You are on page 1of 8

8 Transportation Research Record 1805

Paper No. 02- 2273

Transits Value-Added Effects


Light and Commuter Rail Services and Commercial Land Values

Robert Cervero and Michael Duncan

Transit-oriented development has gained favor as a means of reducing This paper presents research that explores the capitalization effects
traffic congestion, promoting affordable housing, and curbing sprawl. of proximity to rail transitboth light rail and commuter railin fast-
The effects of proximity to light and commuter rail stations are modeled growing Santa Clara County, California. It augments the fairly lim-
as are the effects of freeway interchanges on commercial-retail and ited literature on the effects of rail-induced accessibility benefits on
office properties in fast-growing Santa Clara County, California. From commercial land values. Besides gauging the degree to which prox-
hedonic price models, substantial capitalization benefits were found, on imity to different forms of rail transit confers benefits to commercial
the order of 23% for a typical commercial parcel near a light rail tran- landholders, there are practical reasons for conducting such research.
sit stop and more than 120% for commercial land in a business district
and within 0.25 mi of a commuter rail station. Such evidence is of use Many developers and perhaps, more important, lenders question
not only to developers and lenders but also to transit agencies facing whether being near transit yields net benefits. Being near a regional
lawsuits over purported negative externalities associated with being rail system does enhance accessibility; however, in the minds of
near rail. It can also help in the design of creative financing, such as many, that is offset by the stigma of transit as an inferior form of
value-capture programs. mobility. TOD is not necessarily a money-making proposition in the
opinion of some retailers and commercial developers.
Research on transits capitalization benefits can help assess the
Across the United States, transit-oriented development (TOD) has degree to which any negative consequences of transit investments
gained currency as a means of redressing a host of contemporary are offset by accessibility benefits. Across the country, transit
urban problems, including traffic congestion, affordable housing authorities are being sued for severance damages by landowners
shortages, air pollution, sprawl, and urban blight (1, 2). Several who claim that the incursion of noise, vibration, and increased traf-
notable trends have been fueling the TOD movement. The first is fic, as well as the partial takings that reduce the usable size of their
todays receptive public-policy environment, which is reflected in parcels, diminishes property values. In the case of the Bay Area
livable communities grants, smart-growth initiatives, and transit vil- Rapid Transit (BART) extension to the San Francisco International
lage acts. Second, demographic shiftschildless couples, empty Airport, commercial landowners in the cities of San Bruno and Mill-
nesters seeking to downsize, and influxes of foreign immigrants brae have charged that BARTs presence will lower land values.
(many of whom come from countries with a heritage of transit- This has placed the onus on transit agencies to produce expert testi-
oriented living)are spawning a ready-made market for transit- mony demonstrating that proximity to rail transit confers net bene-
based housing. Third, traffic congestion is prompting more and fits to commercial properties, as measured by land-value premiums
more Americans to seek out residences near transit in the quest for and overall real estate market performance.
less stressful commutes. Companies are also gravitating to station Evidence of transits value-added effects opens up opportunities
areas (e.g., Bell Souths new headquarters under construction above for joint development and new forms of creative financing (35).
Atlantas Lindberg Station and the Discovery Channels new head- Transit boards are likely to become more entrepreneurial, acquiring
quarters adjacent to the Silver Spring, Maryland, Metrorail station), vacant parcels near planned rail stations early in the development
in part, to open up more commuting and housing options for their process, if they believe they cannot only reap profits but also leverage
workforces. transit-supportive projects. The Washington Metropolitan Area Tran-
For the public sector, the chief benefit of TOD is moving people sit Authority (WMATA) has aggressively acquired parcels around rail
out of automobiles and into trains and buses. For private developers stations over the years, many times at bargain rates. The agency has in
turn entered into long-term lease arrangements with commercial
and landowners, being near transit holds promise of investment prof-
developers, recapturing costs not only through rent but also from
its. The reason, theory holds, is that parcels near transit stops enjoy
higher fare box revenues generated by increased activities around sta-
better connectivity, or access, to activities in a regionthat is, resi-
tions. As of 1999, WMATAs 24 joint development projects were
dents can more easily and conveniently reach jobs, shops, and other
generating nearly $6 million in annual revenue (6). Municipalities can
destinations; more potential shoppers pass by retail outlets; and for
capture some of the value-added effects in the form of increased prop-
businesses, the labor shed of potential workers is enlarged. Because
erty tax proceeds.
the number of benefiting parcels is finite, in a competitive market-
place, households and firms bid for these choice locations, driving up
Besides for those practical reasons, this study was carried out in
the price of sites. Accessibility benefits are absorbed, or capital-
hopes of filling research gaps and refining our understanding of the
ized, into property values in reasonably competitive land markets.
influences of contemporary rail investments on land values. Most
past studies of capitalization benefits have focused on heavy rail sys-
Department of City and Regional Planning #1850, Hearst Field Annex, Building tems; in truth, far more track mileage is being laid for light and
B, University of California, Berkeley, Berkeley, CA 94720. commuter rail than for heavy rail projects in the United States. In
Cervero and Duncan Paper No. 02- 2273 9

addition, past research on rails capitalization effects has focused on rail systems, as typified by Santa Clara Countys service, tend to
residential properties, in part, because data on housing sales trans- offer more modest mobility and accessibility advantages and,
actions tend to be more plentiful and readily available. However, accordingly, capitalization benefits can generally be expected to be
because commercial and office properties stand to benefit more, at more modest. For the most part, commuter rail services, such as
least on a per-square-foot basis, from the accessibility benefits con- Santa Clara Countys CalTrain, lie in between heavy and light rail
ferred by rail transit systems, the existence of stronger capitalization systems in relation to service intensity, speed, and coverage; thus,
benefits for such uses could be postulated. Moreover, because most their capitalization effects should also fall somewhere in between.
transit joint-development projects involve commercial land uses,
evidence on the accessibility benefits that accrue to nonresidential
properties can aid in introducing joint-development initiatives such Value Measurement
as air-rights leases and station-connection fees.
This research also aims to augment and perhaps even challenge The few rail-transit capitalization studies that have been conducted
several studies released on the capitalization effects of rail transit on to date on commercial properties have mostly gauged benefits in
commercial properties, specifically in the San Francisco Bay Area. relation to rents as opposed to land values (as expressed by open,
Several past studies (7, 8) concluded that rail transit confers no mea- arms-length transactions). Rental data can be problematic, how-
surable benefits to commercial properties in the Bay Area; however, ever, in that contract rents do not always capture the full array of
methodological concerns cast some doubt on those findings (7, 8). concessions received by tenants. Even if contract rents are fairly
Benefits associated with being near transit are thought to be the great- accurate, they need to be adjusted for occupancy levels to reveal
est in fast-growing, congested areas with buoyant and healthy effective contract rates. Often, data limitations preclude this. Focus-
economies, such as Santa Clara County, California. Because of a ing on sales transaction data avoids such problems.
booming economy and the aggressive expansion of bus and rail In studying the sales value of commercial properties, one must also
transit services, Santa Clara Valley Transit Authority (SCVTA) expe- decide on whether to examine the price of land and improvements as
rienced the second highest relative increase in ridership, 136%, a bundle or separately. This study examines the effects of proximity
between 1980 and 2000 (behind San Diego) among transit systems to transit on the value of parcels only. This is partly because theory
with light rail services (9). Between 1999 and 2000 alone, rider- holds that accessibility benefits are capitalized into land, not build-
ship on commuter rail services to the county jumped 17%. Traffic ings and other on-site improvements. Statistically, focusing on land
congestionthe worst in the Bay Area, which itself was recently values also avoids the need to fully specify and measure factors, many
ranked Americas second most congested metropolis by the Texas of which are not readily available (e.g., attributes of on-site amenities
Transportation Instituteis doubtlessly drawing more and more com- such as fiber-optic cabling or quality of building materials), that
muters to buses and trains. Extraordinary growth, an overheated hous- reflect the extent and quality of land improvements.
ing market, and traffic tie-ups have spawned a culture change in the
way local residents and businesses think about transit. Residents are
supporting transit at both the fare box and ballot box. In 2000, Santa Model Specification
Clara County voters cleared the two-thirds hurdle by overwhelmingly
voting in favor of Measure A, an initiative that extends a 0.5-cent It does not necessarily follow that if land prices jump once a rail ser-
sales tax dedicated to transit projects for an additional 20 years. Few vice begins that transit caused that appreciation. Spikes in land val-
areas around the country have mustered the votes to extend dedicated ues could be attributable to other factors, such as an upswing in the
sales tax initiatives for transit programs in recent times. regional economy, improved highway conditions, or better schools.
The challenge, then, is to control for such potential confounding fac-
tors so that the unique effects of transit proximity on land values can
METHODOLOGICAL CONSIDERATIONS be netted out.
Hedonic models (that decompose the component prices of each
This section briefly reviews several methodological topics that attribute affecting land values) are widely considered to be the best
are germane to this study: effects of transit technologies, value method available for ascribing benefits associated with factors such
measurements, and matters of model specification. as proximity to transportation facilities (10). Using multiple regres-
sion, real estate values are apportioned among explanatory vari-
ables, shedding light on the marginal contribution of factors such as
Transit Technologies and Capitalization accessibility, land use type, and neighborhood quality to sales val-
ues. Generally, for purposes of gauging land-value benefits, hedonic
Fixed-guideway transit systemsnotably heavy rail, commuter
models take the form
rail, and light rail networkscan be expected to confer the greatest
travel-time savings and thus the greatest accessibility benefits. Gen-
Pi = f (T, N, L C),
erally, buses operating in stop-and-go conditions on regular surface
streets produce inconsequential accessibility benefits; thus, the
effects of bus services on land values are not addressed in this study. where
And it is only around access points, or stations, that proximity ben- Pi = estimated price (per square foot) of parcel i,
efits accrue; in general, there are disbenefits from being near a rail T = vector that gauges proximity to transportation facilities,
track but not near a station. N = vector of neighborhood characteristics (e.g., presence of
Among fixed-guideway systems, capitalization benefits are likely mixed land uses, median housing income),
to be greater for heavy rail transit than for commuter rail or light rail L = vector of location and regional accessibility attributes
because such services tend to operate more frequently, at faster (e.g., accessibility to jobs), and
speeds, and over a more geographically expansive territory. Light C = vector of controls (e.g., fixed-effect variables).
10 Paper No. 02- 2273 Transportation Research Record 1805

PREVIOUS RESEARCH ducted by Weinberger (16). This study examined the effects on
commercial rents and sales values of proximity to Santa Clara
Research on the capitalization benefits of rail transit to office and Countys LRT system. Data on 3,400 lease transactions between
commercial-retail properties is sparse. This section reviews the 1984 and 1998 from a proprietary real estate data set were used, and
effects of proximity to transit on commercial and office values, a hedonic model of effective rent per square foot was estimated as
distinguishing between heavy rail and light rail systems. a function of distance to station, transaction year, building type and
size, and area location. Although properties within 0.25 mi of a sta-
tion were found to command a premium, surprisingly, those that
Heavy Rail Systems were 0.25 to 0.5 mi away were worth even more. Compared with
other properties in the county, the estimated monthly lease premium
Most evidence on commercial property effects comes from heavy
within 0.25 mi of LRT was 3.3 cents/ft2 and for properties 0.25 mi
rail systems. An early study of BART using repeat-sales ratios found
to 0.5 mi away, it was 6.4 cents/ft2. Sales premiums of $8.73 and
no evidence that rails presence increased commercial properties
$4.87/ft2, respectively, were found, though models of sales values
around a suburban station and two inner-city stops over the long
had poorer statistical fits. A follow-up study (17) using what appears
term. A study in Washington, D.C., found evidence of benefits to
to be the same database somewhat confusingly showed higher rent
commercial properties in anticipation of heavy rail services. Using
premiums for properties in the nearest distance band to LRT sta-
hedonic price models, Damm et al. (11) found a significant price
tions. This analysis suggested that commercial premiums extended
elasticity of0.69 for commercial-retail properties within 2,500 ft
to 0.75 mi from a station and then disappeared. Our work aims to
of a Washington Metrorail station. No follow-up work was con-
build on and refine this and other analyses in several key ways: by
ducted to see whether value gains held over time, though subsequent
adding richer metrics of accessibility, land use composition, and
case studies suggest that Metrorail has materially benefited nearby
neighborhood quality; by examining effects on the land component
commercial properties (1, 6 ).
of property sales values as opposed to rents; and by introducing
Two studies of the Metropolitan Atlanta Rapid Transit Authority
measures of proximity to multiple forms of regional transportation
(MARTA) heavy rail services reached opposite conclusions about
facilities, including commuter rail and freeways.
effects on commercial properties. Bollinger et al. (12) found that
offices within 1 mi of highway access points commanded office rent
premiums; however, typically, those within 1 mi of MARTA sta-
tions leased for less than comparable space farther away. In contrast, RAIL TRANSIT AND DEVELOPMENT IN
Nelson (13, p. 78) found that commercial properties were influ- SANTA CLARA COUNTY
enced positively by both access to rail stations and policies that
Santa Clara County, the Bay Areas biggest as measured by both
encourage more intensive development around those stations.
population and employment (1.68 million and 1.08 million, respec-
Nelsons findings suggest that the combination of targeting com-
tively, in 2000), inaugurated LRT services in 1991. The initial
mercial development and forming special districts that relax parking
Guadalupe corridor, 21 mi in length, connects the Silicon Valley to
and density requirements produces synergistic benefits.
downtown San Jose and several residential communities to the
south. In 2000, the 7.6-mi Tasman West extension was completed,
Light Rail Systems linking employment centers and residential areas in four Silicon
Valley citiesSan Jose, Santa Clara, Sunnyvale, and Mountain
Research on the way light rail systems affect commercial property Viewand bringing the total number of LRT stops up to 43.
values is even scarcer. A study of the Dallas Area Rapid Transit Recently, the Tasman East line brought LRT services to the city of
(DART) system compared differences in land values of fairly Milpitas, serving Ciscos company headquarters and several other
loosely matched pairs of comparable retail and office properties near large-scale high-technology campuses. Other extensions are cur-
and not near light rail transit (LRT) stations (14). The average per- rently in the pipeline. The county also boasts two commuter rail
centage change in land values from 1994 to 1998 for retail and office servicesCalTrain, a diesel locomotive train service that connects
properties near DART stops was 36.8% and 13.9%, respectively; for downtown San Jose and downtown San Francisco via the San Mateo
control parcels, the average changes were 7.1% and 3.7%, respec- County peninsula, and the recently opened Altamont Commuter
tively. For retail uses, this study suggested a value-added premium Express (ACE) service that links the county to vast reservoirs of
of 30%. affordable housing in Californias Central Valley.
Several studies of LRT effects on commercial properties in Cali- Few areas of the United States can match the amount of develop-
fornia have been more rigorous in their research designs, but again ment that has taken place near transit stops in Santa Clara County in
findings were inconsistent. In one study, Landis et al. (8) were unable the past few years. Between 1997 and 1999, an estimated 4,500 hous-
to assign benefits of proximity to light rail stations in California ing units and some 9 million ft2 of commercial-office floor space
because of confounding influencescommercial projects closer to were added within walking distance of the Tasman West LRT corri-
rail stops tended to be better-quality projects. A follow-up study (15) dor. Local officials hope that placing more residents and workers
focused on the BART system and, on the basis of hedonic price mod- within convenient walking distance of LRT stations will relieve traf-
els, found no evidence of commercial properties reaping benefits from fic congestion, promote affordable housing, and improve the
being near transit. Among the limitations of this study was the use of jobshousing balance. Among the instruments introduced to lever-
asking rents (as opposed to effective contract rents) and the analysis age TOD have been tax-exempt financing, sliding-scale impact fees,
of relationships for a single year that coincided with a downturn in the public assistance with land assembly, and overlay zones that permit
regions economy. higher densities than the norm.
A more recent study of LRT effects on commercial properties, These carrots appear to be paying off. Mountain View officials
and one most parallel to the work presented in this paper, was con- recently rezoned 40 acres of industrial land to accommodate more
Cervero and Duncan Paper No. 02- 2273 11

than 500 housing units adjacent and with convenient walking access Commercial: neighborhood shopping center (5.6%);
to the Whisman LRT station. In Sunnyvale, density bonuses have Commercial: regional or specialty shopping center (0.6%);
spurred in-fill development in the Northside industrial district near Industrial or manufacturing: research and development (2.8%);
the Borregas and Fair Oaks LRT stations. One of the best examples and
of adaptively reusing land is San Joses Ohloyne-Chenoweth sta- Professional: offices, banks, and clinics (41.5%).
tion, where midrise housing was recently built atop a park-and-ride
lot. In Sunnyvale, the Moffett Park station will be privately financed. Professional activities (offices, banks, and clinics) and retail out-
In return for a 60% increase in allowable floor area ratio for a high- side of shopping centers constituted more than 80% of the data
tech office building near the new LRT stop, the developer has observations. The average parcel size was 38,350 ft2, with a fair
agreed to foot the bill for the $2 million station. amount of variation, ranging from less than 500 ft2 (for several
TODs have even formed near Santa Clara Countys CalTrain professional-office sites) to as large as 1.28 million ft2 (for a
stations, most notably in Mountain View where The Crossings, an research and development campus site).
18-acre, compact, walkable mixed-use neighborhood, replaced a Figure 1 maps land values of sampled parcels in relation to the
once-dying shopping mall. To leverage this development, the city countys LRT network. There are many darker dots, or high per-
of Mountain View created a transit overlay zone that allowed higher square-foot land prices, near LRT stations, although there are also
densities, up to a maximum of 50%, within 2,000 ft of the station. a number of high-valued parcels that are beyond the traditional
TODs are also slated for joint commuter-rail/light-rail stations, 0.5-mi walking distance to rail stops. Clearly, factors other than
notably Tamien. In 1995, SCVTA sought to jump-start the Tamien proximity to light rail have a bearing on commercial land values in
TOD by building a day-care center that accommodates 140 children Santa Clara County. Only through statistical modeling can analysts
directly on the station site. Besides providing an important service reliably control for influences of potentially spurious factors and
to the nearby community, the center seeks to promote rail-commuting focus in on the marginal contributions to land values of proximity
by making it convenient for parents to drop off and pick up their to transit. The analyses that follow seek to do that.
children each workday.

DESCRIPTIVE STATISTICS
METHODOLOGY AND DATA
Basic statistics for the dependent variable, commercial per-square-
To gauge the value-added effects associated with being near LRT
foot land value, as well as key predictive variables used in the
and commuter rail transit in Santa Clara County, a hedonic price
hedonic price model, are presented in Table 1. The table organizes
model was estimated. The primary data source used to carry out this
and presents explanatory variables in four groups: proximity to rail
research was Metroscan, a proprietary database that contains infor-
and highways, accessibility and location, density and land uses, and
mation on all real estate sales transactions that are recorded in county
neighborhood quality proxies. For ratio-scale variables, statistical
assessor offices. For purposes of this study, data observations for
means and standard deviations are presented. For nominal variables
commercial, office, and light industrial properties were selected for
(categorical variables), proportions of total cases are shown.
calendar years 1998 and 1999, a period of rapid growth and escalat-
ing land prices. These dates were also felt to provide a sufficient time The average 1999 parcel value was more than $17/ft2, with a fair
lapse for the benefits derived from proximity to light and commuter degree of variation. More parcels were closer to freeway or highway
rail services (introduced in the county in the early 1990s) to have interchanges than to rail stations. Only about 1 in 10 of the sampled
taken form. Values of parcels in 1998 were adjusted upward by 7% parcels were situated within 0.25 mi of an LRT or CalTrain station.
to be expressed in 1999 dollars, reflecting the countys cost-of-living (A much smaller share of parcels were within 0.25 mi of an ACE
adjustment for real estate. station; however, because being near an ACE station was found to
The Metroscan database contains information on estimated values have no appreciable effect on land values, statistics are not presented
of land as well as improvements for each sales transaction, as for this and other nonsignificant variables.)
apportioned by the county assessors office for property tax pur- Commercial properties had fairly good regional access to labor
poses. Because the benefit of being near transit presumably is capi- marketson average, more than 1.3 million employed residents
talized into the price of land, the effects on parcel values only were within a 45-min peak-period drive of a parcel via the regions
(exclusive of the value of improvements) were statistically exam- highway network. Significant numbers of employed residents were
ined. To the degree there are errors in assessors apportionments of also clustered around the commercial properties, with an average of
values to parcels, there is no reason to believe they are systematically nearly six employed-residents per gross acre within a 1-mi radius
biased in one direction or the other. of sampled parcels (or a total of 11,795 employed residents within
After suspicious cases with extremely high or low per-square-foot a 1-mi radius). Generally, commercial parcels were in desirable
values were removed (including possibly those that did not involve neighborhoods, reflected by an average building value of more than
arms-length transactions), 1,197 parcels remained for purposes of $70/ft2 and mean household incomes of more than $68,000.
estimating a predictive model. The specific land use categories
examined, as defined in Metroscan, and the percentage of the 1,197
total observations, follow: HEDONIC PRICE MODEL RESULTS

Commercial: business district, San Jose central (1.9%); The hedonic price model estimated for predicting office and com-
Commercial: business district, local (6.1%); mercial land values in Santa Clara County in 1998 and 1999 is pre-
Commercial: retail not in shopping center (40.1%); sented in Table 2. As in Table 1, explanatory variables are organized
Commercial: community shopping center (1.1%); into four categories. Because values of land were estimated, there
12 Paper No. 02- 2273 Transportation Research Record 1805

S# S#
S#S#S# ##
SSS# S# S# 0 1 2 3 4 Miles
S#S#
S#S#S#
S#
S##
S #S S
#
#
S #S #S S# #
SS# S#
S#
S# S# # S##
S
SS#
# #S S #S #S #S S# S#
S#S# S# #
SS#
S# #S
S#S# S#S# S# S##
S S# S# N
S# ##SS ##
S
S#SS
SSS##S
###%
# U
SS# S#S#S#
S
# S# SS #
##S
S#
#S S# .-,
880
S#
.-,680
S# SS# #
# S S# S#
S#S#SS S#S#S# S#
##
S# # S# S#S# S# S# #S S#
S S# S#S# S#
S# #SS# S#
S# S#
S#
S# S#S# %US#S# S#
S# S# S#
S# S# S# S# # S#
S#
S# S# # S# S# S#S S# #S#S#S# S#
S
S# S#
S SS ## S# U
% S#
S# S# S# S# # SSS## S#
S# S#
S# S# S#
S# S# S# S## #
SS# S# S
# S# S# #
S#
S# S #
#S S# S# S# S#S# SS#
S# S# S# S#S#S#S#
S# S # S#S# #
S # #
S
S#
#S#
S S S# S# S# ## S#
SS S#S S#
S# S# S#
S#S# S# S# S# S#SS ##S#
SS U S# ##S#
S# %
## S# S# S# S# S# S#S# SS
S#S# S#
S# S
# ### #
SS S #
# #
S#SS#
S#
#
#
S
S#S# S# S
#
##SS# S# S # #
S #
S S S
S# SS #S#
S# S# #S
SS#S
## #S #
S# #S#S
S#
S S# S# S#S#S#S S#
S# ## S# S%
SS U S#S# ##
S#SS
S# #
S
# S#S# S#S#S# #S
## S#
S#S# S#S#S# S#
#
S
SS#S#S## S
# #
S SS
S # S#S#S#
#
S S S# S#S## SS#S#S S # S#
280
.-, S#
S# S#
#
S# S#S#SS
#
## S#S# S#
S
S# #
#S#S#S# S#
S# S% U
S## SS##S#SS#S#S##S#S# S#
S
# #S#SS##S#SS##S# S#S#
S#
S#S#
# S S
# S# S# # S S#
S S SS#SS##S#S# S#
S# S S S# # S#
S# S# S# S# S # ##
S# #
S# S# S ##
S# S# S#S#S#SS ##S### SS
SS ## S S# S## S# #
##S#
S#SS S# S#S#
S#S S# S# S# S# SS
#
S#S#S S# #
S S# S S#S# S# S# SS
# #S##S#S#S#S#S#S#S# S#
#S SSS
#S
# SS# SS#
#S #S# S#
#
S# S# # S# #
S#S#S# S#
S#S# S# S#S# S# S#
S
S# S# S# S#
S#
S# S# # S S# S#S#SS## S# S#
##
SS
S## S# S#S# S# S#
S# S ##
S# S# S## S# #S# S# SS
S# S S# S #
#S% U S #
S S# #S# S#
S#
S## S#S#
S#S# S# S# SS##
S
Parcel Land Value ($) per Square Foot S S#S# S#
S# S#
S#
#S# S#SS S#
S# S#
S# #
# #
S
S# S S#
S# 0.70 - 10 S# S# S#
S# S# S#
S# S# # ## #
#
SSS SS S# S S S SS# S# S# S# # # # # S# S# S S## S#
S# 10 - 20 S#S#S# S#
#
S# S#
S# S# S #
#
S
S#
#S S#
#
S## ####S # #S# # S SS## SS ##
#
##S#S#S#
SS #S#S# S
S#S# S S S S# SSS
#S S S S# # S
#S S#
S# 20 - 30 S#
S# S#
S
#
S#
S
S# S
S
S#
S##
#
U
% /( 101
S# 30 - 40 S
S# S#
S#
S
S## S# ## # S#
S#S# S#S#S# S#
SS S
S# 40 - 50 S# S#S#S## S#S# S# ##
S
S# ##
SS #
S # S#
S S#
#
SS # S S#
S# 50 - 79 S#
S# S#
S#
S#S# ## #
SS S S#
S#
S#
S# S #
S##
S
S# S#
S# S#
Light Rail Line
#
S# S
#
##
S#
S#S S# #S S# U
%
SS S# S# S#S# S# S#S## S
S Light Rail Stations
# S#S# S#
S# #
S S # S# #S
S#S# S# #
S S# #S
S# S#S#
Caltrain Line
#S#
#
S #
S
S# #S
##S
SS S# S#
#
S S# S#
U Caltrain Stations
% ##
SS S#
S#S# #S
S#SS
#
SS #
# S#S#
#
S# ##SS
SS
S#S#S# #S
##

FIGURE 1 Plot of commercial property values in relation to Santa Clara Countys LRT network, 1998 and 1999.

was no need to include variables related to building size, quality, rail, commuter rail, and grade-separated freeways and expressways.
age, and other possible attributes of improvements to land. Weighted Proximity was defined in units of distance bands from access points
least-squares (WLS) estimation was used to correct problems of het- (stations and interchanges) because this metric provided better
eroscedasticity that were encountered when attempting ordinary statistical fit than did continuous-scale measures of distance.
least-squares estimation. WLS estimation yielded a statistically sig- Consistent with theory, being near rail transit added commer-
nificant model that explained more than 30% of the total variation cial land value. However, the benefits accrued only to parcels that
in land values across the nearly 1,200 parcels studied, a reasonably were located fairly close to light rail and commuter rail stations
good fit for a cross-sectional analysis. All variables in the model specifically, within 0.25 mi (measured in straight-line distance)
were significant at the 5% probability level, and most variables were of a station, what is widely considered to be an acceptable walking
significant at a 1% probability value. The influences of the explana- distance to transit in fairly low density, suburban-like settings such
tory variables are discussed below, organized according to the four as Santa Clara County (1). In a landscape of campus-style offices,
sets of explanatory variables. automobile-oriented retail strips, free and plentiful parking, and
super-block development, only those commercial parcels that are
within walking and often visual distance of stations are worth more
Rail and Highway Proximity per square foot; once the distance goes beyond about a 5-min walk,
the value-added effects from transit largely vanish. A policy impli-
Do proximity benefits vary by the type of transportation facility? To cation of this finding is that the benefits of TOD in settings such as
address that question, the effects of proximity to three types of Santa Clara County are likely to occur through densification, in-fill,
regional and subregional transportation facilities were studied: light and refill of sites fairly close to a rail station.
Cervero and Duncan Paper No. 02- 2273 13

TABLE 1 Descriptive Statistics and Definitions of Variables Used in Hedonic Price Model

Mean or Standard
Variable Proportion Deviation

Land Value: Commercial parcel land value per square foot ($, 1999) 17.51 16.32
Rail/Highway Proximity
LRT: within 1/4 mile of LRT station (1=yes; 0=no) 0.089 --
Commuter Rail: within 1/4 mile of CalTrain station for commercial uses in
business districts (1=yes; 0=no) 0.017 --
Freeway: within 1/2 mile of grade-separated freeway or highway interchange
(1=yes; 0=no) 0.313 --
Accessibility & Location
Regional Labor Force Accessibility: No. employed residents (in 100,000s)
within 45 min. peak-hour travel time on highway network 1,325,272 158,802
Downtown San Jose: within 1/4 mile of Santa Clara station LRT station in
downtown San Jose (1=yes; 0=no) 0.018 --
Density & Land Uses
Labor Force Density: No. employed residents per gross acre within one mile
radius of parcel 5.87 5.47
Non-Employed Resident Density: No. non-employed residents per gross acre
within one mile radius of parcel 5.20 2.67
Single-Family Housing Density: No. single-family housing units per gross acre
within one mile radius of parcel 2.06 0.77
Service Employment Density: No. service employees per gross acre within one
mile radius of parcel 3.23 2.29
Retail Employment Density: No. retail employees per gross acre within one
mile radius of parcel 1.17 0.52
Manufacturing Employment Density: No. manufacturing employees per gross
acre within one mile radius of parcel 1.52 0.84
Other Employment Density: No. other (not professional, service, retail,
manufacturing) employees per gross acre within one mile radius 1.69 0.84
Professional-Office Land Use (1=yes; 0=no) 0.415 --
Institutional Uses: Square feet of public and institutional building area per gross
acre within one mile radius of parcel 33.56 39.53
Neighborhood Quality Proxies
Building Values: Weighted average value of structures and improvements per
square foot ($, 1999) for all properties within one mile radius of parcel 72.24 13.81
Household Income: Mean household income (in $10,000, 1999) of households
within one mile radius of parcel 6.48 7.95

Table 2 also sheds light on the relative benefits of proximity to (particularly to reservoirs of affordable housing) of a slower-speed
light rail versus commuter rail. By far, the largest accessibility pre- light rail system that stops more often and occasionally operates in
mium accrued to commercial properties near CalTrain stations; mixed traffic.
however, this held only for commercial properties that were also in Although being near rail transit yielded measurable land-value
business districts. Parcels within 0.25 mi of a CalTrain station and benefits, somewhat surprisingly, the opposite relationship held for
in a business district were worth more than $25/ft2 than otherwise major roadway facilitiesbeing within 0.5 mi of a grade-separated
comparable properties away from stations. This finding may reflect freeway or expressway interchange was actually associated with
the affordable housing crisis that afflicts the Silicon Valley and its lower land values. (Because people access thoroughfares via motor
surroundings. To many employers, commuter rail lines function as vehicles, a more generous 0.5 mi, instead of a 0.25 mi, was used
conduits to affordable housing, helping not only to temper wages but to reflect immediate proximity to freeway or expressway inter-
also to recruit and retain workers. Being near a commuter rail stop changes.) The abundance of freeways and super-highways that
opens up affordable housing opportunities for a companys workers crisscross Santa Clara County may have diminished the value of
while also allowing many to arrive at work every day without hav- being right at a freeway or highway interchange. Indeed, regression
ing to fight traffic. In a competitive marketplace, land values tell us results likely reflect a disamenity effect associated with being too
how much this benefit is worth. close to a freeway. Although small retailers (such as gasoline sta-
By comparison, the capitalization benefits of being near LRT tions and fast-food chains) depend on exposure and visibility to
were smaller, about $4/ft2, than those associated with commuter rail attract pass-by traffic and impulse buyers, such commercial uses
in business districts. Generally, this benefit extended to parcels made up a relatively small share of Metroscan observations. Most
within a 0.25-mi distance for all station settings, whether or not sit- trips to professional offices, high-technology plants, and high-end
uated in business districts. Thus, a stand-alone office campus in a retailers, uses that made up the bulk of data cases, are planned;
largely single-use environment accrued appreciable land-value thus, such activities need not be immediate or even very close to
benefits when within walking distance of an LRT station, even interchanges. Model results suggest that the nuisance effect of
without commercial-retail and other uses nearby. The smaller pre- being near a freeway was a lowering of land values by nearly
mium may reflect the more modest regional accessibility benefits $2/ft2, all else being equal. As noted below, this finding should not
14 Paper No. 02- 2273 Transportation Research Record 1805

TABLE 2 Hedonic Price Model for Predicting Nonresidential Land commercial-retail uses benefit from having pools of employed res-
Values per Square Foot in Santa Clara County, California: idents and labor within 1 mi, both for purposes of forming potential
Professional, Office, Commercial-Retail, and customer bases (particularly in the case of retail) and for access to
Commercial-Business Parcels, 1998 and 1999 employees (particularly in the case of offices). However, once labor-
Standard force density is controlled, the density of nonemployed residents
Variable Coefficient Error Probability (presumably reflecting dependents and retirees) within 1 mi is neg-
Rail/Highway Proximity atively associated with value. To the degree these individuals live in
LRT station within 1/4 mile 4.062 1.711 .018 predominantly single-family settings, not-in-my-backyard resis-
CalTrain Station within 1/4 mile 25.430 3.289 .000 tance to the nearby presence of commercial uses could result in
Freeway within 1/2 mile -1.881 0.905 .038 depressing land values. This is further supported by the negative
Accessibility & Location
sign on the single-family housing density variable.
Regional Labor Force Accessibility 1.538 0.000 .000 A number of variables in Table 2 also shed light on how the use
Downtown San Jose 19.183 3.255 .000 characteristics of land within a 1-mi radius of commercial proper-
ties affected values. Having clusters of service employees nearby
Density & Land Uses
Labor Force Density 3.328 0.000 .000 was associated with higher parcel values, whereas higher densities
Non-Employed Resident Density -1.395 0.000 .000 of retail, manufacturing, and other jobs within a 1-mi radius tended
Single-Family Housing Density -6.092 0.000 .000
Service Employment Density 1.696 0.000 .000
to lower them. The service employment density variable can stand
Retail Employment Density -2.558 0.000 .050 as a proxy for the kinds of mixed-use activities that commercial
Manufacturing Employment Density -0.940 0.000 .001 properties and professional offices benefit from having nearby.
Other Employment Density -2.147 0.000 .002
Professional-Office Land Use 7.417 0.824 .000 Notably, white-collar offices and tech centers benefit from being
Institutional Uses 0.032 0.000 .013 close to the kinds of businesses that hire those in the service
employment category: consumer services, restaurants and eateries,
Neighborhood Quality Proxies
Building Values 0.086 0.034 .011
repair shops, health clubs, lodging, and the like. Being close to pub-
Household Income 1.410 0.000 .000 lic land uses such as child care, universities, and government build-
ings, as reflected by the institutional use variable in Table 2, also
Constant -20.022 4.119 .000
added to commercial values. These results hint at the kinds of activ-
Summary Statistics ities that cobenefit from each others presence, as expressed by real
No. observations = 1,197 estate markets: namely, consumer services, restaurants, day-care
F Statistic (prob.) = 32.798 (.000)
R-Squared = .308 centers, and the like that are fairly close to white- and pink-collar
workers.
NOTES: See Table 1 for variable definitions. Table 2 also reveals that, controlling for other factors, parcels
Land values used for model were in 1999 dollars. used for professional-office activities commanded a $7.41/ft2 value
premium over the other seven classes of commercial uses included
in this study. Irrespective of proximity to rail transit, regional acces-
sibility, or other factors, parcels zoned and used for professional and
be interpreted to mean that having good regional highway access white-collar activities were worth about 42% more than the typical
does not matter; although being near a freeway interchange did not commercial parcel studied.
enhance commercial-office land values, this says nothing about the
value of good connectivity to pools of labor via roadway networks.
Neighborhood Quality

Accessibility and Location As control variables, two proxies of neighborhood qualityaverage


building value and household income, both expressed within a 1-mi
Regression results lend support to the location, location, location radius of parcelsproved to be significant predictors. For every dol-
clich. The larger number of employed residents that can reach a lar increase in the mean value of buildings within 1 mi of a com-
parcel within a 45-min peak-period travel time over the regions mercial parcel, that parcels per-square-foot value increased by
highway network, the more a commercial property is worth. Also, about $0.08, all else being equal. And every $10,000 increase in
nonresidential parcels in and around downtown San Jose (defined as mean household income was associated with a $1.41/ft2 increase in
lying within 0.25 mi of the Santa Clara LRT station in the heart of sampled commercial parcels.
the central business district) were worth on average about $19 more
per square foot, controlling for other factors, including proximity to
rail transit. Excluded Variables

It is worth noting that a number of dummy variables that distin-


Density and Land Uses guished among land uses, city locations, and alternative commuter
rail services failed to improve the models predictive power and
The intensities and types of land uses within 1 mi of commercial thus did not enter the hedonic price equation. Of particular note,
properties were found to influence land values, although in varying although proximity to CalTrain commuter services yielded land-
ways. Having significant numbers of employed residents within value premiums, nearness to the countys ACE commuter rail sta-
1 mi increased values, whereas having nonemployed residents tions did not. The absence of benefits from being near ACE could
nearby exerted the opposite effect. This finding may be interpreted reflect the limited number of ACE stations ( just 3 compared with
as reflecting, indirectly, sociodemographic influences. Office and CalTrains 16 stations) in the county, as well as the fact that ACE
Cervero and Duncan Paper No. 02- 2273 15

services are fairly new, having started just in late 1998 and, accord- it. Thus, value capture stands as a potential source of revenue not
ingly, have not had enough time for meaningful accessibility bene- only to help pay off the debt on transit investments but also to pay
fits to accrue. for up-front and ancillary neighborhood improvements that can help
leverage TOD.

LESSONS FOR POLICY?


ACKNOWLEDGMENTS
In contrast to several previous studies on rail transits effects on
commercial properties, this research uncovered significant capital- This research was supported by a grant from the Urban Land Insti-
ization benefits. Being within walking distance of an LRT station in tute and the National Association of Realtors.
Santa Clara County increased land values on average by more than
$4, or by about 23% in relation to the mean per-square-foot value of
sampled commercial parcels of $17.51. And for properties in com- REFERENCES
mercial business districts and within 0.25 mi of a CalTrain com-
1. Bernick, M., and R. Cervero. Transit Villages for the 21st Century.
muter rail stop, the capitalization premium was even largermore McGraw-Hill, New York, 1997.
than $25/ft2, or more than 120% above the mean property value. 2. Calthorpe, P., and W. Fulton. Regional City: Planning for the End of
Besides the presence of appreciable capitalization benefits, sev- Sprawl. Island Press, Washington, D.C., 2001.
eral other findings have relevance to the practice of land use and 3. Cervero, R. Light Rail Transit and Urban Development. Journal of the
American Planning Association, Vol. 50, No. 2, 1984, pp. 133147.
TOD planning in fast-growing settings such as Santa Clara County. 4. Cervero, R. Rail Transit and Joint Development: Land Market Impacts
One, proximity to labor markets is important. High concentrations in Washington, D.C., and Atlanta. Journal of the American Planning
of employed residents within 1 mi of commercial propertiesan Association, Vol. 60, No. 1, 1994, pp. 8394.
acceptable cycling distance and potentially an acceptable walking 5. Landis, J., R. Cervero, and P. Hall. Transit Joint Development in the
distance when matched by attractive landscaping and streetscape USA: An Inventory and Policy Assessment. Environment and Planning
C, Vol. 9, No. 4, 1991, pp. 431452.
designswere associated with higher land values. This could reflect 6. McNeal, A., and R. Doggett. Metro Makes Its Mark. Urban Land,
the presence of a pent-up demand for niche-market housing in Vol. 58, No. 9, 1999, pp. 7881, 118.
traffic-congested high-technology employment settingsnotably, 7. Falcke, C. Study of BARTs Effects on Property Prices and Rents. Urban
housing targeted at young, childless professionals who are willing Mass Transportation Administration, U.S. Department of Transporta-
tion, 1978.
to give up living space in return for a walkable commute. Being near 8. Landis, J., S. Guathakurta, and M. Zhang. Capitalization of Trans-
services and public usessuch as restaurants, repair shops, pubs, portation Investments into Single-Family Home Prices. Working Paper
and child-care centersalso inflated commercial land values in 619. Institute of Urban and Regional Development, University of Cali-
Santa Clara County, suggesting a market demand for particular fornia, Berkeley, 1994.
combinations of urban activities. From a transportation standpoint, 9. Dunphy, R. Transit Trends. Urban Land, Vol. 60, No. 5, 2001,
pp. 7983.
having eateries and day-care centers near employment sites, espe- 10. Cambridge Systematics, Inc., R. Cervero, and D. Aschuer. TCRP Re-
cially those served by rail transit, can increase patronage because port 35: Economic Impact Analysis of Transit Investments: Guidebook
workers can more easily consolidate trips and take care of midday for Practitioners. National Academy Press, Transit Cooperative
activities (such as lunching at a restaurant) without needing a car. Research Program, Washington, D.C., 1998.
11. Damm, D., S. Lerman, E. Lerner-Lam, and J. Young. Response of
Although these research findings should be good news to com- Urban Real Estate Values in Anticipation of the Washington Metro.
mercial property owners with holdings near rail-transit stops and Journal of Transport Economics and Policy, Vol. 14, No. 3, 1980,
transit agencies trying to fend off legal suits by those who claim they pp. 2030.
are harmed by transits presence, local governments also have some- 12. Bollinger, C., K. Ihlanfeldt, and D. Bowes. Spatial Variation in Office
thing to gain from the findings of this and related research projects. Rents Within the Atlanta Region. Urban Studies, Vol. 35, No. 7, 1998,
pp. 10971117.
Notably, under the right conditions, local governments stand to cap- 13. Nelson, A. Transit Stations and Commercial Property Values: A Case
ture some of the value-added effects produced by public investment Study with Policy and Land Use Implications. Journal of Public Trans-
in rail transit, either indirectly through increased property tax pro- portation, Vol. 2, No. 3, 1999, pp. 7793.
ceeds or directly through programs such as benefit assessment, bet- 14. Weinstein, B., and T. Clower. The Initial Economic Impacts of the
DART LRT System. Center for Economic Development and Research,
terment taxes, or negotiated joint development initiatives (such as University of North Texas, Denton.
equity partnerships between developers and local governments). To 15. Landis, J., and D. Loutzenheiser. BART at 20: BART Access and Office
the degree that fair and equitable programs can be mounted, gov- Building Performance. Institute of Urban and Regional Development,
ernments have a lot to gain in sharing in some of the profits intro- University of California, Berkeley, 1995.
duced by new transit facilities. In particular, revenues gained 16. Weinberger, R. R. Commercial Property Values and Proximity to Light
Rail: Calculating Benefits with a Hedonic Price Model. Presented at the
through value capture can go toward leveraging TOD. Often, 79th Annual Meeting of the Transportation Research Board, Washing-
municipalities must take the lead in attracting private capital to rail ton, D.C., 2000.
station areas by sprucing up the neighborhood through improved 17. Weinberger, R. R. Light Rail Proximity: Benefit or Detriment?The
landscaping and urban design, by introducing complementary infra- Case of Santa Clara County, California. Presented at the 80th Annual
Meeting of the Transportation Research Board, Washington, D.C., 2001.
structure improvements (like sidewalks and the undergrounding of
utilities), and in the case of riskier settings, underwriting private- Publication of this paper sponsored by Committee on Transportation and Land
sector land acquisition costs. All of this takes money, often lots of Development.

You might also like