The Walkability Premium in Commercial Real Estate Investments

TLDR

Walkability measures how easily a property’s surrounding area encourages walking for recreation or function. The article examines how walkability affects property values and investment returns. Using National Council of Real Estate Investment Fiduciaries and Walk Score data, the authors analyze over 4,200 office, apartment, retail, and industrial properties from 2001–2008 across the U.S. Higher walkability raised office, retail, and apartment values by 1–9% per 10‑point increase, lowered cap rates, and boosted incomes, but had no effect on industrial values or historical total returns; walkable properties can match or exceed returns when priced appropriately, so developers should pursue them only if additional costs do not erase the premium.

Abstract

This article examines the effects of walkability on property values and investment returns. Walkability is the degree to which an area within walking distance of a property encourages walking for recreational or functional purposes. We use data from the National Council of Real Estate Investment Fiduciaries and Walk Score to examine the effects of walkability on the market value and investment returns of more than 4,200 office, apartment, retail and industrial properties from 2001 to 2008 in the United States. We found that, all else being equal, the benefits of greater walkability were capitalized into higher office, retail and apartment values. We found no effect on industrial properties. On a 100‐point scale, a 10‐point increase in walkability increased values by 1–9%, depending on property type. We also found that walkability was associated with lower cap rates and higher incomes, suggesting it has been favored in both the capital asset and building space markets. Walkability had no significant effect on historical total investment returns. All walkable property types have the potential to generate returns as good as or better than less walkable properties, as long as they are priced correctly. Developers should be willing to develop more walkable properties as long as any additional cost for more walkable locations and related development expenses do not exhaust the walkability premium.