Estimating the Effect of Sports Facilities on Local Area Commercial Rents: Evidence From Brooklyn’s Barclays Center

Abstract

The effect of Brooklyn’s Barclays Center on commercial land rents is estimated on a pooled cross-section of parcels within 1 mile of the arena from 2006 through 2015. The effect of the arena is isolated using a triple difference-in-difference approach. From the preferred model, net operating income per square foot is estimated to fall by an average of 3.7% for each 1,000 feet away a commercial parcel is removed from the arena. The average rent effect within 1 mile of the arena is further estimated to be US$2.71 per square foot. The implications of the findings are discussed.

Does Proximity to a New Sports Facility Affect Existing Businesses’ Survival Time?

“…First, their profits are lower with an arena than without. Propheter (2019a) provides evidence consistent with commercial gentrification around the Barclays Center in Brooklyn, and there is anecdotal evidence in Sacramento that nearby establishments predating the G1C have lost foot traffic to the arena and its ancillary commercial development (Rubin, 2017). Commercial gentrification arises through the increased economic activity in the immediate vicinity of the arena that is capitalized into land rents, and existing establishments may not be able to compete with sports facilities, and their related development, for foot traffic, implying a decrease in revenue.…”

“…The economic development impact of sports facilities has been a popular line of research over the last three decades. Among the economic development outcomes, scholars have investigated are local income (Coates & Humphreys, 1999; Propheter, 2012; Santo, 2005), business formation (Harger et al, 2016), sales (Stitzel & Rogers, 2019), employment (Hudson, 1999; Jasina & Rotthoff, 2008; Propheter, 2019b), wages (Coates & Humphreys, 2003, 2011; Jasina & Rotthoff, 2008), and property values, both residential (Ahlfeldt & Kavetsos, 2014; Ahlfeldt & Maennig, 2010; Feng & Humphreys, 2012, 2018; Tu, 2005) and commercial (Propheter, 2019a). The results from these studies generally find that sports have no effect on local area income, jobs, business formation, or sales; they have positive and potentially offsetting effects on wages in industries associated with sporting events; and they positively impact property prices, a near consensus finding across property types.…”

“…Central to achieving identification in the DD framework are finding an appropriate intervention date as well as a suitable control group. With respect to the former, a common approach in the sports economics literature is to treat facility completion as the intervention date (Lertwachara & Cochran, 2007; Propheter, 2019a), but other evidence suggests this could be mistaken. Ahlfeldt and Kavetsos (2014), for instance, use an event study and find land price capitalization occurred when Wembley Stadium in London began construction rather than when construction ended.…”

Should the Construction of New Professional Sports Facilities Be Subsidized?

“…New sports facilities clearly affect local property markets. Housing prices are higher near new (Tu, 2004) and existing (Feng & Humphreys, , ) professional sports facilities, as are commercial land rents (Propheter, ). The opening of new sports facilities increases nearby residential mortgage applications (Huang & Humphreys, ).…”

Is There a Case for Subsidizing Sports Stadiums?

“…While the data clearly show that stadiums and arenas do not typically lead to citywide increases in economic activity, there is strong evidence of localized impacts. Tu (), Feng and Humphreys (, ), and Propheter () all find significant increases in real estate prices near stadiums, and many stadium projects such as PetCo Stadium in San Diego (Rosentraub, ), Rogers Place in Edmonton (Staples, ), and Barclays Arena in Brooklyn, have seen significant commercial and residential real estate development in the area of the stadium following facility construction. Indeed, some stadium deals may be better thought of as real estate developments with a stadium thrown in as opposed to the other way around.…”