Theories of Rent and Urban Economics

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Table of Contents

Introduction
Theories of rent and urban economics
UK Map and Central London Data Table
Patterns in office rents
Conclusion
References

Introduction

Modern urban areas can be defined and critically discussed from various perspectives. Diverse theories that define urban development do exist. The purpose of this study is to examine the various theories employed in urban economics and how the theories affect urban development in the United Kingdom. The approach used evaluates how policies that characterize modern urban business environment are employed.

The study interprets how land rates are used in ensuring that office rent charges are clearly understood and the market’s office rent fair charges are effectively defined.

In the study, global points of view are used to explain how land rates help to determine the level of efficiency and cost effectiveness in the manner in which urban areas are developed and how the rental fees for offices in metropolitan areas are determined (McCann 2001: 6-15).

Housing in urban areas defines the relevance and economic standards of how best land rates, leases and rents are defined and implemented. Most housing policies help to shape the dynamics and relevance of various aspects of land use and the degree to which urban land rates shape the rent rates and operational standards of housing units.

Imperfect competition in real estate businesses greatly contributes to the ever increasing dynamics of various business processes in the allocation, selling and leasing of offices (Capello & Nijkamp 2004; DiStefano 2012: 8-38).

Theories of rent and urban economics

Different theories on rent do exist. The rent theory explains the manner in which land rents vary based on the use, environment and period of existence and geographical location of the property in question.

The determination of land rents is also influenced by the location and office features that are on the land or their proximity to the land. Theories of rent explain that office rent prices are economic indicators that help to produce the best and most cost effective possible use and location of the available scarce resources (DiStefano 2012: 7-12).

With reference to office rents in the United Kingdom, the theories of rent and urban economics are based on the understanding that marginal utility of offices is equivalent to both marginal cost and office rents.

According to the early theories of economics established by Adam Smith that also relate to the concept of the World of Nations, the value of land and the actual rent charged for an office space is highly dependent on the location, fertility and accessibility of the land in question.

On the other hand, Ricardo’s explanation on fertility and economic productivity indicates that factors of production and allocation of income are based on capital, land and labour.

However, Ricardo’s theory on varying property rent indicates that property rent should only be paid to the landlord based on the property’s actual use, safety and proper utilisation of the powers of the soil and not of the property such as offices that may have been built on the land.

This theory also reinforces the fact that office rents should be determined by the standards and actual stipulations made by the national markets and not necessarily the patterns of distribution of the office property in a given area (Armson & Ison 2003).

The urban economic theory is an important premise that defines the extent to which urban land uses are determined. It also determines the manner in which land rates are formulated with respect to the need for the enhancement of fair and cost effective land rate standards. The urban economic theory reveals unique principles and operational ‑

standards that could be used to enhance wellness and urban dwellers’ wellbeing besides addressing various concerns of land economics and uniquely identifying concepts of land economics. The urban economic theory also gives parameters within which concerns that relate to the cost of housing units and office spaces could be determined.

Interestingly, the theories of office rent and urban economics do not explicitly specify the relevance of understanding of office rents in relationship to the level of infrastructure development, security levels and the economic activities that take place in a given area. This theory defines the economic manner in which land use and rates are determined based on the actual size of the city.

The urban theoretical framework aligned to this theory defines the preferred “actual” definition of urban centres based on their uses, land rates, pricing of rent and rates and economic aspects of the city lands (Capello & Nijkamp 2004).

UK Map and Central London Data Table

As evident in the ardent and in-depth study of the Collier UK office rents geographical locations and physical map, national land rates are charged in respect to office rents and are determined based on a number of overriding factors. Interestingly, there is a uniform pattern in the rent rates of offices in the country. South East, West London, Yorkshire and North West have some uniqueness in the pattern of rent rates.

Highly populated sections with superb infrastructure and good society and development standards indicate the existence of high office rents. However, the rents could also be based on the developments in the surrounding areas and the likelihood of future developments or possible transformation in the manner in which land is likely to be used (Menzel & Harvey 2011: 73-91).

As indicated in the local area data, both England and Wales have a total rateable value of £14,092 and floor space value of 92,720 thousands square meters. If assessed based on the different regions that make up the Wales and England sections, it is evident that office rent charges are highly dependent on the actual location of an office or given property.

With the exclusion of Scotland, England and Wales represent very rich sections in terms of their significant populations and the overall office rents’ values.

Based on the office patterns on the Collier UK floor space and office rents map, it is apparent that appraisal, letting out, acquisition and selling of offices are based on the rent rates, the value and expected returns for the use of office space. Office locations in Central London record declines in their availability and thus indicate a slow level of business.

Office vacancies in less central locations such as Belgravia, Southbank, Marylebone, Holborn and Victoria have increased due to the poor living standards, dwindling infrastructural development and lack of economic developments. The West’s highest rents for units that are more than 10,000 square feet have continued to increase to more than 11 percentage points per year.

There has been a decline in office demand and space across most London states. The increase in London office rents could be attributed to the ever increasing number of private overseas business tycoons who have continued to have profound interest in engaging in real estate businesses and thus controlling London’s mercantile investment market.

In England for example, the 2012 local area data on office rents indicates that cities such as Tyne and Wear, Newcastle, Manchester, Lancashire, Merseyside, West ‑ Yorkshire, Birmingham, Cambridge shire, Essex, Hertfordshire, Inner London, Camden, Islington, Tower Hamlets, Outer London, Hampshire, Kent, Surrey, and Bristol City have the highest rateable values.

In the views of Armson and Ison (2003), a number of economic factors contribute to the differences in the rateable and floor space value and the actual cost of office rents in relation to the floor spaces. Existence of popular sporting activities in these areas is one such factor that improves their demand and overall popularity in the real estate market.

Strategic location of most cities, counties, and municipal centres highly enhances their overall value of office rents. Such values are highly controlled by the degree to which the economic, political and social activities that take place in such locations contribute to the country’s gross domestic product.

This partly explains the reason why towns or cities such as Monmouthshire, Merthyr Tudful, Isle of Anglesey, Purbeck, Weymouth and Portland, Torridge, High Peak, Richmondshire, Isles of Scilly UA, Rother, and Maldon have extremely low office rents and that their floor spaces have very unfavourable valuation in the market.

The economic importance associated with a given area in England and Wales plays a fundamental role in shaping the business value associated with offices, floor spaces and administrative regions (Smith & Licari 2011: 56-73).

Patterns in office rents

As outlined by Von Thune, office rents highly depend on the accessibility of the offices in question, the transport and other related infrastructural developments in the area. In most of the cases in real estate industry, monocentric cities are controlled by the actual infrastructural development and land use strategies being implemented (DiStefano 2012: 4-13).

It therefore follows that office rent payment is influenced by the reliability and tolerance of existing high rise working classes, levels of savings by the high class people in society, government policies being implemented in line with a country’s building and construction industry and accessibility to broadened pool of labour. Telecommunication influences the office rents in a number of ways.

In instances where telecommunication is well enhanced, office functions could be split into many subsections in order to enhance the level of efficiency and cost effectiveness in conducting one’s official duties. Telecommunication boosts accessibility and thus creates a public appeal for the offices in an area.

Management strategies also influence the degree to which an office would be located or chosen not based on the amount to be paid as the rental fee amount but rather on the need to enhance easy contact and wellbeing of the managers, employees, clients and other key stakeholders (Stewart 2010; Patricia 2010).

Office rents in England and Wales are partly determined by market patterns formed and controlled by free market that entails interaction of landlords and clients. A shift in demand of office spaces is highly influenced by the availability of office services. Imperfect competition in the market often increases office rents.

According to Harvey, J and Jowsey (2003: 32-43), many other external factors of production also influence office rent patterns. Theories of rent acknowledge the existence and need of the rental prices being implemented and the offices being allocated to different users in order to reduce the risk levels.

Landlords in England only charge office rents that would assure them of reasonable returns on the invested capital. Though not explained to clients, office rents paid by clients often include both ground rents and land rents. Most people ‑

in London choose their offices first and foremost based on their convenience and the ability of the office location to compliment other aspects of their daily chores and not necessarily on the rent being charged. Concentric zones attract a relatively high rent level.

The vital information on office rents found on the Colliers UK Map helps to explain the extent to which wealth creation and distribution of wealth among the British population is highly dependent on a number of factors. Some of the factors include wealth distribution in the country, population density, economic development strategies and government policies.

Such factors are critical to the source and distribution of wealth as evident from the country’s GDP status (Armson & Ison 2003: 11-27).The office rents’ concept therefore explains the level of preference of different state regions and the type of business endeavours taking place in such regions.

There has not been a major or sudden increase in the rent values in both Wales and England. Many infrastructural developments have been witnessed in various cities and towns.

This fact could partly be attributed to the fall in transport costs, weakened agglomerations that have increased rent in suburban locations and the increased level of efficiency and cost effectiveness in business operations in peripheral and suburban regions.

The economic implication of such an approach could be defined based on the level of productivity, efficiency and relevance of housing units and office quality being offered (Moeller 2007: 26-38).The dynamics and growth levels of most United Kingdom office rents could also be explained by the nature of business activities that take place in such areas.

In most instances, urban development and unique sports events are crucial as they help to boost the degree of relevance of the amounts paid as office rental fees. It is therefore clear that the urban rates of most urban and city centres are mostly influenced by the increasing popularity and other secondary demands of such areas.

Interesting, the information revealed by the Colliers UK Map and the detailed city rents stated in the Central London Data Table are vital mechanisms of enhancing better understanding of the urban land development strategies.

As a pattern of office rents in the United Kingdom and as explained by various relevant theories, it is evident that office rents in the United Kingdom are also highly dependent on how big or broad they are and the duration for which the city has been in existence. Towns that have been in existence for a very long time tend to have high office rents.

As revealed by various economic theories and the data on the Colliers UK Map and the Central London Data Table, the length of time a town has been in existence is quite significant to the actual urban development strategy. Large cities such as Manchester, Newcastle, Birmingham, Cambridgeshire, Essex, Hertfordshire and London have very high office rents.

Though partly due to their proximity to most industrial stations, McCann (2001: 18-32) is of the view that the cities have a historical background that is very relevant to the lives of most people. Moreover, the cities have continued to act as hubs for most urban development strategies and government activities taking place in the United Kingdom. Interestingly, the cities have also been in existence for a relatively long span of time.

In line with Ricardo’s explanation on land use and economic fertility and productivity, the explanation on real estate developments in the United Kingdom indicates that factors of production and allocation of income are dependent on capital, land and labour. As a result, land rates and the cost of hiring offices either on a short or ‑

long term basis is highly dependent on the estimated valuation of land and the actual land and office space valuation (Menzel & Harvey 2011: 18-24). This implies that the patterns of land rents highly depend on the fertility levels and economic productivity of the land in question. Service offices that have no upfront costs underlie the relevance and significance of office spaces in the United Kingdom.

Nonetheless, suburban rents in the United Kingdom have increasingly been falling in line with the country’s overall office values. Office rents in Bryant Park in 2012 were $ 78.29 for a square of office space. Rather than focus on the many shortcomings that face the United Kingdom office rents’ patterns, it is evident from the analysis of various research data that office rents in the UK real estate marketplace are quite high.

It is also evident that uniformity in addressing office rent charges is dependent on a number of issues. For some landlords, the rent paid by the tenants for the office space often does not include cleaning and electrical charges. Asking fee for office rents also depends on the amount of money charged for the actual office rent.

Very few “down town” metropolitan areas in the United Kingdom can afford to offer good office spaces whose costs and products are of superior standards. Hubs of upgraded suburban flats in the UK have continued to be translated into office stations while others have been taken by big local and international corporations and small and medium scale enterprises (Patricia 2010).

An example of the upgraded flats is the Bryant Park Office Centre that has been transformed into a superb business centre and an upgraded office centre in the Midtown Manhattan Metropolitan District. This trend has been similar and stable.

Conclusion

Urban land economics is an important aspect of urban development which has a profound impact on the rate and degree of urban development. Urban economics gives a detailed focus on the need for office rents in the UK to be aligned to the value and magnitude of urban development.

For instance, in the United Kingdom, office rents for offices that are located near most football stadiums and other popular sporting centres have led to a major increase in land rates.

The cost of renting offices and that of other forms of accommodation are highly influenced by the proximity of such offices to popular public recreational facilities (Samuelson 1983). Office space in London is highly expected to remain very high although there has been little change in the economic development and infrastructural expansion.

Lack of space for expansion in most London and other UK cities could be the reason why the rental fees have continued to rise. In spite of the existence of various strategies of acquiring cheaper office rental space in the UK, the cities of London and Manchester in particular have increasingly faced a lot of economic stress and tribulations with regard to the acquisition of offices.

As explained above, the situation related to high cost of office space in the UK has continued to be worsened by the increasing hardship in possible acquisition of one’s own building either on a lease basis or on a long term rental basis.

References

Armson, R & Ison, R 2003, Juggeling with complexity: searching for a system, Springer Publishers, The Open University.

Capello, R & Nijkamp, P 2004, Urban Dynamics and Growth: Advances in Urban Economics, Elsvier Inc, Amsterdam.

DiStefano, J N 2012, Suburban rents fall with office values, Philadephia Media Network Inc, Exon Corporate Centre.

Harvey, J & Jowsey, E 2003, Urban Land Economics, 6th Ed, Palgrave, Basingstoke.

McCann, P 2001, Urban and Regional Economics, Oxford University Press, Oxford.

Menzel, D & Harvey, W 2011, The State of Public Administration: Issues, Challenges and Opportunity, M E Sharpe, New York.

Moeller, R 2007, COSO Enterprise Risk Management: Understanding the New Integrated ERM Framework, John Wiley Sons Inc, New Jersey.

Patricia, E 2010, The Cambridge Illustrated History of China, Cambridge, 2^nd Ed., 45-147, Cambridge University Press, London.

Samuelson, P 1983, Foundations of Economic Analysis, Enlarged Edition, Harvard University Press, Boston. Web.

Smith, K & Licari, M J 2011, Public Administration – Power and Politics in the Fourth Branch of Government, Cengage Learning, Connecticut.

Stewart, M 2010, The Management Myth: Debunking Modern Business Philosophy, W. W. Norton Limited, London.

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