Beyond the Latte: The Starbucks Effect on Real Estate and Community Growth

The "Starbucks effect" is the advantage that homeowners get when a new Starbucks or other high-end brand opens in their neighborhood. While it may sound like an illness from consuming caffeinated beverages, this is not the case. This small coffee shop has not only transformed into a successful worldwide brand but also continues to be one of the biggest catalysts for growth in the entire coffee industry. Before diving into the details, let’s explore how the term originated and examine the broader impact of such brand openings on local economies and real estate values.

Starbucks- A Seattle-based coffee empire

With an immense love for dark roasted coffee and a name inspired from classic literature, the founders of Starbucks had successfully created a space where people could come together to enjoy a premium coffee experience like no other. With Howard Shultz in the picture, a small start-up transformed into an 84-billion-dollar venture. Schultz understood that the key to success lay in the people who brought the brand to life - the employees. He thought prioritizing the well-being and comfort of his team would create a strong foundation for the company to expand. This philosophy not only shaped the culture at Starbucks but also fostered an exceptional customer relationship that has lasted them years. It is this unique synergy between great coffee and great people that sets Starbucks apart from the rest. Currently, Starbucks offers more than 87,000 drink combinations and numerous appetizers that do not hinder their “to-go” service. With its operations in more than 80 countries, this global coffee empire has over 30000 stores that function with the same aim “to inspire and nurture the human spirit — one person, one cup, and one neighborhood at a time”.

Breaking down the “effect”

Studies from various universities indicate that the “Starbucks effect” stimulates economic activity by drawing more business into the locality. The result of the effect is not just a boost in the local area but also a rise in job opportunities. However, residents worry about the hike in rent and prices with the added possibility of gentrification. The Starbucks-Johnson collaboration influenced the growth of startups by 29.7 percent, providing a community for locals to socialize and be innovative. Moreover, a study by Columbia University concludes that the Starbucks chain entering a neighborhood boosts entrepreneurship by 11.8 percent.

Going deeper into this, a study conducted by the real estate company "Zillow" claims that all homes located within a quarter of a mile of a Starbucks increase in value more quickly than those that are not. Starbucks conducts a thorough investigation before choosing a location, which may be one factor contributing to this effect. To determine the ideal site for their store, they meticulously examine and evaluate several variables, including foot traffic, income distribution, and population density. They are the primary indicator of gentrification in a location since their advanced tools anticipate it earlier than those of other businesses. The 96% appreciation in the properties near Starbucks outlets over the last 17 years has also been proven. Meanwhile, properties far away from it did not exceed the 65% mark. However, the brand cannot be given full credit for changing the economy. The opening of a new Starbucks is not the only reason for rising housing prices; it also signals the start of an economic boom.

Starbucks' ongoing ability to identify the greatest sites that are still underrated is rather amazing. By doing this, they establish themselves as the "first mover," which benefits them with a larger local market share and helps them stay one step ahead of their competition. The "Starbucks Effect" refers to the relationship that has been shown between rising property values and Starbucks.