Agglomeration economies and capitalization rates: Evidence from the Dutch real estate office market

A.J. van der Vlist*, M.K. Francke, D.A.J. Schoenmaker

*Corresponding author for this work

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Agglomerations of economic activity result in higher rents for users. However, these benefits do not necessarily carry over to real estate investors as higher rents might also come with higher investment amounts and risks. We address this by testing whether the effects of agglomeration economies, as observed in office rents, carry over to capitalization rates as a theoretically more refined measurement of productivity externalities. Using transaction-based data for the period 1996-2011 in the Netherlands, we show that agglomeration economies result in capitalization rates that are 5 percent, or 40 basis points lower.
Original languageEnglish
JournalThe Journal of Real Estate Finance and Economics
Early online date31-Dec-2021
Publication statusE-pub ahead of print - 31-Dec-2021


  • agglomeration
  • office markets
  • capitalization rates

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