The determinants of non-residential real estate values with special reference to environmental local amenities

Abstract

This paper presents the results of an empirical study of the determinants of non-residential real estate values in Los Angeles County. The data base consists of 13, 370 property transactions from 1996 to 2005. Separate spatial econometric models are developed for industrial, commercial, retail and office properties. The study focuses on the impact on property values of environmental local amenities.Our analytical results provide insights on how local amenities may affect non-residential properties values and how the impact may differ across property types. Our empirical results offer evidence that explicitly modeling spatial dependence is necessary for hedonic non-residential property models where there is interest in local amenities. We also show that it is important to account for the temporal dimension since ignoring it can lead to misinterpretation of the real measure of spatial dependence over time.We find that open space, typically an amenity considered to be jointly valuable to firms and households, has either weak or non-robust effects on non-residential property values. On the other hand, the joint amenities coastal access, air pollution, weather and crime appear to have stable spatial correlations with property values across specifications. In contrast, those amenities that are likely only valued by firms, such as transportation access and proximity to concentrations of skilled workers, have robust and significant correlations with non-residential values.