Homebuyers are about to get some serious coffee jitters.
Starbucks just closed hundreds of locations, and while that’s bad news for coffee drinkers, it could be even worse for the housing market.
The Seattle-based coffee chain shuttered over 400 locations in September after reporting six straight quarters of sales declines.
Closures spanned nearly all states, leaving people across the US uncaffeinated and raising questions about local economic health.
Starbucks closures can have a surprisingly big effect on housing markets.
This phenomenon is referred to as the ‘Starbucks effect,’ where the presence of the coffee chain is linked to increasing property values and an enhanced perception of neighborhood affluence.
Research from Zillow indicates that homes located within a quarter-mile of a Starbucks appreciated significantly faster than those situated farther away. Over a span of 17 years, these homes saw a 96 percent increase in value to $269,000, compared to a 65 percent increase to $168,000 for the average U.S. home. This trend suggests that Starbucks tends to establish locations in neighborhoods that are experiencing growth.
In a wider context, the term also captures how Starbucks promotes not just coffee, but a lifestyle. Its brand is designed to be aspirational, attracting consumers who are looking for comfort, community, and quality.
There is a similar concept tied to neighborhoods that have Whole Foods grocery stores.
The ‘Starbucks effect’ is a phenomenon where the coffee chain’s presence is associated rising property values and an increase in perceived affluence
With a grande latte now costing about $6, Starbucks’ popularity has become a quick indicator of how upscale a neighborhood has become
Similarly, when a Whole Foods opens in an area, it often leads to increased property values and rents. This is because the presence of the store signals an affluent, desirable area, thereby attracting more upscale developments and residents.
“Starbucks, like Whole Foods, has often been seen as a sign that a neighborhood has arrived,” Fort Lauderdale economist Michael Szanto told the Daily Mail.
A Zillow study found that homes in proximity to a Starbucks tend to experience faster value appreciation than those located further away, indicating that the coffee chain typically establishes operations in neighborhoods that are on the rise.
At the start of the study, in 1997, a typical home within a quarter-mile of a Starbucks sold for about $137,000, while those farther away averaged around $102,000.
But the gap only widened over time.
Seventeen years later, the average US home price had risen 65 percent to $168,000 — yet the homes near a Starbucks surged 96 percent to $269,000.
‘Homes near Starbucks over 17 years appreciated at 96 percent. Homes near Dunkin’ Donuts at 80 percent. And nationwide, home prices rose 65 percent,’ Zillow’s CEO Spencer Rascoff said.
With a grande latte now averaging around $6, the presence — and popularity — of Starbucks has become a shorthand for neighborhood affluence.
Starbucks has often been seen as a sign that a neighborhood has arrived. The effect is thought to be most obvious in small towns or city suburbs, where the arrival of a Starbucks – likely in a strop mall as in the photo – can have an outsized impact because it may be the only major coffee shop or gathering spot in the area
William Stern (pictured), CEO of financial service company Cardiff, said: ‘A Starbucks closing is the ultimate canary in the coal mine for a local housing market’
Though, William Stern, CEO of financial service company Cardiff, told the Daily Mail that the ‘Starbucks effect’ is often misunderstood.
‘A Starbucks opening doesn’t make a neighborhood valuable; it’s a signal from a data-driven giant that the neighborhood already is,’ he explained. ‘Their arrival is a confirmation of an existing trend, not the cause of a new one.’
The same reasoning applies when a Starbucks shuts down.
‘A Starbucks closing is the ultimate canary in the coal mine for a local housing market,’ he continued.
‘Their decision to leave isn’t a guess; it’s a data-driven declaration that the neighborhood’s economic fundamentals — foot traffic, disposable income, and future growth — are already in decline. They are telling you the party is over before anyone else has realized the music has stopped.’
Stern warns that buyers should take head when a neighborhood Starbucks closes: ‘For a potential homebuyer, a local Starbucks shutting down should be a five-alarm fire.’
He continued: ‘It’s a far more reliable indicator of a neighborhood’s future than any realtor’s pitch. It’s an undeniable signal that the commercial viability of the area is weakening, and residential property values are almost certain to follow.’
‘This isn’t just about coffee,’ Stern stated.
Brian Niccol (pictured), Starbucks’ top boss and Chipotle’s former leader, is trying to turn around the chain’s struggles
Fort Lauderdale economist Michael Szanto
‘When a company like Starbucks, with one of the most sophisticated commercial real estate teams in the world, begins ‘rapid mass closures,’ they are making a powerful macroeconomic forecast. They are betting that the consumer in those specific areas is getting weaker,’ he explained.
‘Homeowners in those neighborhoods should be paying very close attention.’
‘When a major national brand like Starbucks starts closing doors, people notice,’ Todd Drowlette, a real estate expert who once served as the youngest exclusive broker for Starbucks, told the Daily Mail.
‘It doesn’t tank a neighborhood overnight, but it can subtly shift the way buyers and renters perceive a neighborhood.’
He added: ‘For many buyers and renters, national brands signal convenience and familiarity.
‘A Starbucks isn’t necessarily the marker of an ‘exclusive’ neighborhood the way it might have been a decade ago, but it still communicates ease of access to everyday amenities.’
If a Starbucks closes down in a neighborhood, other brands may also follow suit.
‘Big brands often pay close attention to where other national brands are succeeding or struggling,’ Drowlette explained. ‘If multiple well-known brands scale back in the same area, it can create the perception of weakening demand, which may prompt other businesses to reconsider their own investment in the area.
Starbucks just closed hundreds of locations across the country amidst financial struggles
According to Drowlette, this can snowball and influence both commercial and residential confidence.
The Seattle-based giant gave no notice of the closures last month, causing chaos for employees, landlords, and customers.
The company laid off 900 workers just weeks earlier, which was its second round of mass layoffs this year, as part of a sweeping $1 billion restructuring plan.
Chief executive Brian Niccol said the cutbacks were ‘necessary to build a better, stronger and more resilient Starbucks.’
