In real estate terms, the Starbucks Effect and the Whole Foods effect refers to how property prices go up once one of these businesses moves into the neighborhood. But are they the cause of the gentrification, or just a reliable indicator that an area is already on the upswing? The answer is a little of both.
According to Urbanful, Whole Foods prioritizes education levels over income levels when it scouts for new locations. In other words, what a neighborhood will become rather than what it already is. Whole Foods looks for a baseline population of 200,000 college-educated people, but once it moves in, others more to follow.
Whole Foods Market P Street, in Washington D.C. (Photo: Facebook)
Slate reports that when the specialty grocer opened a store on P Street in Washington, D.C., its only neighbor was a divey rock club. That block now has several retail stores, two restaurants, and two coffee shops—one of which is a Starbucks.
Like Whole Foods, Starbucks is a strong indicator of a neighborhood’s ascent, especially when it comes to real-estate prices. According to Quartz, the closer you are to a Starbucks, the more valuable your property is. Between 1997 and 2014, the value of the average American home went up 65%. That number climbs to 80% if you’re located near a Dunkin’ Donuts, but if you’re within a quarter mile of a Starbucks, the value of your home nearly doubled to a 96% appreciation. Quartz calls this “The Frappucino Effect”:
How proximity to a Starbucks affects property values. (Photo: Quartz)
The lesson here for homebuyers is follow the specialty grocery store and coffee house. The initial investment is greater, but so is the return over time—plus, you’ll have nice groceries and a place where you can get WiFi in a pinch.