An Empirical Analysis of Community Center Rents
Hardin, William G., III, Wolverton, Marvin L., Carr, Jon, The Journal of Real Estate Research
This article is the winner of the Retail Real Estate manuscript prize (sponsored by the International Council of Shopping Centers) presented at the 2001 American Real Estate Society Annual Meeting.
This study empirically models the determinants of community center rent. It employs a two-stage model that estimates center vacancy in the first stage and then includes predicted vacancy in a second stage demand model investigating endogenous and exogenous determinants of community center rent. The data includes information on maximum and minimum square foot rent for 118 community centers in Atlanta, Georgia. Maximum community center rent is highly correlated with a center's predicted vacancy rate and location within the Atlanta area. Additionally, rent at both maximum and minimum levels is influenced by trade area purchasing power, property age and to a lesser extent by proximity to a regional mall, center design and neighborhood factors.
There continues to be a need to empirically evaluate the multiple theories of retail activity. With the exception of a few studies of the determinants of retail sales activity and rental rates, much of the theory of retail behavior has not been rigorously tested. This is untenable given the variety of retail activity, including the sale of various types, levels and qualities of goods and consumer services, the emergence of new types of retail presentation, inclusive of big box tenancies and the prospect of interaction with electronic retailing. While the research presented in this article cannot address all of the retail issues needing empirical investigation, it does provide insight into the determinants of rent for one retail property type-- community centers. By empirically testing the determinants of in-line community center rent using a model consistent with existing retail theories, the structure of community center rent can be evaluated along with the applicability of central place, demand-externality and agglomeration theories. The article broadens existing empirical research on retail activity that has focused on malls and neighborhood centers. It is one of the first articles to rigorously evaluate community center rental formation.
There has been substantive theory development related to retail activity (Eppli and Benjamin, 1994). Three related theoretical streams are evident-central place theory, agglomeration theory, and demand externality theory. Early central place theory (Losch, 1954; and Christaller, 1966) remains a foundation for retail modeling, but has been expanded and modified with additional constructs. Concurrently, Hotelling's (1929) initial agglomeration model has been expanded to include related postulates such as multipurpose shopping opportunities (Ghosh, 1986) and the possible benefits that accrue to aggregation of higher and lower tiered market participants (De Palma, Ginsburgh, Papageorgiou and Thisse, 1985). Ingene and Gosh's (1990) proposition that retail center specific attributes affect retail performance forms the basis for demand externality theory. This theory acknowledges the possibility that center specific characteristics such as tenant mix and center design impact center performance. Within an economic or investment framework, Brueckner (1993) and Miceli, Sirmans and Stake (1998) postulate that center attributes can improve center sales and that such improvement should be captured, at least in part, as rent. Taken in their totality, these theoretical constructs manifest a complex retail market where location specific attributes such as the size and purchasing power of a center's trade area, the presence of competing retail centers and a center's physical characteristics influence economic performance.
Empirical Investigations of Retail Rent
Although there have been many studies of retail activity, only limited empirical research on non-regional-mall retail rental rates is evident. …