Are more productive companies higher up?

Tall commercial buildings dominate city skylines. Nevertheless, despite decades of research on commercial real estate and horizontal patterns of urban development, vertical patterns have been largely ignored. We document that high productivity companies locate higher up, with less productive offices lower down and retail at ground level. These patterns reflect tradeoffs between street access and vertical amenities. Vertical rent gradients are non-monotonic, independent of nearby employment, and large. Doubling zipcode employment is associated with a 10.7% increase in rent, consistent with the presence of agglomeration economies. Moving up one floor has the same effect on rent as adding roughly 3,500 workers to a zipcode.

That is by Crocker H. Liu, Stuart S. Rosenthal, and William C. Strange, via the excellent Kevin Lewis.  I do get why the ground floor companies would have lower productivity, because they may be walk-in service sector outlets.  But otherwise, why might this relationship hold?  Is it that everyone wants to better view and the power office?  Is being “high up” high status per se?


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