Property investors are always looking for a sign that an area is about to see an increase in property value. There are sophisticated ways that investors can predict these changes. Data sources are available that allow investors to get a sense of how the residents of an area might be changing, including demographic information from census data, foot traffic patterns from mobile location providers, and move-ins from truck rental and logistic companies. There are also a growing number of tools to help analyze all this data. But getting all of the information and making the analysis to inform an acquisition strategy is time-consuming and costly, making it only feasible for the largest full-time property acquisition teams.
Some investors have found a different way to understand the future of a neighborhood: following brands. By investing near newly opened retail locations, investors have found ways to forgo a huge amount of research and due diligence and instead piggyback on the work that each of these retailers usually does before choosing their next storefront. Retailers live and die by their site selection, so they have become some of the most sophisticated researchers when it comes to neighborhood demographics and trends. Certain retailers, like grocers, can actually change the trajectory of a neighborhood as well, accelerating the property appreciation that is likely already taking place.
A recent study by ATTOM Data Solutions on the “Grocery Store Battle” revealed how local grocery stores can impact surrounding home values. The study analyzed over 1,800 zip codes, examining current home values, estimated home price appreciation, national home equity averages, house flipping rates, and other factors. They found that properties near Trader Joe’s had an average ROI of 51 percent, those near Whole Foods had 41 percent, and properties near ALDI had 34 percent. Homes near Trader Joe’s also had higher homeowner equity, averaging about 37 percent compared to 31 percent near Whole Foods and 20 percent near ALDI.
But as much as Trader Joe’s seems to have a knack for affluent areas, ALDI seems to be optimizing for neighborhoods with upward mobility. For real estate investors, properties near ALDI were the most profitable for fix-and-flip investments, with an average ROI of 62 percent, compared to 35 percent near Whole Foods and 31 percent near Trader Joe’s. In terms of home price appreciation, homes near ALDI saw increases of 42 percent, while those near Trader Joe’s and Whole Foods saw increases of 33 percent and 31 percent, respectively.
Starbucks has also become a brand that seems to signify a changing neighborhood. The company has had one of the most rapidly expanding real estate portfolios in the past few decades. In 2000, it had around 3,500 stores; by 2020, it had expanded to almost ten times that with 32,500. So fast was its growth that researchers were able to see exactly where it had the most influence on property value. A study done by Zillow showed that properties closer to the coffee shop increased in value by 96 percent, compared to 65 percent for all U.S. residential properties. But that appreciation was not felt equally throughout the country; dense urban cities like Boston, Philadelphia, Washington D.C., Chicago, and Baltimore had the biggest property value increases after a Starbucks was opened within half a mile.
It isn’t always boutique grocers and expensive coffee shops that are able to find and influence changing neighborhoods. Walmart is often overlooked as a driver of change, particularly in rural areas. One interesting study used over one million housing transactions near 159 Walmarts that opened between 2000 and 2006 to test the common perception. Contrary to common complaints, the study found that new Walmart stores actually increased housing prices by 2-3 percent for houses within 0.5 miles and 1-2 percent for houses within 0.5-1 mile. Maybe we will start to see investment adjacent to newly announced Walmart stores as we do with Whole Foods.
While traditional data gathering for property investment is time-consuming and costly, following the presence of certain retailers offers investors and developers a viable shortcut. Retailers like Trader Joe’s, Whole Foods, and ALDI have been shown to positively influence property values. Even big box stores like Walmart, despite mixed perceptions, can enhance local housing prices. For investors, understanding these trends can provide valuable insights into making informed property investment decisions.