The price for subway access: spatial econometric modelling of office rental rates in London

ABSTRACT

The relative location of commercial properties as the distance to the metro station as well as its absolute location as the address in the Central Business District (CBD) is expected to influence its valuation. We apply the advanced spatial econometric methodology, based on micro geo-located data, to the office rental transaction data from London in 2015. We use different spatial information on the local and global neighbourhood in order to estimate the spatial hedonic valuation model and test the strength of spatial spillovers and location effects on office fees. For offices in London in 2015, geographical factors may raise the price by 50%, as every next 100 m to the metro cost an additional 0.7 ? per ft² per year and the CBD location raises the cost for ca. 20 ? per ft² per year.