Thursday, 27 August 2015

The impact of highway proximity on distribution centres’ rents

Gaston Tchang, VU University Amsterdam

Driving along Dutch highways I often see distribution centres located in the vicinity. I wondered if the reason just is just to be seen by passing traffic or, thinking as an economist, that there is another cost-related reason. With common sense one expects higher rents near highways due to scarcity of land adjacent to highways and as well as being visible to passers-by.

When I was searching the literature on the impact of the proximity of highways on rent, I found that most  of the articles were about the impact on housing rent. There were also a lot of studies about the impact on office rents. But I couldn't find one about the impact on distribution centres' rent. Given the importance of transport costs in the logistics industry it is surprising that there had been no previous study. So this was a good reason to conduct a study myself. Since I am familiar with logistics in the Netherlands, and had access to Dutch data, I focussed my research on the Netherlands.

My aim was to find out how much rent of a distribution centre increases when accessibility improves. I have taken two different approaches. First I looked to the impact of the proximity to the nearest highway. Then I examined the impact of the distance to the centre of the Netherlands on the basis that a central location can reduce transport costs for logistic companies. I found an increasing rent for a decreasing distance. When distance decreases transport costs will be saved. As long as transport cost savings exceed the increased rent it is more attractive to choose a location closer to a highway or closer to the centre of the Netherlands. Transport costs are a major cost for logistic companies.

The results found are entirely plausible and may be useful for policymakers which are responsible for the development of industrial areas, e.g. at a local level to set the land rent and e.g. at a regional level to determine the zoning of land (e.g. by limiting the surface of industrial area allocated to distribution centres in a region). I suspect that real estate developers already advantage from the willingness of logistic companies to pay higher rents to locate  close to highways since land rent is often determined per industrial area or by the type of industrial activity according to the zoning.

                                           (Author's own)
                               A distribution centre located in an industrial area in the Netherlands

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