A Study in Supply

By: Leanne Iorio & Natasha Franks

One basic law of economics is that low supply + high demand = high prices.  This equation perfectly captures the commercial real estate situation in St Andrews. Commercial property is undoubtedly in low supply in our town, with essentially only three available commercial streets.  Low supply can drive up prices, intensify competition, and make it difficult for small and one-off businesses with limited resources to thrive.

In St Andrews, the low supply of property is compounded by high demand.  Our small town of 20,000 has a very high number of temporary residents, most notably university students and golf tourists. Though still a relatively small university, St Andrews’ students and faculty represent a large portion of the town’s population.  As for golf, St Andrews is considered its ‘mecca’ and passionate golfers from around the globe flock here to fulfill their dream of playing the Old Course. These temporary residents drive up demand for goods and services, so there is more competition among businesses for commercial real estate.

A special feature of St Andrews’ temporary residents must also be considered: Students and tourists would typically be expected to be price sensitive, driving down consumer price points and ultimately lessening competition for local commercial property. Yet St Andrews’ students and golf tourists do not seem to fit that profile:  Due to recent royal graduates, an increasing number of international students who have the financial wherewithal to pay over £16,000 in tuition each year, plus the highest proportion (almost 60%) of financially independent students in the UK, the University has a reputation of being filled with posh students who spend liberally and are price inelastic. Such stereotypes have been reinforced when statistics such as the mere handful of enrolled students from impoverished backgrounds are juxtaposed with videos of students pouring expensive bottles of champagne over their heads or sporting offensive T-shirt slogans like ‘There’s Sand in my Champagne’.  While these stereotypes may not be true, they possibly entice high-end merchants in search of target customers, thus driving up prices of local real estate.  Meanwhile, golfers coming to St Andrews are atypical tourists both because of the prestige of the Old Course in particular, and because golf in general is a costly sport, most often associated with a high socioeconomic participant base. Whether it be an American retiree on a trip-of-a-lifetime holiday, a campaigning British politician, or a celebrity like Bill Murray, St Andrews’ golf tourists are typically price insensitive.

If price inelasticity among St Andrews’ temporary residents contributes to the town’s famously high commercial property rents, what does this mean for the range of businesses and commercial establishments in St Andrews?  Will commercial rents get so high that small, local businesses can no longer compete with large chains? Such could seem to be the case when considering local establishments such as Bibi’s Bakery and Bella Italia that have recently closed while more and more chains, from Pret a Manger to Domino’s, continue to open branches in St Andrews. On the other hand, some local haunts, like Janetta’s and Forgan’s, continue to flourish. Thus, it remains to be determined how the law of supply and demand will ultimately play out for St Andrews’ residents and for all its commercial ventures.

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