Article

Parking Externalities in Commercial Real Estate

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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.

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... 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. ...
Article
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. ...
Article
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). ...
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... 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. ...
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Thesis
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