Medical Service Quality and Office Rent Premiums: Reputation Spillovers

Allen C. Goodman () and Brent C Smith ()
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Allen C. Goodman: Wayne State University
Brent C Smith: Virginia Commonwealth University

The Journal of Real Estate Finance and Economics, 2023, vol. 66, issue 3, No 4, 680-708

Abstract: Abstract Location spillovers are a common theme in real estate and urban economics research, but this is the first test on the relationship between hospital service quality and the demand for proximate medical office space. We hypothesize that hospitals with reputations for high quality service represent an opportunity for physicians, and other service providers, to benefit from reputation spillovers. Further, the reputation benefit is capitalized into the practices’ willingness to pay for proximate office locations, thereby driving up the rental rates for nearby space. We find that distance from, and overall quality ranking of the hospital, both independent and in concert, are significantly linked to the base rents. The degradation in rent with distance is significantly greater when the hospital is ranked high in overall service quality, supporting the notion that a rent premium is linked to the high-quality hospital rather than simply an artifact of the neighborhood.

Keywords: Medical office rents; Commercial property markets; Spillovers; Reputation effects (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11146-021-09855-z

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