The “Starbucks Effect”

You won’t find this in any real estate textbook, nor will it show up in any “investor’s guide to real estate.”

And while others may have noted this effect before, I’d like to think I’m one of the pioneers as I put this in writing.

Simply put: real estate is worth more if there is a Starbucks close by…

starbucks.jpg

Last week, we had our first baseball practice of the 2010 season.

I’ve been coaching a rowdy group of teenagers for the last four seasons, and I’m far from your typical coach.

Most kids expect to show up and see a father of 50-years-old with a cardigan sweater draped loosely over the shoulders of his other cardigan sweater, but “Pipes” shows up in baseball pants, stirrups, cleats, and a Chargers tank-top…

I usually start each season by reading “The Rules,” but I’m always sure to make note of one important fact that I point out to the rookies alone: I let them know how I take my coffee.

“Two creams, two sugars, and make sure you stir the coffee before you put on the lid!”  There is nothing worse than a rookie who doesn’t know how I like my coffee…

But I should note one other thing: I don’t like Starbucks.  In fact, I would go as far as to say that I genuinely hate Starbucks coffee!  It’s so strong that I have to put in all kinds of vanilla powder and maybe some chocolate and cinnamon just to make sure I can tolerate the taste.

However, the rest of the world seems to LOVE Starbucks coffee, so I accept that perhaps my taste buds aren’t as fully developed as those of Baron Von Coffeestrom, the infamous German coffee connoisseur by way of Antwerp…

I find that people over-use the term “gentrification” when it comes to real estate and residential neighbourhoods.

Put in one art shop and one flashy restaurant, and all of a sudden people say “This area is becoming soooooo gentrified!”

It takes a decade for an area to change completely.

Look at the King East neighbourhood where I live.

This area used to be full of derelicts and some of the buildings were literally “boarded up!”

A little over one decade ago, three condos were built in the area at 313-323 Richmond Street, 168 King Street, and 39 Jarvis Street.  These weren’t the first buildings in the area, but they helped bring in the first wave of residents that raved about “The St. Lawrence Market neighbourhood.”

Over time, the restaurants and brunch locales came in droves along with the art stores, furniture shops, and the odd ice cream parlour, and then a wave of new condominiums followed.

But it wasn’t until Starbucks moved in at the corner of George & King that the area was truly “gentrified.”

A Starbucks will increase the value of the area as a whole, but more specifically, if there is a condo across the street, you can guarantee that people will take closer notice.

Every listing I’ve ever had at 168 King Street has had a photo of Starbucks in the feature sheet.

Leslieville is another classic example of a “gentrified” area.

As the process is still underway, it’s rather interesting to see a high-class wine bar right next door to a coin-operated laundromat or chicken shack.  But sure enough, the Starbucks came along, and the area began to significantly change.

Thanks to www.leslieville.org for the following images.

Here is what the corer of Queen & Logan looked like in May of 2006:

queenlogan3.jpgAnd here is what it looked like in November of 2006:

queenlogan2.jpg

Feel free to walk by this Saturday afternoon and see how many people are seated on the patio and how many stroller-pushing couples are lined up inside to get their five-dollar-fix.

Let’s face it: any store would have looked better in this location than the boarded-up building.  But the Starbucks added credibility to the area.  It said, “This is a neighbourhood where people will spend $5 on a coffee.”

And who spends $5 on a coffee?

Who drinks Starbucks coffee?

People with money who buy expensive real estate in thriving residential areas.  And Leslieville can now be called a “gentrified” area.

Look at D.N.A. Condos at the corner of Shaw and King West.  For the longest time, this strip of King Street was a ghost town, save for the few condos that lined the streets.  Then Starbucks came along on the main floor of DNA Phase One and suddenly you see more people walking around, window shopping at G.N.C. and the few other retail outlets, and adding some foot traffic to the area.

The prices in DNA have also risen quite mightily in the past couple years.  Is there a correlation?

How many Starbucks locations are there in the Queen West area?

Well there’s a Starbucks at Queen & Bathurst in what used to be a very, very shady area of town.  But with the Big Bop and The Reverb closing, perhaps the very corner with police cameras could be on its way to gentrification?

The flagship “Queen West” Starbucks is found at Claremont Street next to Terroni.  This is a block from Trinity Bellwoods Park – the perfect place to walk around aimlessly with a Grande Latte and think about how much money you want to spend on a house on Euclid Avenue.

This strip of Queen Street used to be called “funky” and “artsy” and was compared to Yonge Street where stores had dime-bags as readily available as the cliche Scarface or Reservoir Dogs movie posters that every 20-year-old proudly displays in his or her dorm room or basement apartment.

But the “upscale” restaurants have started popping up with increasing frequency, and the price of houses on Manning, Gore Vale, and Crawford are at all time highs.

As you move along Queen Street towards Ossington Avenue (and past the mental hospital…) the action dies off a bit.  There’s a few “used appliance” stores where you can buy an old washer/dryer for $35, but once you get to Dovercourt, there it is – ANOTHER Starbucks!

And what do we find just west of the Starbucks on Queen Street at Dovercourt?  An absolute explosion of new condominiums!  Bohemian Embassy, West Side Lofts, 2 Gladstone, and no shortage of outstanding proposals from other developers.

Sure, there was action here long before Starbucks arrived.  Landmarks such as Drake Hotel and The Gladstone have always been here, but the area transitioned into places like The Social and when Nyood came along, I think we could firmly speculate that the “artsy” types had been driven out of the area by the gentrified types who like drinking Starbucks by day and buying $300 bottles at Nyood by night (after waiting an hour line in, of course…).

So call it coincidence, or tell me that I’m pointing out areas that were already hot before Starbucks arrived.

Maybe Starbucks joins the race in the 25th mile of the marathon.

But any way you look at it, you can’t argue that the presence of a Starbucks increases the value of real estate in the area.

It’s too bad their coffee can’t hold a candle to the good ole’ Canadian, Tim Hortons…

7 Comments

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  1. Sean says:

    haha! Our coffee time in Cabbagetown just closed!!! Wipppppeee home prices ! And the Starbucks is busier than ever! Even tho’ you get a better coffee at Jet Fuel across the street. Jet Fuel is also home to the grumpiest lesbian baristas in THE WORLD !

  2. Shawn Chong says:

    Thanks for this great article!

    It seems to me that obviously, Starbucks is joining the marathon in the 25th mile… but still, you’ve got to admit that it’s a really easy way to gauge the status of an area (they did the homework for you… and everyone else). Oh, and Kyle’s comment about the Coffee Time is hilarious!!!

    Now, on to talk about coffee. I would expect the cardigan-sweater-coach to be drinking a double-double… a real man drinks it black (i.e. me, haha). And honestly, Starbucks coffee really does taste better than any other coffee shop’s coffee due to the fact that they over-roast; it’s not always $5, really. I order a “tall” (akin to a Tim’s medium) coffee of the day for around $2. Tim Horton’s coffee tastes pretty horrible black (but is a good alternative once in a while), whereas Coffee Time’s brew is genuinely excellent. I don’t recall what Country Style’s is like.

    Anyway, even though you take your coffee double-double, this was a great article, thanks!

  3. WEB says:

    In the beaches, you can walk 1.2 KM and pass by 3 Starbucks.

  4. Krupo says:

    Fun fact, I’m in Costa Rica right now. In one of the best coffee growing areas in the world. Starbucks buys half the crop. And local experts say that Starbucks over-roasts their coffee – it’s better to have a medium roast from around here.

    @geoff = reflection

  5. David Fleming says:

    @ Kyle

    Good point! Think about Landsdowne/Dupont across from the “Chelsea Condominiums!” These are gorgeous condos but not only are they in the middle of nowhere, but they’re across from a Coffee Time (in addition to some very sketchy looking apartments)! Suffice it to say that those condos at 1375 Dupont aren’t selling very well…

  6. Kyle says:

    Couldn’t agree more, but you forgot to mention the counter effect – the dreaded Coffee Time effect. If there is a Coffee Time in your neighbourhood, you can pretty much rule out any appreciation in your home values.

  7. geoff says:

    So last year when Starburcks closed 600 stores in the US, did that cause the decline in real estate or was it a reflection of it?

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