Perth’s new café culture driving capital growth

Saturday, 8th Dec 2018
Categories: Market News, Newsletter

When researching potential investment properties and analysing what constitutes a good investment, it’s important to not only look at the immediate prospects of a suburb, but also at the long-term demand drivers that could influence property values in future. One of the fundamental factors that can influence demand to live or rent in a given suburb, and therefore the future sale or rental value of a property in that area, is the level of amenity on offer.

In recent years, our research team have seen an emerging trend in the Perth property market in the rising influence of new café strips on property values in their immediate localities. With buyers moving away from the idea of purchasing “just” a home and focusing instead on the lifestyle on offer within a given suburb, the increased level of amenity and the lifestyle perks that accompany these newly developed hubs are in turn creating fundamental growth opportunities for savvy investors who enter these markets at the right time.

Perth’s own “Starbucks effect”?

Cafe strip

The answer to what exactly is driving this trend essentially comes down to the evolving demands of modern buyers and tenants. With both owner-occupiers and renters prioritising lifestyle as well as the specific attributes of a given property, the ability to reside within walking distance of vibrant amenity is now becoming a non-negotiable for many when searching for potential properties.

This trend has become especially prevalent in Perth’s recent rental market, with softer market conditions giving tenants a greater than usual choice of prospective properties. And with many of these new-age café strips diversifying their service offering into a eclectic mix of cafes, bars, restaurants, shops and other entertainment-based uses, these round-the-clock activity hubs hold obvious appeal to modern demographics.

Whilst these new-age café strips have been introduced relatively recently to Perth, this trend itself isn’t new to the real estate industry. In fact, a similar premium already exists in the United States. Coined “the Starbucks effect”, studies have proven that residential property values in the US rise comparatively faster in an area within a quarter-mile radius of a Starbucks Café.

A key target for government spending

Whilst new café strips themselves can influence the growth prospects of their respective localities through the increased demand for living they generate as well as the boost they provide to the local economy, they can also help enhance the future growth prospects of these areas by providing a key trigger for future infrastructure upgrades.

The State Government has identified the expansion and diversification of these activity centres as a key target for government spending, resulting in greater levels of investment in these central hubs. This in turn brings further upgrades to amenity, further increasing the desirability to visit or live in the surrounding areas and driving both rental and house price growth as a result.

And it’s not just investor demand that rises – this new amenity will typically trigger rising demand from potential retailers. As rents increase, this then puts pressure on lower-use facilities to relocate, in turn attracting high-demand retail and commercial uses that can afford the higher rental rates. A key example of this in Perth has been the recent developments in Victoria Park with the push to remove aged car yards in response to demand for more retail and office spaces on Albany Highway.

Property selection is crucial

Whilst keeping a keen eye on the commercial markets and identifying early opportunities can be a strong strategy for property investors or owner-occupiers seeking a well-valued purchase with high on-sale value, capital growth in these areas isn’t guaranteed. When identifying potential properties, it’s still crucial to look at the property fundamentals to ensure the property the right growth drivers in place for the longer-term. Demand and supply factors still play a pivotal role in determining market values, so if a property type is oversupplied or a property doesn’t cater to the future needs of buyers or tenants, this will inevitably hinder the asset’s performance.

Momentum Wealth is a research-driven property investment consultancy dedicated to helping investors accelerate their wealth through property. If you would like more information on the Perth property market or would like to discuss your property needs with our dedicated property experts, we would be happy to discuss your needs in an obligation-free consultation.