Is the Sky the Limit? An Analysis of High-Rise Office Buildings
Modern central business districts are characterised by high-rise office buildings. Helsley and Strange (2008) argue that skyscrapers are caused by agglomeration economies and a prize for being the tallest, so a reputation effect. We aim to test the relevance of this model by investigating the impact of building height on commercial office rents. The results show that firms are willing to pay about 4 percent more for a building that is 10 meters taller, which we interpret as the sum of a within-building agglomeration effect and a reputation effect. Using semiparametric techniques, we disentangle reputation effects from agglomeration effects and demonstrate that the reputation effect is substantial for tall buildings. For example, it is at least 17.5 percent of the rent for a building that is 6 times the average height.
13 July 2011 Paper Number SERCDP0086