Big Box Store Closures & “The Starbucks Effect” on Real Estate Values

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When you choose a home to own or to rent, you are typically choosing a community along with amenities, like access to stores and shopping. But headlines are full of news about big stores closing. You might think it’s just an inconvenience, but those closures could also hurt home values.

Which big box stores are on the chopping block?

Macy’s, Walmart, Sears, and Kohl’s are among those announcing store closures. Those kinds of stores are typically anchor stores at malls, where consumers can get a good deal or a wide variety of choices. Mom and Pop stores are great, but when it comes to efficient shopping, who doesn’t want the option of going to a big box discount or department store?

Not as many people today as in the past, apparently! The real big box store is the internet, where buyers can search for anything they want in a matter of moments. And compare prices and reviews instantly. And if you like what you see, you’ll get it delivered in less than 24 hours in some cases. I still don’t know how Amazon does it, and I have no idea if their new drone delivery will ever work.

The economy is changing and so are buyer’s spending habits.

It used to be that real estate investors would follow the big box stores. We knew that these huge corporations did extensive studies on population growth and demographics. So if a Walmart was slated to be built in a certain area, we’d run in and buy investment properties nearby – knowing there would be tremendous demand for housing – not just from the employees but also from the studies that prompted corporations to build that new store.

Massive Anchor Store Closures & It’s Effect on Real Estate Values

In mid-January, Walmart announced 269 global closures. That number includes 154 locations in the U.S. So stores will shut down, and employees will lose jobs — employees who may be homeowners or tenants in nearby neighborhoods. In this case, some 16-thousand Walmart employees are being affected.

Sears Holding also announced more store closures for 2016. It owns both Sears and Kmart stores and is in the process of shuttering another 50. Macy’s announced 36 closures in 20 states. Office Depot, Office Max, Barnes & Noble, JC Penney, Walgreens can also be added to the list. These are all common names in the retail world that are eliminating underperforming stores this year.

And while retail executives are boosting their bottom lines, they could also be leaving some neighborhoods in the dust. Store closures can have a domino effect. First the big anchor stores fall, then smaller stores follow, and when a mall starts looking abandoned and desolate, the neighborhood becomes unattractive, and home values shrink.

So when you buy into a neighborhood, it’s good to see how the retail world is doing nearby. In addition to stores that may be “missing” or on their way out, you should look at the ones that make your neighborhood stronger — like a Starbucks. Those stores could actually “boost” your property value. There’s even a name for it. It’s called “The Starbucks Effect”.

The Starbucks Effect on Real Estate Values

Just last week, Zillow published its latest research on the “The Starbucks Effect”. The online real estate site says that between 1997 and 2014, homes within a quarter mile of a Starbucks increased an average 96% in value. That’s compared with a 65% increase in value for all homes in the U.S. Zillow came up with those figures by comparing home value data with a list of Starbucks locations.

And it isn’t just Starbucks. That phenomenon apparently holds true for Dunkin’ Donuts as well. But, the effect isn’t quite as strong. Zillow says homes near a Dunkin’ Donuts grew 80% in value on average, during the same time period.

Another interesting aspect to the story is where Starbucks had the biggest effect. The coffee chain is based in Seattle, but those coffee shops had the biggest effect on homes in the east.

Zillow says “The Starbucks Effect” boosted Boston values the most, by more than 45%. The other big winners were Philadelphia with a 31% gain, Washington D.C. and Chicago with 29%, and Baltimore with 24%.

Zillow research also shows that homes near specialty grocery stores, like Whole Foods and Trader Joes, appreciate faster. It claims that homes within 1 mile of those stores were actually worth double the value of homes that were farther away.

So when you are house hunting in a new area, stop in for a latte, and see what else is happening near you, in the retail world.

If you’d like a list of areas threatened by store closures and how it might affect real estate values, join the network!

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