Does Agglomeration Enhance Property Value?

Does agglomeration within a building and/or neighborhood enhance or weaken property value? The valuation impact is unclear ex ante, given that agglomeration tradesoff enhanced productivity at the expense of a more concentrated tenant base. We find that a value premium exists only when agglomeration at both the building and neighborhood levels consists of firms in the same industry. This premium represents capitalized knowledge spillover externalities. Additionally, we show the stock market rewards real estate investment trusts that transact specialized buildings. The valuation consequences arising from agglomeration in the underlying real estate market are thus consistent with the public real estate market. This paper was accepted by Tomasz Piskorski, finance. Funding: This work was supported by the Real Estate Research Institute. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2023.02773 .