How New Neighborhood Grocers and Other Amenities Could Boost Home Values
It’s no secret that area amenities can have an impact on the value of nearby real estate. The property market has always been about location, location, location. Sometimes, the way this shakes out can be unexpected.
Take grocery stores, for instance. While prospective home buyers might appreciate their favorite shops being close by, few would suspect the impact that such proximity can have, both on residential values and property appreciation.
In the retail industry, the grocery store segment is undergoing huge changes. Those changes, in turn, will affect local property values. For current home owners and potential home buyers, now is a good time to start paying attention to which stores are popping up in your neighborhood.
The New Neighborhood Grocer
In June of last year, online retail giant Amazon made headlines when it announced plans to buy Whole Foods Market, the upscale grocery chain. Amazon was already disrupting the grocery industry with its AmazonFresh grocery delivery service in select markets, but the deep-dive into the $800 billion U.S. grocery business looked to be a game-changer.
With about 400 U.S. grocery store locations, the local changes we could’ve expected from the Whole Foods acquisition were big on their own, particularly seeing as Whole Foods CEO John Mackey once said the brand could one day open 1,200 U.S. stores.
Even more competition is coming to the U.S. grocery market. Just a day before the Amazon announcement, Lidl, a no-frills German-based retailer, opened its first 10 U.S. locations to much fanfare. Bloomberg reports that already Lidl has captured three percent of the U.S. grocery market, with 47 stores so far, and plans for another 50 by this summer.
In close competition with Lidl is another German-based retailer, Aldi. Aldi has been in the U.S. since 1976 but is accelerating its growth. The retailer added 150 stores in 2017 for a total U.S. market share of six percent, with 1,750 stores. Even so, other, more established top retails, including Trader Joe’s, Walmart, Target, Kroger and others are competing for the same customer base.
For American consumers, these intensifying “grocery wars” mean more shopping choices, but for home owners, these store openings are likely to benefit area home values. Here’s how.
How Home Price Is Affected
In 2015, we looked at how local amenities could affect a home’s value. We noted then that property appreciation was slightly higher for homes near a Trader Joe’s or Whole Foods grocery. We even found that homes within a half-mile of a 24-hour Walmart could see an added value of two to three percent.
Interestingly, data has continued to show that proximity to a desirable grocery store impacts area home values. Research from Zillow, the online real estate portal, shows that homes near a Trader Joe’s and Whole Foods had a 2014 median value of $406,600 and $376,200, respectively, compared to a 2014 median home price of about $180,000. Intuition may suggest that these top retailers just chose the best neighborhoods for their store locations, but new data shows that’s not the case. The difference was most notable in property appreciation.
How Property Appreciation Is Boosted
Last year, Inman reported that homes near Whole Foods and Trader Joe’s appreciated 140 percent and 148 percent, respectively, over a 17-year period, for gains of more than eight percent annually. This growth in home value was nearly double the U.S. median of 71 percent over the same period, a 4.17 percent annual growth rate.
Moreover, it wasn’t because these areas were already booming. A Zillow study looking at the 24 months before and 36 months after store openings showed that nearby homes appreciated 4.5 percent more than the average home in such regions by the 18-month mark.
However, Trader Joe’s and Whole Foods weren’t alone. An ATTOM Data Solutions analysis from August 2017 found that property appreciation for homes near an Aldi store was also strong. While a five-year home price appreciation for Trader Joe’s was reported to be 67 percent, and Whole Foods was said to be 52 percent, Aldi was close behind with a home price appreciation of 51 percent for area home owners.
For investment property owners, Aldi neighborhoods were the smarter buy, boasting good returns at lower price points. The average gross-flipping return on investment (ROI) for homes near an Aldi was said to be 69 percent, while the average gross rental yield was 10 percent. Both figures outpaced those of homes near Trader Joe’s or Whole Foods. Considering the similarities of Lidl and Aldi, there’s a good chance that future data will also show the newest American grocery retailer having a positive effect on area home values.
The Effect Is Indirect
While the data is fairly consistent, it’s worth noting that these effects are often indirect. Appraisers won’t tally which stores are located near the home you’re selling, or the home you’re hoping to buy. Instead, property valuation looks at how other homes in the neighborhood are selling. The presence of desirable retail stores nearby helps contribute to these comparable listings selling well, which indirectly affects the value of a home in a particular neighborhood.
That being said, home owners and home buyers can certainly take a look around at the stores in their vicinity to get a sense of where their neighborhood stands compared to the competition. Home buyers may be able to find a deal that’s not only near their favorite chain, but that promises strong price growth over the long term.
The Value-Boosting Effects of Other Amenities
Of course, grocery stores aren’t alone in boosting area property values. Other studies have found a host of local amenities can positively impact home values. One report cited in the San Francisco Chronicle found that a small local independent movie theater could boost area home values anywhere from 14 to 30 percent.
Another Zillow report found that homes within a quarter-mile of a Starbucks coffee shop average values of 16 percentage points higher than the median value of all homes in the region. The effect was strongest in Boston, where homes near a Starbucks saw gains of 171 percent over a 16-year span, compared to 126 percent for all Boston homes.
Homes near big-box retailers like Target and Walmart can also get a boost. A RealtyTrac report shows that homes near a Target tend to see the biggest gains, with average price growth of 27 percent, compared to 22 percent for the national average.
Finally, if the results of Amazon’s Whole Foods venture are more nebulous at the moment, that’s not the case for the online retailer’s HQ2 project. For the yet-to-be-announced city that will host Amazon’s second full headquarters, dubbed HQ2, the results for home price gains could be huge.
Realtor.com noted the decision could turn a “second-tier” city into the next “super-hot” metropolis. Last year, we noted that median home prices in Seattle doubled in a short five years, from $350,000 to $700,000. As major employers flocked to the Dallas area, home prices spiked 56 percent from 2006 to 2016, compared to gains nationally of 19.8 percent.
For home owners and potential home owners, it’s a good idea to pay attention to your local neighborhood. Though the effect may be indirect, the data shows that some top retailers can boost your home values, even setting you up for faster price appreciation or a better opportunity for a piece of investment real estate.
Particularly in 2018, the grocery sector is where much of the action is. As Lidl and Aldi expand into the American market, nearby neighborhoods stand to profit. Meanwhile, Amazon’s next move with Whole Foods could boost values of homes near those stores. Even beyond the grocery industry, other retailers and business amenities can be a boon for area home owners well into the future.