.