Understanding the contribution of curb appeal to retail real estate values

ABSTRACT

The concept of curb appeal and its impact on property values has been largely neglected in the real estate literature. In the context of retail real estate, curb appeal represents the general attractiveness of a store as viewed from the sidewalk or parking lot that is expected to affect consumer patronage decisions and consequently property values. We first develop a measurement instrument for curb appeal and assess its validity using exploratory and confirmatory factor analysis. Our results suggest that curb appeal is multidimensional and consists of an atmospheric, architectural and authenticity dimension. Then, we use survey responses, transaction data and spatial regression to quantify the impact of curb appeal on sales prices. We find that the atmospheric and architectural dimensions have a significantly positive impact on sales prices. We also show that curb appeal dimensions are highly correlated with observable building features traditionally included in hedonic pricing models.

Keywords:

• Curb appeal
• retail real estate
• hedonic pricing model
• spatial regression

Acknowledgements

The authors would like to thank the experts for their contributions to the development of our curb appeal measurement instrument, COSTAR for the provision of transaction data and three anonymous referees for their valuable comments.

Notes

1. The retail experts represent a convenience sample. Interviewees included a shopping centre developer with a focus on the Western US, 2 retail real estate brokers based in the North-western US and 10 retailers, which represented specialty stores with annual sales less than $5 million.

2. The items ‘Is located in a building that is architecturally appealing’, ‘Is located in a building that is an attractive colour’ and ‘Is located in a building made of high quality material’ are adapted from Bonaiuto et al. (2003).

3. The pilot sample consisted of 41 undergraduate business students of a variety of majors. Analogous to the main study, student subjects were asked to rate three different restaurants, which were randomly selected. Qualtrics was used to administer the survey.

4. The MTURK master level is a performance-based distinction. MTURK workers can achieve this distinction by consistently completing surveys posted by requesters on MTURK with a high degree of accuracy across a variety of requesters. In return, they receive special benefits such as a higher reward for their work or private MTURK forums. We decided to use workers with MTURK master level to increase the probability that respondents (1) take their time and carefully work through the survey and (2) complete the survey. MTURK respondents were compensated with $.75 per survey.

5. Geomin rotation EFA was conducted using Mplus version 7.11 (Muthén & Muthén, 1998–2012). The nested structure of data was accounted for using the Type = Complex command in Mplus.