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Parking Externalities in Commercial Real Estate
Abstract
Local governments have employed a variety of strategies to reduce street congestion through an increase in parking supply. These policies have been criticized as an implicit subsidy that shifts costs from drivers to the public at large. Others have noted that parking lots and structures can lead to increased water and air pollution. However, there has not been an examination of whether parking, presumably by reducing congestion, generates external benefits. We measure whether nearby parking availability influences commercial property prices after controlling for property characteristics, including on-site parking. We find that publicly accessible parking, such as commercial parking garages, generates significant aggregate externalities. We also find evidence of a significant complementary relationship between building and parking area in property values. This suggests that parking regulation could have a significant impact on property development through its effect on the value of the marginal square foot of building area. Copyright (c) 2010 American Real Estate and Urban Economics Association.
... Similar to many prior research efforts, our research conducts a reduced form approach that analyzes the outcome (the rent level) that incorporates all of these factors. 3 Although much of the prior hedonic research has focused on single-family residential property markets, there has been an increase in interest in commercial property values and rents(e.g., Ambrose, 1990;Brounen and Jennen, 2009;Chegut et al., 2011;Cutter and DeWoody, 2010;Fehribach et al., 1993;Slade, 2000;Slade, 2000, 2001;Sivitanidou and Wheaton, 1992;Sivitanidou and Sivitanides, 1995;Sivitanidou, 1995;Jennen and Brounen, 2009;Brunauer et al., 2010;Conroy and Milosch, 2011) 4 , and some of that literature examines industrial property rents (Ambrose, 1990;Sivitanidou and Sivitanides, 1995;Sivitanidou, 1995;Ryan, 2005). Most of these studies rely on a fairly small sample of observations that was accessed through a local brokerage firm. ...
... While there is no expected sign on the missing data dummy variables, it is anticipated that tenants are willing to pay more per square foot when it is associated with more parking. This is consistent with the findings of Cutter and DeWoody (2010), who show that onsite and nearby public parking can confer pricing premiums for commercial property. The ability of a delivery truck to "drive in" the building should also confer value. ...
... The number of drive-ins is normalized by thousands of leasable square feet of the property, No. drive-ins/(1000 square feet). Consistent with empirical evidence for office property (Ryan, 2005;Eichholtz et al., 2010;Slade, 2000;Brounen and Jennen, 2009;Cutter and DeWoody, 2010;Wiley et al., 2010;Miller et al., 2008;Munneke and Slade, 2000), we expect that more recently built or renovated industrial property, as measured by the variable year built, should have a higher rent. It is anticipated that larger leases, measured by lease square feet, will pay lower rents because of lower per square foot operating costs, simpler set up of the space, more tenant power in the lease negotiation process, often higher tenant credit quality, and perhaps the increased difficulty of leasing larger spaces. ...
Urban economists have long understood the theoretical importance of transportation infrastructure and accessibility on the location choice of households and firms. We utilize a readily available data set of transaction rents in the Chicago metropolitan area to investigate the determinants of industrial property rents. Among the factors considered are proximity to transportation infrastructure, characteristics of the property, the term structure of lease agreements, and local attributes of the neighborhood. Empirical results suggest property, lease, and local demographics play important roles in determining rents. Despite the fact that industrial property tends to locate very close to rail lines and interstate highways, transportation infrastructure has much less influence. There is evidence that there is an upward sloping lease term structure premium and that the premium varies over time. The model is also used to develop a constant quality rent index for the Chicago commercial property market. Compared to average rents and asking rents, the estimated constant quality index shows a smaller run up in rents from 2003 through 2008 and a larger drop off in rents through the end of 2011.
... Most of this work relates to the determinants of commercial property sale indices. 7 This literature considers a variety of locational, neighborhood, building and parcel characteristics, but we are only aware of one previous study that considers the amount of parking on the property (Cutter and DeWoody (2010)). In addition, other work attempts to value environmental disamenities by examining whether property prices change in response to the listing or de-listing of hazardous waste sites near a property (Ihlanfeldt and Taylor (2004)). ...
... In addition, other work attempts to value environmental disamenities by examining whether property prices change in response to the listing or de-listing of hazardous waste sites near a property (Ihlanfeldt and Taylor (2004)). We use a spatial hedonic approach where parking area, a characteristic that has only been included in Cutter et al. (2010), is one of the characteristics of the property. ...
... However, to the extent that most parking in downtown areas is underground and our surface parking analysis is related to suburban areas where this problem is not so severe, we have decided not to model this effect in our suburban developer problem since it would make the analysis cumbersome without additional insights. Moreover, Cutter and DeWoody (2010) indicates that, to the extent congestion effects are capitalized into real estate values, the externalities are only significant for commercial parking garages and are not large for on-site private parking. 22 Government can encourage the social amount of both surface and underground parking through the imposition of a Pigouvian tax, where the magnitude of the tax is set equal to the marginal external effect at the efficient allocation. ...
Minimum parking requirements are the norm for urban and suburban development in the United States (Davidson and Dolnick (2002)). The justification for parking space requirements is that overflow parking will occupy nearby street or off-street parking. Shoup (1999) and Willson (1995) provides cases where there is reason to believe that parking space requirements have forced parcel developers to place more parking than they would in the absence of parking requirements. If the effect of parking minimums is to significantly increase the land area devoted to parking, then the increase in impervious surfaces would likely cause water quality degradation, increased flooding, and decreased groundwater recharge. However, to our knowledge the existing literature does not test the effect of parking minimums on the amount of lot space devoted to parking beyond a few case studies. This paper tests the hypothesis that parking space requirements cause an oversupply of parking by examining the implicit marginal value of land allocated to parking spaces. This is an indirect test of the effects of parking requirements that is similar to Glaeser and Gyourko (2003). A simple theoretical model shows that the marginal value of additional parking to the sale price should be equal to the cost of land plus the cost of parking construction. We estimate the marginal values of parking and lot area with spatial methods using a large data set from the Los Angeles area non-residential property sales and find that for most of the property types the marginal value of parking is significantly below that of the parcel area. This evidence supports the contention that minimum parking requirements significantly increase the amount of parcel area devoted to parking.
... Two common issues in spatial regression analysis are the presence of heteroscedasticity and outliers in spatially dependent data. In order to solve these issues, we follow what has been suggested in the literature: a Bayesian approach to estimating our spatial hedonic price models (LeSage and Pace, 2009;Cutter and DeWoody, 2010). ...
In this study, we take a spatial approach to examine whether the ‘length-of-ownership effect’ asserting that duration of ownership will increase an owner's valuation of an item is dominated by the economic effects of constrained consumption when transaction costs are high. Two spatial procedures are employed to examine the impact housing duration has on house prices across levels of household mortgage participation. We confirm that the duration of ownership is reflected in the sales price, and that seller financial constraints tend to temporarily elevate reservation prices. We find evidence of a financially-constrained seller price premium over less constrained sellers.
... There is no paucity of studies to measure the neighbouring impacts of different land uses. Previous research has found that proximity to golf courses (Do and Grudnitski, 1995), transport infrastructure (Bowes and Ihlanfeldt, 2001;Cohen and Paul, 2007;Pugh and Fairburn, 2009), public recreational uses and green spaces (Anderson and West, 2006;Jiao and Liu, 2010;Morancho, 2003), street trees (Pandit et al., 2013), sport stadia (Ahlfeldt and Kavetsos, 2014;Ahlfeldt and Maennig, 2010), commercial parking garages (Cutter and DeWoody, 2010), cultural heritage sites and historic districts (Moro et al., 2013) tends to exert positive effects on the neighbouring property values. On the other hand, it is not surprising to find that power transmission lines (Hamilton and Schwann, 1995), landfills (Guntermann, 1995;Hite et al., 2001), waste facilities (Kuethe and Keeney, 2012), contaminated sites (Jenkins-Smith et al., 2002;Kaufman and Cloutier, 2006), cell phone stations (Brandt andMaennig, 2012), industrial uses (de Vor andde Groot, 2007), mobile home parks (Munneke and Slawson, 1999), rail noises (Clark, 2006) and airport noises (Tomkins et al., 1998) generate negative economic impacts on the surrounding properties. ...
This study assesses the externality of three new master-planned housing estate development projects on an old residential area in Hong Kong. Replicating the methodology of an event study, this paper presents the changes to the market values and the turnover of property transactions of the apartments in the existing neighbourhood before and after the successive completion of these three new projects over a period of 10 years. Our findings have identified a diverse picture about the impacts of these new housing estates on the neighbourhood. Positive externalities occur under specific circumstances related to the facility provision, spatial design and interfacing with the neighbourhood and background of the new projects. Housing externality does not depend only on the degree of geographical proximity. The policy implication is that urban planning can expand the positive spillover of infill redevelopment not only by replacing the urban dis-amenities by new buildings, but also through a responsive and beneficial integration of the new development with the existing neighbourhood.
This paper identifies the financial implications of equity accumulation for low- and moderate-income (LMI) borrowers. The analysis examines whether the accumulation of equity crowds out other investments, as well as whether equity is substantially extracted through other borrowing. The data come from a unique panel study of Community Reinvestment Act (CRA) borrowers and matched renters. A copula modeling approach estimates the distribution of a financial portfolio; the distribution is used to simulate the effect of equity accumulation on the portfolios of the renters. The analysis reveals no evidence that equity accumulation crowds out other investments, or that CRA beneficiaries deplete equity through borrowing.
Parking no doubt represents a central element of the transport systems and the manner in which it's managed directly influences its well-functioning. The present paper is devoted to demonstrating the benefits that a strategic parking management strategy can have over influencing people's travel choices and contributing towards attaining sustainable urban mobility objectives. The debate regarding the impacts of various parking management measures over the efficiency of the transport system is encountered in the first part of the paper, while a more specific application of a parking management strategy and is possible impacts in a medium-sized city from Romania where parking is currently free is discussed in the second part of the paper.
This is the first book that looks at how offices and office markets in cities have changed over the last 30 years. It analyses the long-term trends and processes within office markets, and the interaction with the spatial economy and the planning of cities. It draws on examples around the world, and looking forward at the future consequences of information communication technologies and the sustainability agenda, it sets out the challenges that now face investors. The traditional business centres of cities are losing their dominance to the brash new centres of the 1980s and 1990s, as the concept of the central business district becomes more diffuse. Edge cities, business space and office parks have entered the vocabulary as offices have also decentralised. The nature and pace of changes to office markets set within evolving spatial structures of cities has had implications for tenants and led to a demand for shorter leases. The consequence is a rethink of the traditional perception of property investment as a secure long term investment, and this is reflected in reduced investment holding periods by financial institutions. Office Markets & Public Policy analyses these processes and policy issues from an international perspective and covers: • A descriptive and theoretical base encompassing an historical context, a review of the fundamentals of the demand for and supply of the office market and offices as an investment. Embedded within this section is a perspective on underlying forces particularly the influence of technological change. • A synthesis of our understanding of the spatial structure and dynamics of local office markets at the city level. • An assessment of the goals and influence of planning policies, and the evaluation of policies designed toward the long term sustainability of cities as services centres. This goes beyond standard real estate and urban economics books by assessing the changing shape of urban office markets within a spatial theoretical and policy context. It will be a useful advanced text for honours and postgraduate students of land economy; land management; property and real estate; urban planning; and urban studies. It will also be of interest to researchers, property professionals, policy-makers and planning practitioners.
Minimum parking requirements are the norm for urban and suburban development in the United States (Davidson and Dolnick (2002)). The justification for parking space requirements is that overflow parking will occupy nearby street or off-street parking. Shoup (1999) and Willson (1995) provides cases where there is reason to believe that parking space requirements have forced parcel developers to place more parking than they would in the absence of parking requirements. If the effect of parking minimums is to significantly increase the land area devoted to parking, then the increase in impervious surfaces would likely cause water quality degradation, increased flooding, and decreased groundwater recharge. However, to our knowledge the existing literature does not test the effect of parking minimums on the amount of lot space devoted to parking beyond a few case studies. This paper tests the hypothesis that parking space requirements cause an oversupply of parking by examining the implicit marginal value of land allocated to parking spaces. This is an indirect test of the effects of parking requirements that is similar to Glaeser and Gyourko (2003). A simple theoretical model shows that the marginal value of additional parking to the sale price should be equal to the cost of land plus the cost of parking construction. We estimate the marginal values of parking and lot area with spatial methods using a large data set from the Los Angeles area non-residential property sales and find that for most of the property types the marginal value of parking is significantly below that of the parcel area. This evidence supports the contention that minimum parking requirements significantly increase the amount of parcel area devoted to parking.
Urban planners typically set minimum parking requirements to meet the peak demand for parking at each land use, without considering either the price motorists pay for parking or the cost of providing the required parking spaces. By reducing the market price of parking, minimum parking requirements provide subsidies that inflate parking demand, and this inflated demand is then used to set minimum parking requirements. When considered as an impact fee, minimum parking requirements can increase development costs by more than 10 times the impact fees for all other public purposes combined. Eliminating minimum parking requirements would reduce the cost of urban development, improve urban design, reduce automobile dependency, and restrain urban sprawl.
The application of spatial econometrics techniques to microlevel data of firms or households is problematic because of potentially large sample sizes and more-complicated spatial weight matrices. This paper provides the first application to actual household-level data of a new generalized-moments (GM) estimation technique developed by Kelejian and Prucha. The results based on this method, which is computationally feasible for any size data set, track those generated from the more conventional maximum-likelihood approach. The GM approach is shown to have the added advantage of easily allowing estimation of a more flexible functional form for the spatial weight matrix. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
Constant-quality commercial indices generated by ordinary least squares may suffer an efficiency loss due to leptokurtosis caused by outliers in transactions data. When the subsequent nonnormality occurs, substantial improvement in index precision is obtained by estimating the hedonic model using a semiparametric adaptive estimator technique. When this method was applied to 1,846 office transactions that occurred in the Phoenix metropolitan area from January 1997 through June 2004, a substantial standard error reduction of approximately 9% was realized relative to ordinary least squares estimates. The difference in average returns between the semiparametric method and ordinary least squares was about 0.25% in each period, which represents a substantial increase in commercial property index precision. Copyright Springer Science + Business Media, Inc. 2006
Planners concerned with water resource protection in urbanizing areas must deal with the adverse impacts of polluted runoff. Impervious surface coverage is a quantifiable land-use indicator that correlates closely with these impacts. Once the role and distribution of impervious coverage are understood, a wide range of strategies to reduce impervious surfaces and their impacts on water resources can be applied to community planning, site-level planning and design, and land use regulation. These strategies complement many current trends in planning, zoning, and landscape design that go beyond water pollution concerns to address the quality of life in a community.
The paper argues that traditional bid-rent modeling is inadequate in providing the framework for empirically analyzing the whole array of location demand and, most importantly, supply-side influences on office-commercial rents within multinodal metropolises. The analysis then proceeds with an alternative modeling scheme, setting the stage for specifying long-run reduced-form office-commercial rent functions differing from traditional hedonic formulations both within competitive and constrained land market settings. Using recent data on office-commercial rents across nodes in Greater Los Angeles, the empirical analysis lends considerable support to those alternative model specifications accounting not only for firm amenities, but also for worker amenities and local institutional controls.
Studies have found that severely contaminated properties, such as those on the U.S. EPA's National Priority List (NPL), reduce the value of nearby single-family homes. However, the vast majority of hazardous waste sites (HWS) are not so severely contaminated as those on the NPL. We also know little about HWS effects on other land-uses such as commercial and industrial properties, which may be of greater interest since these properties are more likely to be located near contaminated sites. Using data for Atlanta, Georgia, HWS are found to negatively affect the market value of nearby commercial and industrial properties. Although none of the HWS in this study are on the NPL, their impacts are estimated to be quite substantial in magnitude. Estimates of the total value losses caused by many of the sites are sufficiently large relative to the cost of remediation to justify tax-increment financing as a clean-up option.
This paper argues for the use of a simulation methodology to examine the distributions of elasticities that, in turn, are complex, non-linear functions of estimated parameters. Linear approximations are often used in this context but are shown to be poor substitutes for the suggested procedure.
This study examines the usefulness of time-varying parameter techniques for constructing reliable transaction-based commercial price indices for metropolitan areas. Time-varying parameter techniques allow the implicit prices of differing quality characteristics to vary intertemporally, overcoming the potential bias imposed by holding implicit prices fixed and simply interpreting time dummy variables as in a conventional hedonic approach. This paper empirically investigates three time-varying parameter methods (Chained, Laspeyres, and Paasche) and considers the potential for sample selection bias. Precision measures are constructed to examine the reliability of the respective indices. Copyright Blackwell Publishers Ltd 2001.
Conventional wisdom holds that overbuilding and high vacancy, coupled with curtailed tax benefits, have led to reduced office property values since the late 1980s. Yet assertions that office real estate values fell between the mid-1980s and mid-1990s are not supported everywhere by convincing evidence. This study offers a hedonic analysis of Chicago area office properties that sold from 1986 through 1993. Whereas earlier office market studies generally have been based on rents, this study focuses on variation in actual sale prices (although the prices were not adjusted for financing differences). The transaction-based index estimated here does not support the existence of a nominal office property price level decline beginning in the mid-to-late 1980s. In fact, the results show an upward trend in office property values after 1986, with nominal declines in office market price levels occurring only in the latter portion of the study period. Copyright American Real Estate and Urban Economics Association.
This paper examines the influence of bargaining power and property class on the prices of heterogeneous goods. Specifically, it explores the impact of buyer and seller characteristics on the transaction prices of office properties. The empirical model is based on the work of Harding, Rosenthal, and Sirmans ( 2003 ), which developed a method to distinguish between the impact of buyer and seller attributes on bargaining power and the choice of otherwise unidentified price effects (i.e., property class) in the context of hedonic price models. The data set contains information on transaction prices of office properties in Cook, DuPage, and Lake Counties, Illinois from 1995 to 1997. The results reveal systematic differences in bargaining power and property class for certain groups of buyers and sellers contained within the sample. Copyright Springer Science + Business Media, LLC 2006
Planning for Transit-Friendly Land Use: A Handbook for New Jersey Communities
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Parking Standards. American Planning Association, Planning Advisory Service
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