Walkability is Stepping Back into Commercial Real Estate Valuation Spotlight
If you did a quick Google search on Enrique Peñalosa, you might not find him to be a terribly influential thinker. Sure, he’s a celebrity in his own right, he served as the mayor of Bogotá, Colombia in 1998-2001 and again in 2016-2019, but he gets misquoted a lot. Whether it’s due to mistranslation or laziness, Peñalosa is quoted in various research blogs with fortune-cookie platitudes like “great public space is like magic, it’s almost happiness itself.” That’s not what he said, in fact, that’s not even how he speaks. Peñalosa stretches and curls his words, transforming something as unexciting as infrastructure planning into pure poetry. What Peñalosa actually said was “quality pedestrian public space is a magical good, whose capacity to render joy does not wear out.” For Peñalosa, designing top-notch sidewalks and pedestrianizing the streets are the most crucial components of effective urban planning. Mounting evidence of a direct link between walkability and commercial real estate economics is echoing that sentiment, even with taking the pandemic’s lopsided impact on the real estate market into account.
Research in the past indicated that improved walkability, especially when it comes to proximity to public transit, has a favorable impact on a variety of commercial real estate metrics. In 2015, Real Capital Analytics, a commercial real estate data and analytic company, launched its own Walk Score Commercial Property Price Indices. The Walk Score is a single comparative proxy that qualifies the price value of walkability from any property to nearby amenities that a person would need to access on an average day. On a scale from nil-100, a good Walk Score is generally anything 70 or higher. Anything above a 90 is considered a “walker’s paradise,” which means that most daily errands can be achieved on foot, so there’s no need for a car.
What they have found is that the higher the Walk Score, the higher the property values, rent pricing, retail revenues, absorption rate, and resilience in economic downturns. “Walkability matters,” said Robert White, RCA’s Founder, “as prices for commercial properties in highly walkable locations show significantly greater appreciation trends than car-dependent locations. The findings cut across both urban and suburban locales, large and small markets, and each of the office, retail, and apartment sectors.”
That said, walkability isn’t a one-to-one ratio of success. Walk scores are not perfect when it comes to determining actual walkability. Calculations of walk scores rely so heavily on proximity, it can give a false impression of how easy it is to get around on foot. You might technically be a stone’s throw away from a grocery store, but if that grocery store is on the other side of a freeway with no sidewalks, the Walk Score won’t factor that into the area’s overall score.
But even with the caveats, Dr. Mariela Alfonzo, who earned her Ph.D. in Urban Planning/Design from UC Irvine, estimated that a 10-point increase in the Walk Score was associated with a 5-8 percent increase in commercial values. Furthermore, in comparing approximate values from a location with low walkability and a location with high walkability, Alfonzo saw a $37 per square foot increase for office rents, a $30 increase for retail rents, and a $1281 per unit increase for residential rents. “Walkability is ‘driving’ more than just demand. It is translating into real dollars and cents,” she playfully wrote.
Another point that Alfonzo makes is that transit “enters the equation as well, with a more than 40 percent premium on property values within walking distance of a transit system.” Commercial properties that sit within a half-mile radius of public transit services had a higher median sales price compared to those that were located further away, according to joint research by the American Public Transportation Association (APTA) and the National Association of Realtors (NAR ) in 2019. The findings emphasize the benefits of developing near transit that directly impact the increase in property value, such as the capacity for individuals to access more jobs and attractions, as well as the fact that parking places for automobiles take up less area.
But access to public transit doesn’t tell the full story. The quality of urban transit systems also affects real estate values. Speed, consistency, a passenger information system that displays arrival times in real time, comfort, handicap accessibility, and cleanliness all factor into transit’s quality. The higher the quantity of quality transit system services in an urban area, the higher the active and passive accessibility of the area, and the higher the average real estate values.
A few months before APTA and NAR’s published their findings, Amazon infamously bailed on building its second headquarters in Long Island City, Queens. The location seemed ideal because of its proximity to New York City’s subway system, especially after the city raised the possibility of building a new subway station near the new headquarters. But New York City’s subway is notorious for delays thanks to its antiquated switchboard technology (which hasn’t been updated since the 1930s) and outmoded subway cars. The woefully imprecise system leads to a vicious cycle of overcrowding and malfunctions on a daily basis. New Yorkers weren’t thrilled with the idea of 25,000 Amazon employees cramming into an already strained system, and Amazon quickly realized that adding a new station wouldn’t be enough to make an unreliable transit system reliable. When it comes to transportation, proximity isn’t everything. Walkability to public transit can, literally, only take you so far if the transit you walk to isn’t reliable.
The pandemic changed the conversation. Prior, the discourse around walkability seemed to focus on urban markets. As the ensuing lockdowns cast people away from their offices, causing a mass exodus from cities as people realized they wanted more space, suburban real estate demand skyrocketed. But many city expats who were used to walking to a public transit station were in for a rude awakening. Because the explosion of suburban development was a by-product of car-centric planning, suburbs were built without consideration for walkability or access to public transportation. Suburban sprawls snatch more than two million acres of undeveloped land each year because of their car-centric nature, according to a research report entitled Cities Alive by the developer Arup. Yet pedestrian-friendly infrastructure is far more compact and poses a significantly less environmental threat than traditional car-centric suburban development. Walking provides an active tool for people to mitigate and address local and global environmental challenges, from climate change to air pollution, biodiversity loss to green infrastructure.
Walkability and public transportation have evolved into a vital community amenity that improves the functionality and appeal of neighborhoods and the structures that surround them, where car-centric spaces lead to social exclusion because of spatial segregation. “Transport is generally conceived as an enabler of social connectivity,” said the Arup report, “but it can also be the primary factor of social and class segregation at multiple levels.” Car-dependency exacerbates a lack of social diversity and inequality when walkability and public transit aren’t an option because transportation is so reliable on motor vehicle travel.
As the suburban population grows, suburban office development is on the rise, which is exactly why the need for walkability is crucial. Now that businesses are shifting towards a “human-centric” culture and heralding diversity more than ever, improving pedestrian connectivity would bolster that bottom line. Plus, when more businesses set up shop in walkable suburban areas, it produces a positive feedback loop that boosts overall economic growth. Additional restaurants, retail, and entertainment alternatives result from enterprises bringing in staff and customers.
The expectation should be that post-pandemic suburban developments need to provide the best of both worlds, combining the benefits of urban, walkable living with the proximity, affordability, and convenience that have traditionally been found in the suburbs. The demand for walkability is extending past dense metropolitan areas, and since we’ve already quantified the positive impact walkability has on property values, it’s safe to say that walkability’s “magical good” gets factored in future developments.