Commercial Real Estate and Air Pollution

63 Pages Posted: 31 Jan 2023 Last revised: 31 Oct 2023

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

Cornell SC Johnson College of Business

Lyndsey Rolheiser

York University - Schulich School of Business

Alex Van de Minne

University of Connecticut - School of Business

Date Written: September 9, 2023

Abstract

We analyze the causal effect of air pollution (acute fine particulate matter) exposure on the commercial real estate (CRE) market. We instrument for air pollution using changes in local wind direction to find that an increase in fine particulate matter exposure leads to a contemporaneous decrease in CRE market values and (net) income as well as an increase in capital expenditures. Heterogeneous treatment analysis uncovers that the negative effect on market values is concentrated in the office sector, consistent with the notion that air pollution-induced decreases in CRE values are driven by a reduction in CRE assets' productive capacity. Additionally, we document that the negative impact on (net) income is concentrated in the apartment sector, which is consistent with a broad set of local dis-amenity mechanisms identified in previous residential real estate literature.

Keywords: PM2.5, commercial real estate pricing, pollution, instrumental variables

JEL Classification: R32, C26, I1

Suggested Citation

Cvijanovic, Dragana and Rolheiser, Lyndsey and Van de Minne, Alex, Commercial Real Estate and Air Pollution (September 9, 2023). University of Connecticut School of Business Research Paper No. 23-01, Available at SSRN: https://ssrn.com/abstract=4339586 or http://dx.doi.org/10.2139/ssrn.4339586

Dragana Cvijanovic

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Lyndsey Rolheiser

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Alex Van de Minne (Contact Author)

University of Connecticut - School of Business ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

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