Robust estimation of distance effects and sub‐optimality in mixed use buildings

Purpose – The aim of this paper is to investigate whether buyers and sellers appears to take distance to the capital business district (CBD) into account in their valuation for acquisition or disposition. Design/methodology/approach – Under a mono‐centric model conceptualization, applicable to the central area of many European cities, location can be represented by distance to the city center. The effect of several distance measures on selling price is investigated for income properties with mixed residential and commercial components – geometric distances, driving distance and time, and time by subway. Exponential and multiplicative models are considered and estimated using a robust estimation method. Findings – The findings indicate the mono‐centric model to be a useful conceptualization, that buyers and sellers of income properties do take distance into account, and that a number of buildings operate under a suboptimal split between residential and commercial components. Research limitations/implications – In social science even when a model shows good statistical fit, one will not know if it is correct, but only that it represents observed relationships well. Several models, however, may fit the data. The authors chose ones used by other researchers in similar investigations in past decades. Variable definition and measurement are always issues. In the present case “time by subway” is a mix of walking‐waiting‐riding and minutes in each activity would not be equivalent, involving inter‐personal comparisons of utility. The variable “effective age” based upon the assessment concept of “value year” may not fully capture age‐related effects on price. Practical implications – The key implications are that the multiplicative model may well be a suitable functional form for these types of analyses and that robust methods are important to prevent outliers in the data from having an undue influence on the estimation. Originality/value – The authors used robust estimation methods for the price models. The authors defined and studied a sub‐optimality ratio of residential area to commercial area in the mixed use buildings.