How Developers can Make More Money and Urban Design can Improve by Exploiting Vertical Rent Curves
It has always amazed me that many developers, those veritable profit
maximizers, don’t understand that neo-urbanist principles can improve
their returns while at the same time making them better city-builders
and I suppose better corporate citizens. For example, most of them don’t
know that there is a vertical rent curve in most towns and cities as well as a horizontal one.
In its simplest terms, as you go out from a city centre, rents drop
and as you go up at many points within the urban fabric, rents increase.
Moving outwards from a typical city centre, density drops,
opportunity for interaction (jobs, entertainment, education, synergy,…)
decreases and transportation links become less available, and rents drop
accordingly. Meanwhile, people ‘downtown’, whether in offices or
residential condo towers, prefer to be higher up and will pay more for
better views, less noise and pollution and, as my Aussie friends call
it, higher poser value*.
(* Donald Trump is famous for ‘floor inflation’. He claims that the
first few floors of many of his towers, including the Trump Tower in
NYC, are so grandiose and volumetric that he is justified in
re-labeling, say, the 12th floor as the 20th. It also allows him to
charge higher prices since the ’20th’ floor is perceived to be more
valuable than the 12th even if their actual elevations above grade are
It is the latter rent curve (the vertical one) that is often poorly understood by industry.
I took a photo this morning (it is July 6, 2011 as I write this) on
my way to work of a pretty ugly apartment tower at the corner of
Iroquois and Carling in Ottawa ON. It is across the street from the
Carlingwood Mall in an improving part of town. It has become quite the
desirable area to live in as more folks in Ottawa have realized that
being closer to work has its advantages*.
(* That includes my wife and I. Recently, we sold our 7-bedroom
suburban home and bought a small condo not far away from the Carlingwood
Mall; it’s close to the Ottawa River and walking distance, for me, to
Ugly Apartment Building
The first three storeys are used for a parking garage and the podium
facing the street is a blank wall: it quashes street life, denigrates
the area, lowers public safety and is basically a throw away by the
developer in terms of its economic value. It defies almost all the
principles of neo-urbanism and sound city building.
Here’s another look at the whole tower:
Vertical Rent Curve Degenerating at Grade
Now what if the developer had instead used the volume at grade for
front facing, two storey towns or perhaps for office condos or retail
shops with what I call a window-on-the-world (WOW) effect (which is
actually made up of portals overlooking and access to and from street
level)? Would public safety improve? Would the walkable nature of the
City improve? Would the developer make more dough? Would Buyers/Renters
have more options and greater choice? Would the City be made more
lovely? Yes to all these questions…
I superimposed (rather clumsily I admit) some towns on the building:
Towns at Grade
Wouldn’t you rather see a version of this than a blank wall? So message to builder: there’s a renovation in your future.
I drew rent curves for two conditions (see below). The first (in
yellow) shows the notional rent curve for a typical condo or apartment
tower that ignores the potential for street facing uses at grade. All
units are inward facing and rents just drop secularly from penthouse to
grade: the closer the Buyer or Renter gets to grade, the more noise and
pollution they have to put up with, the worse their views are and the
more perceived security risk there is. Hence, they expect and actually
do pay less.
If instead, the developer used street facing townhomes or other built
forms that take advantage of direct access to the public room, you
could achieve higher rents and better urban spaces. If you have a young
family, wouldn’t you rather have a street facing town that you and your
kids can get out of through a front door? Or if you are running your
architecture practice from one of these towns, wouldn’t you rather have
clients come to your own front door? And how nice would it be to have
your own street facing sign for identification and 24/7 promotion…
Here is what that rent curve might look like (in red):
Rent Curves for Two Different Conditions of Built Form
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