We’ve made it.
Such is the sentiment that washes over many a mind after learning that a Whole Foods or Trader Joe’s has decided to set up shop in the neighborhood. It is a commonly held belief that a neighborhood has “arrived” once it has been graced by the presence of one or both of these high-end natural food retailers. The same has been said for the arrival of a Starbucks. The thinking is that the coming of these vendors is an endorsement of a neighborhood’s status as legitimate, desirable, up-and-coming or sufficiently bourgeois. An extension of this line of thought is that there will be increased demand to live in the neighborhood, resulting in higher-than-average home price increases.
‘The Whole Foods Effect’
Several studies have been done to determine whether the so-called “Whole Foods Effect” or “Starbucks Effect” is real, and whether proximity does actually result in better appreciation for your most important asset. Perhaps the most recent, revealed in a new book titled Zillow Talk: Rewriting The Rules of Real Estate, shines some light on this phenomenon. According to Zillow, one to two years after a Whole Foods opens, the median home near the Whole Foods appreciates 9 percent more than the median home in the same city; one to two years after a Trader Joe’s opens, the median home near the Trader Joe’s appreciates 10 percent more than the median home in the same city. Zillow also tells us that the average home appreciated 71 percent between 1997 and 2014, while homes near a Whole Foods or Trader Joe’s appreciated 140 percent and 148 percent, respectively.
“The Whole Foods Effect” should be of particular interest to Miami-Dade and Broward County residents; we have had a significant influx of natural food retailers in the past year or so. Specifically, three Whole Foods and two Trader Joe’s locations have been opened in Miami-Dade and Broward counties since January 2015. If “The Whole Foods Effect” is real, then the areas near these locations should be primed for better-than-average real estate returns. In fact, they should have already started seeing better-than-average returns. And so we are presented with a great opportunity to test the “Effect.”
But testing the “Effect” is easier said than done. What exactly does “near” mean? If you live in Davie, perhaps you could say that “nearby” is a mile in any direction. If you live in downtown Miami, that mile is a lot denser and can be much more difficult to navigate … and your definition may be different. For the purposes of this article, we will be using transaction data based upon ZIP codes from Trendgraphix Inc., a provider of accurate local real estate market data. Of course, this isn’t a perfect system. There will be homes in a ZIP code that probably are not “near” the natural food retailer of the same ZIP code; there may be other homes that are “near” the retailer, but that are in a different ZIP code. That said, “near” is certainly vague and we will make do with the tools at our disposal.
Whole Foods opened a location in North Miami (ZIP code 33181) in 2013 and a new location in downtown Miami (ZIP code 33131) in 2015. According to Trendgraphix, the average sold price of homes in Miami-Dade rose 3.1 percent year-over-year for the period February 2015 to January 2016.
In the past year, average sold prices skyrocketed year-over-year in 33181 (North Miami) by 29.2 percent to $376,000. These numbers were likely skewed by abnormally large sales in July, which averaged $639,000; however, it was still a great year to be near Whole Foods North Miami. Somewhat surprisingly, despite adding a Whole Foods, 33131 (downtown Miami) failed to even keep pace with the Miami-Dade market, only seeing a year-over-year price increase of 2.4 percent. This is perhaps more of a reflection of the condo market slowdown that started last year.
In 2015, Broward saw a Whole Foods open in Pompano Beach, a Traders Joe’s open in Fort Lauderdale, and one of each open in Davie. According to Trendgraphix, the average sold price of homes in Broward rose 5.8 percent year-over-year for the period February 2015 to January 2016. Surprisingly, all three areas’ ZIP codes underperformed the larger Broward market.
Effect or Myth?
With the exception of North Miami’s 33181 and its more seasoned Whole Foods (built in 2013), all other local ZIP codes with new natural foods retailers underperformed their larger countywide markets. So, is “The Whole Foods Effect” a myth?
The case for the “Effect” is strong. According to Zillow, the nationwide numbers actually do pan out and validate the “Effect” (despite the numbers reported for our local market). It’s also a strong theory because it simply makes sense. People love these stores. People inundate the motherships with requests to open new stores in their neighborhoods. People pay more for the privilege of shopping at these stores and many feel better about themselves simply walking their aisles.
The unexpected numbers seen locally in the past year around the Miami-Dade and Broward natural foods stores probably have less to do with the validity of the “Effect” and more to do with the randomness of small sample sizes and the gradual effects of a general transition from seller’s market to buyer’s market.
There is still is a certain cachet associated with shopping at Whole Foods and Trader Joe’s. It is a cachet that people pay for at the register and it is not a cachet that should do anything but help the value of your home.