It will be more appropriate to call it demand for space rather than competition for space.
Also the reference to CBD (Central Business District) may be to one existing in some specific city, but in general all cities have areas with with high concentration of business related establishments such as offices, banks, and retail outlets. and restaurants. Some of such areas are explicitly called Central Business District by the local people. In other cities it may not be so. But the fact remains that in all such parts of cities characterized by high commercial activities the demand for space, and consequently property prices and rentals are high as compared to other locations in the city.
The property prices and rents of property in CBD are high because business establishment find it more convenient to do business from such locations, and also they expect higher business turnover operating from such location. Some, types of business establishments are also able to charge premium prices for their product because of being located in such places. Various ways in which being located in CBD helps business are described below.
- Fist and foremost reason is that such locations develops as CBD because of some locational advantage they offer to the businesses located there.
- Once a location has developed as a business district, it develops additional advantages because of having many establishments located there and becomes even more attractive location.
- Because many different business establishments are located in close proximity, people find that many different business establishment they need to visit in course of their business are within easy reach. Thus less time and effort is wasted in transportation.
- Because of concentration of many commercial establishment, there are many employees travelling to such places, and to cater to them good transport facilities to such locations develop.
- Similarly other facilities required by the businesses and the employees working there develop. These includes establishment like banks, post offices, restaurants, and stationery shops.
- Over a period such places acquire a prestige value. Thus a business having an office in such location is likely to be enjoy better reputation because of that.
- A well established business district has lot of people visiting it. This includes the employees working there as well as business visitors. Therefore, retail outlets there are likely to to get good business from all these people. Some retail establishments such as fast food joints do particularly good business in such places.