Scent of a housing boom

Real estate agents happy when Starbucks decides to open a new location in a neighbourhood in which they work. They say the upscale coffee chain's choice of where to locate is usually a harbinger of bidding wars to come.

From Monday's Globe and Mail - 1 May 2006

TORONTO On the northeast corner of Queen and Logan streets in Toronto's up-and-coming Leslieville neighbourhood, three men are demolishing a wall separating a pair of vacant storefronts and perhaps, unwittingly, raising the worth of nearby homes.

The construction workers are building a Starbucks Corp. café -- and anyone considering buying or selling a home in Canada's frothy real estate market would be wise to take note.

Market experts say the upscale coffee chain's choice of where to open its new stores is usually a harbinger of bidding wars to come.

"When I see a Starbucks going in, I rub my hands together because I know property values are going up," said real estate agent Diane Walton.

In what could be called the "Venti Indicator" (named for what Starbucks calls a large coffee), it is even more effective if one can anticipate well in advance where the company will go next. Ms. Walton said housing prices in Leslieville have nearly doubled in the past three years.

Starbucks is never on the leading edge of a dodgy neighbourhood turning the corner, but the company has the ability to solidify the process once it is under way. Starbucks first lets smaller, independent stores drive foot traffic to a future area.

When Starbucks arrives, it gives other name brand retailers the confidence to follow. Agents say the Venti Indicator can be taken as a sure sign of renaissance of a retail strip, one that will boost the price of surrounding houses.

"It means the area has arrived," said real estate agent Julie Kinnear, who is listing a house in Leslieville next week. "It's really positive for the market."

Starbucks now has more than 600 stores in Canada. They are not franchises. All are corporately controlled, meaning the company decides exactly where it expands.

"We do a kind of a master market mapping exercise where we'll take a whole city and we look at the traffic patterns and the demographics and we'll identify trade zone opportunities," said Starbucks Coffee Canada president Colin Moore.

When Starbucks arrives in a new city, it first opens locations in central financial business areas and then moves out to surrounding urban and suburban neighbourhoods. Starbucks usually begins in the richest residential spots but soon moves on to progressively edgier areas. Company executives work with networks of real estate brokers and agents, and when the coffee chain decides it wants to expand into a new "trade zone," it asks the real estate professionals to find the right location.

"Sometimes we're a little early, but that's okay. We're going to be in business for a long time," Mr. Moore said.

Starbucks favours corners. It also wants to be on the correct side of the street to catch commuters. "We're primarily a morning business so we like to be on the morning going-to-work side of the street instead of the going-home side," Mr. Moore said. The Leslieville store is a case in point, sited to scoop up those heading west to the city core.

The company is using the same approach in Calgary, which is still more of a Tim Hortons town despite the oil-rich city's "crazy" real estate market, according to agent Michelle Jones.

Starbucks has opened several locations in downtown Calgary near corporate head offices and in well-to-do outer suburbs. A more central location, the hip, affluent southwest neighbourhood of Mission, on the banks of the Elbow River, was one of the first to get a Starbucks.

"I'd say it probably increased that belt. But before Starbucks came, there were a lot of trendy little businesses," said local real estate agent Patricia Cranwell.

The emerging Inglewood neighbourhood where Ms. Cranwell lives could be next. Housing prices in the historic area have increased "outrageously" over the past few years.

"I think the first one that comes in and does it smart is going to find the red carpet laid out," she said.

Residents of Quebec and Nova Scotia might benefit most from the Venti Indicator. While Starbucks is well entrenched in Toronto and Vancouver, the company has yet to establish much of a presence east of Ontario, and has identified the region as an expansion target.

Toronto agents often cite a nearby Starbucks in newspaper ads selling homes. Some real estate companies encourage agents to meet prospective buyers at a Starbucks near the house they intend to bid on. "It's definitely a selling feature when your place is near a Starbucks," said Toronto agent Stephanie Cluett.

In the downtown's west end, the Drake Hotel spearheaded the revival of a gritty section of Queen Street. The popular restaurant and bar attracted other retail businesses to the area, including a Starbucks.

Not everyone was pleased. While under construction, the Starbucks was a frequent victim of a persistent graffiti artist who kept spray painting "Drake you ho, this is all your fault," on the store.

Meanwhile, Ms. Kinnear thinks about Toronto's rough-and-tumble Junction area where she also has a lot of clients. "I just keep praying that they put in a Starbucks."

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