The Value of Design in Real Estate Asset Pricing
Does design contribute to real estate value? Practicing architects require evidence to justify both functional and aesthetic building needs within the financial ecosystem. Some buildings that become real estate assets are valued using models that consider some proxies for understanding value, but th...
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doaj-20f1da9364de49fca3e3584d5dbaabf12020-11-25T03:35:32ZengMDPI AGBuildings2075-53092020-10-011017817810.3390/buildings10100178The Value of Design in Real Estate Asset PricingHelena Hang Rong0Juncheng Yang1Minkoo Kang2Andrea Chegut3Real Estate Innovation Lab, Center for Real Estate, Massachusetts Institute of Technology, Cambridge, MA 02139, USAReal Estate Innovation Lab, Center for Real Estate, Massachusetts Institute of Technology, Cambridge, MA 02139, USAReal Estate Innovation Lab, Center for Real Estate, Massachusetts Institute of Technology, Cambridge, MA 02139, USAReal Estate Innovation Lab, Center for Real Estate, Massachusetts Institute of Technology, Cambridge, MA 02139, USADoes design contribute to real estate value? Practicing architects require evidence to justify both functional and aesthetic building needs within the financial ecosystem. Some buildings that become real estate assets are valued using models that consider some proxies for understanding value, but these features are abstract and may misidentify the sub-optimal differentiation that design brings. The lack of feedback between real estate valuation and building design often leads to poor design and economic outcomes. To address this miscommunication, we investigate the transaction price performance of four external architectural form features—diagonality, curvature, setbacks and podiums. Whilst controlling for drivers that are known to explain transaction price variation, we find that diagonality and podiums have a positive pricing differential of 12.4 and 9.7% more than rectilinear control buildings, respectively. Buildings with setbacks have a negative pricing differential of 10%. Furthermore, these results are also consistent for rental valuation. Results suggest that there is a significant economic impact of some architectural form interventions that differentiate commercial buildings and contribute to the role of form in design, planning and commercial real estate.https://www.mdpi.com/2075-5309/10/10/178architecturedesignbuilt environmentfinance/financializationvaluationasset pricing |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Helena Hang Rong Juncheng Yang Minkoo Kang Andrea Chegut |
spellingShingle |
Helena Hang Rong Juncheng Yang Minkoo Kang Andrea Chegut The Value of Design in Real Estate Asset Pricing Buildings architecture design built environment finance/financialization valuation asset pricing |
author_facet |
Helena Hang Rong Juncheng Yang Minkoo Kang Andrea Chegut |
author_sort |
Helena Hang Rong |
title |
The Value of Design in Real Estate Asset Pricing |
title_short |
The Value of Design in Real Estate Asset Pricing |
title_full |
The Value of Design in Real Estate Asset Pricing |
title_fullStr |
The Value of Design in Real Estate Asset Pricing |
title_full_unstemmed |
The Value of Design in Real Estate Asset Pricing |
title_sort |
value of design in real estate asset pricing |
publisher |
MDPI AG |
series |
Buildings |
issn |
2075-5309 |
publishDate |
2020-10-01 |
description |
Does design contribute to real estate value? Practicing architects require evidence to justify both functional and aesthetic building needs within the financial ecosystem. Some buildings that become real estate assets are valued using models that consider some proxies for understanding value, but these features are abstract and may misidentify the sub-optimal differentiation that design brings. The lack of feedback between real estate valuation and building design often leads to poor design and economic outcomes. To address this miscommunication, we investigate the transaction price performance of four external architectural form features—diagonality, curvature, setbacks and podiums. Whilst controlling for drivers that are known to explain transaction price variation, we find that diagonality and podiums have a positive pricing differential of 12.4 and 9.7% more than rectilinear control buildings, respectively. Buildings with setbacks have a negative pricing differential of 10%. Furthermore, these results are also consistent for rental valuation. Results suggest that there is a significant economic impact of some architectural form interventions that differentiate commercial buildings and contribute to the role of form in design, planning and commercial real estate. |
topic |
architecture design built environment finance/financialization valuation asset pricing |
url |
https://www.mdpi.com/2075-5309/10/10/178 |
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