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The Starbucks Effect? An Explanation of the Real Estate Phenomenon

real estate, the starbucks effect
SergeyNivens on Deposit Photos

A new Starbucks location isn’t just a bat signal for coffee drinkers. It is also an indicator of growing real estate values in the area. Here’s an explanation of the “Starbucks effect.”

The actual effect on property values 

The “Starbucks effect” describes the phenomena of increasing home and property values in the neighborhoods surrounding a new Starbucks location. 

An article by Zillow claimed that if you lived within 0.25 miles of a Starbucks location, the value of your home would have grown by 96% from 1997 to 2014. If you live further out from the coffee giant, your home may have appreciated only 65%. The markets of Boston, Philadelphia, Chicago, Washington D.C. and Baltimore have seen the most growth

Harvard Business School found another trend worth noting. When a new Starbucks location shows up, homes in that zip code increase in value by 0.05% within just one year. 

A key indicator for neighborhood growth 

Harvard economist Edward Glaeser doesn’t believe that Starbucks has any real power over the real estate market. However, he said, “Starbucks locations are chosen by individuals with very good judgment about where the prices are going to increase.” The company’s analytics experts know how to successfully identify the income, demographic, economic trends and other neighborhood factors.

Starbucks has remained the largest coffee chain in the U.S. by finding the best locations and moving in first. This makes it possible to “maximize local market share” before other coffee retailers can make a move. Then, when a Starbucks store pops up in a new location, it’s a signal to property developers that the neighborhood is “on the rise.”

Gentrification and investing in real estate

When Starbucks moves into a neighborhood, the demographics of that area change. They tend to be younger, whiter and more educated than previous residents. Gentrification of this kind brings market growth and higher real estate values. However, critics of gentrification say that these moves force out the people who built these communities in the first place.

Do you live near a Starbucks? Have you seen an increase of stores in your neighborhood?

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