Office Rent Premiums with Respect to Light Rail Transit Stations

Abstract

It seems an article of faith that because ridership catchment receives the largest share of riders within the first 0.5 mi (0.80 km), the design of transit-oriented development should be limited to 0.5 mi (0.80 km). But design of transit-oriented development requires another consideration: how the commercial real estate market responds. Unfortunately, much of the research into the commercial real estate value or rent premiums associated with transit station proximity is designed to reinforce the 0.5-mi (0.80 km) presumption. This paper reviews the literature and implications of ridership studies and research into commercial value and rent premiums with respect to distance from a transit station. The paper then reports research into transit station–related office rent premiums in the Dallas, Texas, metropolitan area. To the authors' knowledge, this study is the largest of its type undertaken on this question. Among the findings are that the premium extends 1.85 mi (2.98 km) from transit stations, with 25% of the premium—not a trivial amount— existing to 0.93 mi (1.50 km), with higher shares closer to the stations. The paper offers a reconsideration of both worker-based ridership and research on commercial real estate premiums to suggest that planning areas for transit-oriented development may extend beyond 0.5 mi (0.80 km), perhaps to 1 mi (1.61 km).

Value‐added effects of transit‐oriented development: The impact of urban rail on commercial property values with consideration of spatial heterogeneity

“…It is therefore recommended that different public financing and urban planning strategies in future should be target at different distance tiers from rail transit. This argument is consistent with recent evidence that calls for a revisit of the underlying 0.5-mile of value capture buffer (Canepa 2007;Nelson et al 2015).…”

“…The premium gradient shown in model 3 sheds light on refining the understandings of impact areas of rail transit to fully capture economic benefits from public transportation investment. The commonly accepted distance to reap urban economic benefits from rail transit is a quarter mile (comfortable walking distance) or half mile (Duncan ; Nelson et al ). Some studies suggest the price premium completely disappeared within a quarter mile of transit stations (e.g., Kim and Lahr ).…”

“…A recent study of Dubai rail system found price premium reached its peak between 701 and 900 metres for commercial properties (Mohammad et al ). Nelson et al () found in both Dallas, Texas and Denver, Colorado that price premium of office rent extended 1.85‐mile from rail station, with a substantial price premium of 25 per cent within the first 1‐mile. Among these studies, distance band tends to be increasingly used to understand the price effect on commercial properties, since this measure is more robust in its policy implications in understanding value capture area or TOD impact area (Cervero and Duncan ; Nelson et al ; Xu et al ).…”

Open for business? Effects of Los Angeles Metro Rail construction on adjacent businesses

“…Zhang et al (2014) show that the strength of the effect also varies by mode, with heavy rail having a greater effect than light rail. Debrezion, et al (2007) find that commercial property sees more of an effect than residential property but the effect is more concentrated around the station, though Nelson et al (2015) argues that in the case of Dallas, TX, commercial property premiums extend nearly 3 km. Property value studies generally use hedonic pricing, increasingly as part of a spatial lag model (e.g., Wang et al, 2016;Xu et al, 2016) or a before and after comparison using repeat sales (Chatman, Tulach, and Kim, 2012;Kim and Lahr, 2014;Dubé et al, 2011Dubé et al, , 2013.…”

“…A considerable portion of the property value research concerns determining the spatial extent of the treatment effect of transit on nearby businesses, with estimates ranging from 152 meters (Falcke, 1978, cited in Higgins & Kanaroglou, 2016 for retail and office rents in Oakland to 3 km for office rents in Dallas. (Nelson et al, 2015). Though Los Angeles, like Dallas, is car-oriented, the neighborhood in which the subway was constructed is one of the denser areas in the city, and thus the 3 km estimate is less applicable.…”