How Important is “Walk-Score” and Neighborhood Amenities to Traditional Office Buildings?
Walk Score measures the walkability of a property’s address using a patented system. For each property, Walk Score finds hundreds of walking routes to the nearest amenities. Points are assigned based on the distance to amenities in every category. Amenities that are within a 5-minute walk get maximum points. A decay function is applied to give points to more distant amenities, and no points are given after a 30-minute walk.
Walkability is the degree to which a walking distance encourages walking for functional or recreational purposes. It is of particular concern to investors, developers, and others interested in responsible and sustainable property investing because of its potential environmental and social benefits.
All walkable property types generate higher income and naturally have the potential to generate returns that are better than less walkable properties if they are priced correctly. Developers should be ready to develop more walkable properties if the additional cost for more walkable locations and other development expenses are not higher than the walkability premium.
It makes sense that people highly value the ability to take a stroll to a fitness center or a local coffee shop while on a break, and the data backs this sentiment up by showing a positive correlation between property values and walkability scores.
Walkable areas are some of the most sought after urban locations for employees and residents seeking unique experiences, convenience, and access to amenities, making them highly valuable to commercial real estate investors.
How Is Walkability Important for Commercial Real Estate?
Research shows that better walkability, together with proximity to public transit, has a positive effect on a number of commercial real estate metrics. A great Walk Score®, by which many people measure how walkable a particular neighborhood, address, and city are, correlates with an increase in rents, property values, retail sales, absorption, occupancy, and price resilience in downturns. There are high and ever-growing rental rate premiums for walkable urban, retail, office, and multi-family rentals throughout drivable suburban areas.
Changing preferences among both the baby boomer and millennial generations, which are all gravitating toward urban environments, have made these walkable developments popular. The popularity can also be explained by firms that leverage strong amenities and walkability to attract top talent, so they are willing to pay more for a highly-walkable space. What is perhaps most convenient for property investors is that there is still a significant lack of “highly-walkable” real estate supply across commercial properties in the U.S. This may be a promising investment opportunity.
Opportunity for Building More Walkable Real Estate
The U.S. could be described as “car-dependent.” Given the strong user desire for more walkable real estate and rising property values, one might conclude that more Americans would want access to this type of building and that commercial real estate values should respond accordingly. A good investment strategy focusing on walkability, together with real estate market fundamentals, may be a compelling opportunity for the right urban property and the right investor.
Do you need help understanding the “Walk-Score”? For more information, you can reach us at Joe@joekillinger.co