Real estate investors are always on the lookout for signs that property values in an area are likely to rise. There are sophisticated ways investors can predict these changes. Data sources are available that allow investors to understand how an area's population is changing, such as demographic information from census data, foot traffic patterns from mobile location providers, and tenants from truck rental and logistics companies. There are also a growing number of tools to help analyze all this data. But obtaining all this information, conducting the analysis, and developing an acquisition strategy is time-consuming and expensive, and only feasible for the largest full-time real estate acquisition teams.
Some investors have found another way to understand a neighborhood's future: by following the brands. By investing near newly opened retailers, investors have found a way to skip the extensive research and due diligence and instead piggyback on the work each retailer typically does before selecting their next store. Retailers live and die by their location choices, making them some of the most sophisticated students of neighborhood demographics and trends. Certain retailers, such as grocery stores, can actually change the trajectory of a neighborhood, accelerating any real estate value appreciation that may already be occurring.
A recent “Battle of the Grocery Stores” study by ATTOM Data Solutions revealed how local grocery stores affect surrounding home values. The study analyzed over 1,800 zip codes, looking at current home prices, estimated home price appreciation, national home equity averages, home resale rates, and other factors. They found that properties near Trader Joe's had an average ROI of 51 percent, properties near Whole Foods had an average ROI of 41 percent, and properties near ALDI had an average ROI of 34 percent. Homes near Trader Joe's also had higher home equity values, averaging about 37 percent, compared to 31 percent for homes near Whole Foods and 20 percent for homes near ALDI.
But just as Trader Joe's has often found success in affluent neighborhoods, ALDI appears to optimize for upwardly mobile neighborhoods. For real estate investors, properties near ALDI are the most profitable investments to fix up and resell, with an average ROI of 62 percent compared to 35 percent around Whole Foods and 31 percent around Trader Joe's. In terms of home price appreciation, homes near ALDI have increased 42 percent compared to 33 percent and 31 percent around Trader Joe's and Whole Foods, respectively.
Starbucks has also become a symbol of changing neighborhoods. The company has been one of the fastest-growing real estate portfolios in decades. It went from about 3,500 stores in 2000 to 32,500 stores in 2020, nearly 10 times that number. Its growth has been so rapid that researchers have been able to pinpoint exactly where it has had the biggest impact on real estate values. A study conducted by Zillow found that properties near coffee shops increased in value by 96%, compared to 65% for U.S. residential properties overall. But that increase in value has not been felt equally across the country, with densely populated cities such as Boston, Philadelphia, Washington DC, Chicago and Baltimore seeing the biggest increases in property values after Starbucks opened within a half-mile of each other.
It is not necessarily only boutique grocers and upscale coffee shops that can spot and influence changing neighborhoods. Walmarts are often overlooked as a driver of change, especially in rural areas. One interesting study tested public perceptions using over one million home transactions that took place near 159 Walmarts that opened between 2000 and 2006. Contrary to common complaints, the study found that new Walmart stores increased home prices by 2-3% for homes within a half mile, and 1-2% for homes within a half-mile to one mile. As with Whole Foods, we may start to see investments in the immediate vicinity of newly announced Walmart stores.
Traditional data collection for real estate investment is time-consuming and expensive, but tracking the presence of specific retailers can provide a practical shortcut for investors and developers. Retailers such as Trader Joe's, Whole Foods, and ALDI have been found to have a positive impact on real estate values. Even big box stores such as Walmart can boost local home prices, despite mixed perceptions. For investors, understanding these trends provides valuable insight to make informed real estate investment decisions.