Uncovering the Premium for Higher Floors in Office Space
BY OLIVER NUTT
Thesis Advisor: William C. Wheaton, Professor Emeritus, Department of Economics
How do commercial office rents vary across different floors within the same building? This question seeks to understand the heterogeneity of real estate by considering the location in three dimensions. This thesis aims to answer that question by analyzing office suite listings across geographies.
The asking rents from 55,907 commercial office suite listings, in 2,567 buildings across 25 cities were analyzed for price differentials between floors. The asking rent level across each building for the last six months was used instead of hedonic analysis to allow for the underlying factors affecting price other than the floor number of the listed suite.
The analysis showed a statistically significant positive rent premium for suites on higher floors in twenty-three of the twenty-five cities. The rent premiums varied across the cities, with those cities with a larger market for commercial offices typically enjoying higher rent premiums. There was no relationship found between physical charactistics of the city (including population, density, average building height) and the rent premium for additional floors.