Abstract
This paper investigates the impact of vertical location and tenant sorting on commercial office rents within the tall office towers of Amsterdam. In economic geography and urban economics’ approach to productivity tall buildings constitute an important, density-increasing typology that fosters agglomeration. Through econometric modelling of 627 office rent transactions in 33 tall office buildings in Amsterdam rented during the period 2000–2016, this paper provides empirical evidence to the growing body of knowledge on the economics of height. This paper is the first to decompose the vertical rent premium whereby 27% is related to view, 3% to industry-level differences and the remaining 70% to firm-level signalling and other factors. The results indicate positive rent premiums for higher floor locations consistent across a wide range of specifications, strong premiums associated with the top output-per-job industry sectors and a weak presence of vertical sorting. Additional sorting evidence shows clear differences among industry sectors for height preference (law firms and consultancy & management practices), or lack of it despite high productivity (ICT sector). Relative price differentials for view and status were consistent across the various industry sectors with the exception of insurance carriers who seem to prefer status over the view aspect of height. The good performance of the OLS model with submarket fixed effects indicates the strong delineation of office submarkets in Amsterdam.
Highlights
Over the past five decades urban economic theory has focused on analysing urban spatial structure based on the Alonso (1964), Mills (1967), Muth (1969) framework of monocentric cities
10 We test the results for a variant of the View variable based on the visible area from only the highest floor in every given transaction and we find that the results are very similar, albeit slightly higher, to the ones we report in the paper with the view-related vertical location premium at roughly 30%
This paper contributes to an emerging body of knowledge on the economics of tall commercial office buildings through empirical evidence about rent premiums, vertical sorting across different industry sectors and their willingness to pay for either view amenities or status benefits of height
Summary
Over the past five decades urban economic theory has focused on analysing urban spatial structure based on the Alonso (1964), Mills (1967), Muth (1969) framework of monocentric cities. This research adds to the embryonic body of knowledge on the economics of height in two ways It improves upon previous findings about the Dutch office market by providing floor level and industry sector rent premiums, factors which have not been previously measured due to lack of related information. Their general market database, rental contracts and rent roll records of office building transactions provide information regarding rent prices, transaction date, size, building age, renovation date (when applicable), building height (in floors), number of parking spaces in a building, and the ratio Net/Gross area The latter we use as a proxy for building design efficiency, considering that in tall buildings competition among developers might lead to unused physical space mainly on the top levels (following Helsley and Strange 2008). Appendix gives a detailed description of how this variable is constructed including screenshot examples of the Line of Sight 3D analyst tool in ArcScene
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