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The Value of Design in Real Estate Asset Pricing

Background Information

Architects require evidence to justify to their clients that investing in quality design and materials are beneficial for the financial performance of a real estate asset. Researchers from MIT’s Real Estate Innovation Lab studied the impact of formal features of the building, specifically how curvatures, setbacks, podiums and diagonal buildings impact transaction prices.


After studying 826 buildings with different architectural design features in New York City, and controlling for features such as transaction time, building class, property type, number of floors, if and when the property was renovated and building location, they were able to quantify how different building shapes lead to varying transaction prices.


They found that curvatures and podiums have a positive price impact of 15.9% and 14.6% respectively.

Map of Properties in NYC Studied

Conclusion

Architectural design clearly has a financial impact on real estate transaction prices and knowing which building types have a higher valuation on a per square foot basis can be very useful for real estate developers. Buildings with setbacks were shown to have a negative impact on transaction prices, and one speculation is that setting back the property leads to small and difficult floorplates to work with or rent.


Research on the value of design has been a struggle for academics and real estate professionals for years. SqareFeet.ai helps push the industry towards efficiency by quantifying, measuring and evaluating design attributes of your residential project. By quantifying location, building, and unit level design attributes, we can input the data into a model to efficiently price your project from beginning to end. As an architect or developer, you will gain in knowledge on how to design your project to optimize your revenue by improving unit and project level design.


Book a demo to learn more about how SquareFeet.ai optimizes revenue!


Source: Rong, H., Yang, J., Kang, M., & Chegut, A. (2020). The Value of Design in Real Estate Asset Pricing. SSRN Electronic Journal. doi:10.2139/ssrn.3582530


Photo Source: https://www.vikingmergers.com/blog/2016/samplecontent/


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