Starbucks Broke the First Rule of Real Estate

by Julie Broad

Starbucks Coffee

Starbucks Coffee

It’s ALWAYS about location, location, location. When the real estate market is hot people often forget this golden rule of real estate. They think any piece of land or any piece of property will make them money. When the market cools, all of those decisions made without discipline come back to haunt them. Looks like Starbucks is feeling the pain…

From the New York Times Article discussing the 600 store closings:

Starbucks misjudged the risks of putting stores close to each other, leading to the decline in same-store sales that the company started reporting for the first time in its history this year.

It also overextended itself in certain regions, like in the South and in Southern California, which are among the hardest hit by the housing crisis, and whose older demographics and hot weather are not generally conducive to creating long lines of customers eager to pay $4 for foam-top lattes.

With the tightening of Starbucks real estate decisions what I’ve said in the past is probably even more true – if you aren’t sure what area you want to make your real estate investment in (especially one in residential or retail property), look for the new Starbucks Area. I’ve been watching them move into emerging markets in Toronto, all over Alberta and B.C. They often are in an area before I’d want to live there, but then within 6 – 12 months you’ll find that area is the next place to be. They’ve proven to me, on many occasions, that they make solid real estate decisions. And the fact that they are now suffering from some lax decisions in real estate means their “game” will only be played stronger in the days to come.

So follow Starbucks if you are unsure of the next emerging neighbourhood. When you hear there is a Starbucks going in, that might be an area to investigate further. But before you buy up whatever you can ensure that it makes sense with your other investing goals and then enjoy the positive improvements in that area, and hopefully in your property value!

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Filed under investing, real estate

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