Negative Externalities of Structural Vacant Offices

Abstract

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 result in depreciation of real estate value. While the relationship between vacancy rates and rent indexes developments on a meso and macro scale has been extensively analysed, the influence of the proximity of structurally vacant buildings on the performance of surrounding buildings has received less attention. The goal of this study is to identify if the proximity of structurally vacant buildings directly affect the value of surrounding office properties. If a relationship between the proximity of vacant office and the value of surrounding buildings can be determined this might provide an extra incentive for involved stake-holders in the area to collectively reduce the vacancy problem.The importance of being located at the ìright addressî or near the ìright neighbourî is often mentioned in practise. An area with a large number of structurally vacant buildings might affect the perception of potential future tenants concerning the quality of the built environment, resulting in a decreased willingness to pay. In this paper, the influence of the proximity of structurally vacant office buildings on tenantsí willingness to pay for surrounding offices is investigated by means of a hedonic pricing approach. For this purpose, an office building data set that contains location and building features that are generally assumed to influence the rent level, has been collected. Structurally vacant office buildings were identified, and their distance to other buildings in the data set was measured to determine if the proximity to structurally vacant offices influence the willingness to pay negatively.