Is the Starbucks Effect Real? No. Not Really.

In the past few weeks, there has been a story floating around the internet regarding the “Starbucks Effect” which was made famous in Spencer Rascoff's new book Zillow Talk. While it’s fun to consider, it is not entirely accurate when you look at the entire context around the concept.

When was the last time you were driving in the country and stopped at a Starbucks? My guess is never because Starbucks only puts their stores in urban locations.

The majority of Starbucks are in urban or suburban areas.  Appreciation and home values are higher in these areas than in rural areas.  This has little to do with Starbucks or any coffee maker and more to do with urban and suburban vs. rural.

Homes appreciate more in areas near Starbucks than Dunkin' but let’s simply take a Look at market demographics.  Dunkin' has a strong hold in small communities and also in more economically depressed areas such as parts of the Rust Belt that have not recovered in home prices yet due to major economic factors less than Dunkin' or Starbucks.  Also Starbucks has a higher profit per store and their ideal customer is a business executive or housewife buying a latte.  Dunkin' serves more of a blue collar crowd buying their entire lunch or breakfast.

This isn’t a matter of which franchise coffee store is best for real estate. It’s a matter of urban areas obviously having higher value than rural areas and a case of simple market demographics.

So can a Starbucks location be a good indicator of future real estate prices? Yes, it can. But you certainly shouldn't base a real estate investment on that alone.