The bid rent theory describes how the price and demand for land changes with distance from the central business district. Land users like retailers, offices, and residents compete for the most accessible land in the CBD, and are willing to pay the highest "bid rent" for it. While industry is willing to pay to locate in the outer core for more land and transportation benefits. The bid rent generally decreases as distance from the CBD increases, as shown by the negatively sloped bid rent curve, due to rising transportation costs. Case studies in Bhopal and Los Angeles found industrial land prices were higher when transportation access and linkages were better.

1. BID RENT THEORY
MANUFACTURING
REAL ESTATE
ASSIGNMENT II
SAHIL KULSHRESHTHA KAUSTAV RITWIK AASTHA SETHI YASH SONGARA ASHWINI KHANANDE
027 031 032 034 035

2. CONTENTS
 INTRODUCTION
 BID RENT: MANUFACTURING
 CLASSIC EXAMPLE
 BID RENT CURVE: ALTER
 CASE STUDY: BHOPAL
 CASE STUDY: LOS ANGELES

3. • The bid rent theory is a geographical economic theory that refers to
how the price and demand for land changes as the distance from
the central business district (CBD) increases.
• This theory is based upon the reasoning that the more accessible
an area, more is the price.
• Land users, whether they be retail, office, or residential, all
compete for the most accessible land within the CBD.
• Price of land is land rent, a periodic payment to a landowner. This is
sensible because many other economic variables are expressed as
periodic payments, including household income, firm profits, and
interest payments.
• The amount they are willing to pay is called bid rent. This can
generally be shown in a "bid rent curve", based on the reasoning
that the most accessible land, generally in the centre, is the most
expensive land.
INTRODUCTION

4. • Industry, however, is willing to pay to be in the outer core. There is more land available for factories,
but it still has many of the benefits of the inner core, such as a marketplace and good
transportation linkages.
• As the basic purpose of these units is to export the finished good or raw materials to the consumers
throughout the city, the price of land for manufacturing is rather decided by the access to road
network.
• As one goes farther out, the land becomes less attractive to industry because of the reducing
transportation linkages and a decreasing marketplace. Hence, a firm’s bid rent for land decreases as
the distance from highway decreases.
BID-RENT: MANUFACTURING

5. Distance Total
Revenue
Producti
on Cost
Freight
Cost
Site Area
(ha)
Bid Rent
0 25000 13000 0 2 6000
1 25000 13000 2000 2 5000
2 25000 13000 4000 2 4000
3 25000 13000 6000 2 3000
6000
4000
62
(Total Revenue- Nonland Production cost- Freight Cost)
Quantity of Land
• Here, output is 5 units, each costing Rs. 5000.
• The freight cost is Rs. 400 per unit.
CLASSIC EXAMPLE

6. 6000
4000
62
• Price adjust to generate locational equilibrium.
• Differences in freight costs are compensated by
differences in land rent.
• The manufacturing bid rent curve is negatively sloped,
reflecting rising freight cost as the firm moves away
from the highway and the market.
Rising Freight Cost
CLASSIC EXAMPLE

7. Is the Bid-rent curve always
linear?
• Bid rent curve for manufacturing not always
linear.
• It can also be concave if the production
function is flexible.
• This is because, as the factory approaches the
center, it saves from distance and also from
utilizing less of other resources as well.
BID-RENT CURVE: ALTER

8. • When the Old city of Bhopal was formed, the CBD was located in the core of the city i.e New Market
and M.P Nagar.
• Due to this, the influence of CBD was seen in nearby areas and then came up industries like BHEL in
proximity to M.P Nagar and New Market.
• BHEL currently provides 60-65% of economy to the city .
• This is because BHEL has good transportation linkages (SH 46) with the city and periphery as well and
also it is well linked with the market place in the city. The industrial areas is lso closely related to
Ayodhya Bypass road.
• After the coming up of BHEL, many small scale industries came up.
• These are Govindpura industries which cater BHEL.
• Thus, a whole industrial area was developed due to proper linkages with the CBD and efficient
transport connections.
CASE STUDY: BHOPAL

9. • In 1995, a case study was conducted by Sivitanidou and Sivitanidus exploring the spatial variation in
the industrial rent.
• They measured industrial rent as the annual rent per square feet of industrial space.
• Rent was high in industrial areas with relatively high freeway density and higher in areas close to the
intersection of major highways.
• Moreover, rent was higher for industrial site close to a major airport.
• This shows the more prominent the communication mode is, higher is the rent.
CASE STUDY: LOS ANGELES

10. Thank You