Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/143044
L Land prices in many areas of the U.S. are on the rise amid increasing demand, but the level of demand and the reasons behind it vary from market to market. Land values increased an average of 13 percent in 2012, the first annual gain since 2005, according to housing research frm Zelman & Associates. Improvements in the housing market, modest employment growth, and population expansion in some markets are making land more attractive to investors than it has been since the housing market crashed more than four years ago. Housing demand in some markets is the single most important factor infuencing land prices. Who Is Buying? Moodboard Photography/Veer Te greatest demand is for well-located land that is ready or near-ready for residential development. Most sought afer are fnished lots for single-family or multifamily sites that already have roads, sewer, electric, and other infrastructure in place. Builders ofen fnd these properties to be in short supply as home construction increases. As the housing market improves, retirement markets in the southern U.S. are heating up as many retirees — who deferred their plans due to the poor economy — can now sell their homes and relocate to new areas for retirement. For example, in Hilton Head, S.C., Stratford Land is on track to sell twice as many lots in 2013 as compared to 2012 — and at higher prices. Te U.S. Census Bureau reported in April that builders were on pace to sell 417,000 homes in 2013 and new-home construction rose 13.1 percent in the past year. Te housing market has been in a slow recovery since spring 2012, but the level of recovery depends on the market. Land investors today are combing through inventory looking for of-market opportunities with infll land for residential and commercial development. Tese opportunities ofen allow for the purchaser to have shorter hold periods and quicker returns. Te Canyon in Oak Clif, a mixed-use development in the Dallas area, is a prime example of fast-selling infll land. By proving market demand in nearby surrounding areas, Stratford Land quickly recruited multifamily, retail, hospitality, medical, and entertainment developers to serve the needs of the fast-growing local community. In addition to a rise in homebuilding activity, land CCIM.com prices are being driven up in some markets by large equity funds and foreign investors. Many foreign and sovereign funds from Europe, Canada, and China are buying large U.S. land portfolios. Farm and timber land prices are also increasing due to renewed investor activity, and Timber Investment Management Organization groups are emerging to aid institutional investors in managing their timberland investments. Timber funds are actively buying up land, particularly in southeastern states such as Georgia, Alabama, South Carolina, and Arkansas, in anticipation of rising timber prices as homebuilding continues to increase. Demand for farmland has been strong in the last year, as high crop prices attract institutional investors. Buyers are especially interested in midwestern land: Global fnancial services company UBS bought 9,000 acres in Wisconsin, and fnancial services frm TIAA-CREF now owns 600 farms in a $4 billion fund. Resort properties are also getting a fresh look from investors, boosting those land values, albeit more slowly than other real estate. Resort markets continue to lag behind major population centers, and land values typically remain well below their boom market peaks, but sales are picking up. Te lack of new resort development over the past few years is helping to aid the more recent increase. Hot Land Markets Te greatest factor infuencing rising land prices is housing demand, which is favoring U.S. Sun Belt cities such as Dallas, Houston, and Austin, Texas, and secondary July | August | 2013 23