Retail and Place Attractiveness: The Effects of Big-Box Entry on Property Values

Abstract

The opponents of big-box entry argue that large retail establishments generate a variety of negative externalities. The advocates, on the contrary, argue that access to a large retail market not only delivers direct economic benefits, but also a variety of positive spill-over effects, and therefore, can be considered a consumer amenity that increases the attractiveness of the entry location. To test the validity of these competing arguments, we use the entry of IKEA in Sweden as a quasi-experiment and investigate if increased access to retail is associated with place attractiveness, where attractiveness is proxied by residential property values. We find that entry by IKEA increases prices of the properties sold in the entry cities by, on average, 4.2% or 62,980 SEK (approximately 6,600 USD), but such an effect is statistically insignificant for the properties in the immediate vicinity of the new IKEA retail trade area. We also observe an attenuation of the effect with distance from the new IKEA store, where the properties located 10 km away experience a 2% price increase. Our results indicate that large retailers have the potential to increase place attractiveness, but perhaps not in the immediate vicinity of the new establishment.