In this paper Arno van der Vlist, Marc Francke and Dennis Schoenmaker analyze whether agglomerations of economic activity result in higher rents for users.

However, these benefits do not necessarily carry over to real estate investors because higher rents might also come with higher investment amounts and risks. We address this by testing whether the effects of agglomeration economies, as observed in office rents, carry over to capitalization rates as a theoretically more refined measurement of productivity externalities. Using transaction-based data for the period 1996-2011 in the Netherlands, we show that agglomeration economies result in capitalization rates that are 4.6 percent, or 40 basis points, lower.

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Do you have questions about this article or an idea for another interesting analysis? Please contact Marc Francke using the details below.

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