Omid Akale Discusses Unexpected Indicators of Property Price Growth – The Starbucks Effect

Omid Akale

June 12, 2021

Omid Akale Discusses Unexpected Indicators of Property Price Growth - The Starbucks Effect

Omid Akale with Twin Cities Portfolio Group says that informed buyers and real estate investment managers know that growth occurs in cycles that are broadly influenced by economic and political factors. Prices recover or surge upward in the first phase and then stabilize or dip over the following years. However, increased frequency of  

‘Black Swan’ events and outlier shocks such as the global pandemic interfere with the predictability of expected bell-shaped curve outcomes, often yielding surprising results.  

No less surprising is the emergence of notable, unexpected, and yet curiously predictable growth indicators, such as the Starbucks Effect.  

What Is Starbucks?  

Established in 1971, Starbucks has grown into the world’s most ubiquitous leading coffeehouse brand. With over 17,400 stores in 60 nations, the business’s rapid expansion is thanks to its aggressive ‘first mover’ strategy, paired with intelligent location selection, explained Omid Akale with TC Portfolio Group.  

Their success boosted the café industry and coffee brands globally, elevating the entire coffee category to its current premium lifestyle product status. Consumers drink around 2.25 billion cups of coffee daily, and 17 million per week are from sustainable recycled and recyclable  Starbucks coffee cups.  

What Is The Starbucks Effect?  

As Starbucks outlets began appearing across the US, Europe, and the rest of the world, real estate analysts such as Omid Akale with Twin Cities Portfolio Group started noticing an emerging pattern in property pricing data, with Starbucks outlets the common denominator.  

They found that properties within a quarter-mile radius of an outlet experienced a startling jump in value, while those beyond and elsewhere did not. One group of researchers noted that,  between 1997 and 2003, home values in proximity to Starbucks rose by 96% or more versus 65%  in surrounding areas.  

Duly named the Starbucks Effect, the phenomenon typically manifests within a year, and a  change in demographics and gentrification often accompany it, explained Omid Akale.  

What Is It About Starbucks?  

We know that dramatic property value appreciation or depreciation can occur with improved local infrastructures (such as new clinics, schools, or green areas) and substantial demographic shifts. Is the introduction of the Starbucks outlet the cause of this effect or a successful consequence?  

Does its contemporary and premium image create growth in property prices by lifting the perceived status of the area? Does its particular appeal attract a wealthier class of residents to the suburb, changing the area’s demographic? 

Omid Akale explained the most plausible hypothesis is that, through the mechanics of their ‘first mover’ advantage and location strategy, Starbucks is less likely the cause of the Starbucks Effect and more likely balancing on the crest of a wave that they cleverly saw coming before anyone else did.  

Ruthlessly scientific, the mega-brand chooses locations using high-tech Geographic Information  Systems (GIS), which layer and map demographic and suburb. Lasering in on sites with a median income of $600 000 or more, ages 18-40, low or no crime, high smartphone ownership, and proximity to business or industry centers with high daily traffic counts, Starbucks gurus pinpoint specific and visible corner locations with parking for a minimum of 25 vehicles.  

Our conclusion? Starbucks takes advantage of already up-and-coming areas where emerging affluence and prosperity allow them to flourish amid properties with prices already positioned for growth.  

For advice on tapping into and investing in these evolving neighborhoods, with or without a  Starbucks, contact Omid Akale with TC Portfolio Group today.