Does Agglomeration Enhance Property Value?

Does agglomeration within a building and/or neighborhood enhance or weaken property value? The valuation impact is unclear ex-ante, given that agglomeration trades-off enhanced productivity at the expense of a more concentrated tenant base. We find that a value premium exists only when agglomeration at both the building and neighborhood levels consists of firms in the same industry. This premium represents capitalized knowledge spillover externalities. Additionally, we show the stock market rewards REITs that transact specialized buildings. The valuation consequences arising from agglomeration in the underlying real estate market are thus consistent with the public real estate market.