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Commercial Real Estate

CRE Opinion: Real Estate Walks into A Bar…

But did they walk, bike, drive, or take public transportation to get there?
Chuck Dannis of National Valuations Consultants Inc.

Being prone to the copious use of metaphors, I don’t mind borrowing the most popular opening line to a joke when talking about real estate being “walkable.” In a 2011 study titled “The Walkability Premium in Commercial Real Estate Investments,” the authors define walkability as, “the degree to which an area within walking distance of a property encourages walking trips from the property to other destinations.” Simply put, the degree to which one can walk from where you are to where you want to be—and back again—defines just how walkable your real estate is, in relative terms.

While seemingly intuitive, this concept of walkability and its effect on real estate values is fairly new: Academics first started examining the effects in 2000. Then, in 2011, two well-known real estate professors (Gary Pivo and Jeffrey D. Fisher) published the aforementioned, peer reviewed research piece in “Real Estate Economics.” In short, they were able to prove, using a specific real property’s Walk Score, the difference in a property’s value based upon its individual Walk Score. That scoring system is a proprietary product widely accepted in the U.S.

Pivo and Fisher’s research was pretty conclusive: A property that had a Walk Score that was 10 points higher than another similar property saw a price increase of 1 percent to 9 percent—depending on a number of variables, including the property type.

Today, the well known real estate research firm of Real Capital Analytics publishes a “Walk Score Commercial Price Indices” that empirically shows the impact Walk Score has on property values. That current research suggests an even greater premium for higher Walk Scores than did the earlier research.

So, are Walk Scores important here in Dallas (long considered a car-dependent market)? The answer is obvious when you look at the most active and high priced neighborhoods in the Dallas area: Uptown, Preston Center, and Legacy (especially Legacy West). Uptown and Preston Center have evolved into their higher, walkable location status; Legacy was designed to be walkable from its inception; by most observations, it was well ahead of its time.

The advantages of being walkable (versus not being walkable, with levels in between) have now been empirically quantified and that data is readily available. The use of Walk Scores to assist in quantifying location differences lends objectivity to the process of comparing locations. The next question on this topic just might be about ten years down the road when driverless cars are prevalent. Why walk anywhere when you can sleep in the back seat on your way home?

So, the next time you are in a bar, and “real estate” (metaphorically speaking, of course) walks in, ask if he or she walked over, took public transit, or drove. The answer just may suggest an important neighborhood trend in real estate values.

Chuck Dannis is a senior managing director at National Valuation Consultants Inc. and has taught real estate at the SMU Cox School of Business since 1988.

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