Week 4: Firm Site Selection and Industrial land Use.Firm – Household LinkagesSources of Spatial data on Firms and employmentEmployment dispersal in Dallas CMSA ( see: Shukla and Waddell, RSUE, 1991)Employment decentralization in BostonMonocentric City: The Historic Central Business District (Location = rent competition between uses) With a “flat” rent gradient: Industries move to the edgeChicago Industrial rents on 6000 properties related to the distance of the property to Chicago’s CBDModern Industrial LocationIf residential rents look like this – then where do industrial properties locate?Urban Land Residuals: Residential, Office, Industrial useMIT OpenCourseWare http://ocw.mit.edu 11.433J / 15.021J Real Estate EconomicsFall 2008 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.MIT Center for Real EstateWeek 4: Firm Site Selection and Industrial land Use.• Households as a factor of production versus as a client.• Historic cities – commerce and industry at the Center. • Changes in Technology and Transportation.• Modern Industrial location.MIT Center for Real EstateFirm – Household Linkages• Firms sell products to workers - the friction is “shopping” or client visit transportation costs: Retail stores, “retail” services [insurance dealers, barber shops, retail brokerage offices…]• Firms sell products nationally and employ workers as a factor of production – the friction is the commuting of workersMIT Center for Real EstateSources of Spatial data on Firms and employment• Firms (IRS, SEC) versus Establishments (BLS, Census). SIC codes• Federal Establishment files (8 million)• State surveys (monthly, quarterly, annual)• Recent release of detailed data by Zip code – “a revolution”[http://www.census.gov/epcd/www/zipstats.html.]MIT Center for Real EstateEmployment dispersal in Dallas CMSA( see: Shukla and Waddell, RSUE, 1991)Courtesy of Elsevier Science BV, from Regional Science and Urban Economics. Used with permission.MIT Center for Real EstateEmployment decentralization in BostonBoston, City Boston, SuburbsEmployment Category 1970 1980 1990 2000 1970 1980 1990 2000Private Non-Agricultural 496,548 492,095 539,720 613,385 1,046,936 1,334,948 1,648,863 1,888,350 Mining 180 129 267 (D) 682 1,187 1,513 (D) Construction 23,159 12,589 14,967 20,803 64,156 59,336 87,537 112,173 Manufacturing 68,078 55,830 34,603 30,071 316,318 367,345 303,883 247,888 Transportation and public utilities 45,458 39,890 38,187 40,911 45,581 55,618 64,333 75,222 Wholesale trade 45,170 31,622 21,706 19,106 56,164 83,974 111,097 116,793 Retail trade 87,315 65,420 67,507 72,227 214,694 263,779 312,328 331,863 Finance, insurance, and real estate 76,743 76,991 94,534 108,413 60,812 97,491 130,903 157,846 Services 150,445 209,624 267,949 321,854 288,529 406,218 637,269 845,450MIT Center for Real EstateMonocentric City: The Historic Central Business District(Location = rent competition between uses)m b Distance (d)Land Rentrf(d)r (d)Firms(CBD)ResidentsraMIT Center for Real Estate1). Profit/unit output (π)π = [S –AC –sd] -rf(d)/QS = sale price/unitAC = average cost (inc. capital)s = shipping cost to portd = distance to portrf(d)= firm rent per acreQ = units of output per acreIn equilibrium profits must be fixed across locations.MIT Center for Real Estate2). Rent that yields Equal profit.rf(d) = [S – AC – sd - π]*Q3). Slope of firm rent function:∂rf/ ∂d= -s*Q4). Historic changes in s, Q.- From carts to water to rail to truck- from 6 story lofts to single story Sheds5). A “Flat” Industrial Rent Gradient?[Buttimer and Rutherford]MIT Center for Real EstateWith a “flat” rent gradient:Industries move to the edgem1 m2 b distance (d)Land RentCBDResidentsIndustriesServicesraMIT Center for Real EstateChicago Industrial rents on 6000 properties related to the distance of the property to Chicago’s CBDChart Titley = 2.8046x + 464.62R2 = 0.0187050010001500200025000 1020304050607080Rent Linear (Rent)MIT Center for Real EstateModern Industrial LocationWhy do industries locate:- Next to Highways- Next to Airports or seaports- On land that is recycled, wet, or marginalBut also:- In areas already developed.- Near to population?[Shukla-Waddell, Struyk-James]MIT Center for Real EstateIf residential rents look like this – then where do industrial properties locate?Land RentDistance from HighwayPositive Value of AccessNegative Value of ProximityIndustrial rentResidential rentMIT Center for Real EstateUrban Land Residuals: Residential, Office, Industrial useLocation Residual Component F P C pIndustrial .40 45 30 6.0 Office (mid rise) 3.0 250 200 150.0 Town House 1.5 200 175 37.0 SF Housing .35 250 150 35.0 Sales data from the Internet, Costs from RS Means,