It’s no secret—vacant land is a hot commodity in the commercial real estate sector. According to our recent national vacant land sales report, sales volume across the asset class has grown steadily over the past few years, with average sales price following suit in many markets.
While national performance is strong, our research indicates activity is especially impressive in burgeoning secondary markets. In fact, the proportion of vacant land sales in these smaller, less-saturated metros has increased by 60% over the past 5 years.
Why? As we mentioned in our national report, vacant land sales are often impacted by net migration. Our data shows that residential vacant land sales are particularly soaring, up 167% since 2014. With more people and companies moving out of primary cities into smaller, more affordable markets, the demand for housing is climbing, causing investors and developers to look for available land.
What markets, exactly? Reonomy data shows the top five Metropolitan Statistical Areas (MSAs) for vacant land sales include Greeley/Denver/Colorado Springs (technically three separate MSAs, but for brevity’s sake we’ll explore them collectively) Las Vegas, Phoenix, Salt Lake City, and Austin. Read on to learn more about each MSA and why they’re garnering so much interest.
Greeley, Denver, and Colorado Springs MSAs
Attention is turning to Colorado, likely due to the state’s rapid population growth.
At the end of 2018, it was reported Colorado added 80,000 new residents over the course of the year, making it the 7th fastest-growing state in the nation. Then, in August 2019, the University of Colorado Boulder released an update to their original 2019 Colorado Business Expansion Outlook, increasing the State’s 2019’s projected annual net migration to 50,000 people. While it’s estimated less people will move to Colorado than the year before, the population will still expand by 1.32%.
Naturally, individuals are flocking to the city’s major metros. According to the Census Bureau, Denver (which includes Lakewood and Aurora) welcomed 11,053 people over the course of a year, making it the nation’s 9th fastest-growing market between July 1, 2017, and July 2018. Census findings also show Greeley, which sits 60 miles north of Denver, ranked sixth based on overall percentage growth (up 24.3% from 2010-2018). Colorado Springs has also grown too, landing on the top 30 fastest-growing cities just this past October.
As Colorado continues to flourish, the demand for viable vacant land is increasing. Across all three MSAs, transaction volume in the asset class has increased year-over-year. Sales prices followed a similar ascent; average prices in Greeley and Colorado Springs were initially closer to the national average but saw an uptick in 2017 and 2018. Will vacant land continue to perform throughout 2020? If Colorado continues its Rocky High success, it’s certainly likely.
Las Vegas MSA
Viva vacant land in Las Vegas! The MSA, which includes Henderson and Paradise, has been a hotbed for vacant land investment over the past 5 years, likely due to a number of economic factors advancing the area.
Like Colorado and its major MSAs, Las Vegas is no stranger to population growth. Census data shows that as a whole, Clark County added more than 48,000 residents between 2017 and 2018 — the second-largest increase of any U.S. county. Given this population surge, it’s possible CRE professionals are jumping at the chance to develop vacant land for residential purposes.
The relatively low cost of living, tax breaks, and tourism advantages are also causing businesses to expand in Las Vegas. While it might not be as attractive as Reno (which has lured in tech giants like Tesla, Google, and Apple), the city is certainly garnering corporate attention.
Las Vegas’s solid, economic fundamentals could be why vacant land activity in the area is on the rise. Reonomy data indicates sales volumes saw a large uptick from 2016 to 2017 (up 4.58%), which continued through 2018. Cumulatively, vacant land transactions have increased 13.19% since 2014, making it the second fastest-growing vacant land market on our list. Sales prices have been swelling over the past 5 years, as well.
Vacant land is heating up in Phoenix, Arizona. This is unsurprising; as we mentioned in our latest round-up of the top 5 fastest growing multifamily markets, the Phoenix/Mesa/Scottsdale MSA has exploded in recent years. In fact, the U.S. Bureau of Economic Analysis reported that Phoenix currently has the third fastest growing economy in the nation.
What, exactly, is happening in Phoenix? More companies are taking advantage of the metro’s low office rent rates (~$25.61/sf). Earlier this year, the Chamber Business News reported that “there are 2.9 million square feet of office space under construction and 1.9 million square feet of sublease in Phoenix. Companies are looking at plots of land in areas like south Scottsdale and Chandler as well.” In turn, the job market is widening, attracting more talent to the desert city and propelling its total population (Bloomberg reported Phoenix adds nearly 200 new residents a day in September).
Given Phoenix’s economic expansion, vacant land activity is thriving—so much so it’s the third fastest-growing vacant land market on our list. Of all the MSAs we identified, Phoenix had the highest number of transactions in 2018 (~24,000). Sales counts have also cumulatively increased 11.92% year-over-year since 2014. But while the number of transactions has climbed, prices have grown only slightly above the national average. CRE professionals might want to strike while the irons hot, per se, while demand is high but prices still low.
Salt Lake City MSA
What was once a sleepy desert town is now the fourth fastest-growing vacant land market on our list. Like the aforementioned MSAs, Salt Lake City is garnering attention for its solid economic foundation.
What’s behind the boom taking over the Beehive State? As Wells Fargo economist Charlie Dougherty told Desert News this past March, “It’s doing well for all the reasons you’d want to see an economy do well — mainly a fast-growing labor force (that) is very well-educated and young.” Certainly, Salt Lake City has a lot going for it. It’s home to major universities and close to other tech markets in the West. Plus, it still has relatively low real estate costs, which could be the driving force behind the “‘Silicon Slopes’ cloud computing cluster south of Salt Lake City as well as the ‘Bionic Valley’ bioengineering hub located in the state capital.”
With development thriving, CRE professionals are hungry for vacant land. Reonomy data indicates that vacant land sales have increased by 8.75% over the past 5 years. As transaction counts rise, parcel prices have fluctuated under the $450,000 mark. Currently, the average price for vacant land in the MSA sits at about $440,000–actually 2.2% less than the average price five years ago. Like Phoenix, industry professionals may want to consider maximizing yields on vacant land now while demand is hot but prices are stable.
Austin is last but definitely not least on our list of the fastest-growing markets for vacant land.
The Texas tech hub has grown exponentially over the last decade and it doesn’t seem to be slowing anytime soon. In 2018, the MSA was even announced as an Amazon HQ2 contender. And while it didn’t win, that hasn’t stopped other Silicon Valley titans, like Google and Facebook, from making Capital City their home. The talent is following, too. April’s Census Bureau results indicated that Austin-Round Rock continues to lead the nation in population growth for the 8th consecutive year in a row.
Austin’s success is reflected in vacant land sales data from the past five years, with sales counts cumulatively increasing by 8.66% since 2014. The large number of people moving to Austin all need places to live, work and play—it’s obvious investors and developers are capitalizing on this demand. Land prices remain relatively low too, only slightly inflating since 2014. Whether or not this momentum will continue into 2020 is uncertain, but looking at Austin’s successful track record, it wouldn’t be unlikely.
When it comes to vacant land, primary markets have had their day in the sun. Now, it’s on to the secondary markets–particularly those with strong fiscal foundations, like Las Vegas, Phoenix and Salt Lake City.
In short, economic factors like cost of living, quality of life, proximity to talent and local labor forces are pushing people and companies into new, non-traditional MSAs. And CRE professionals are catching on, taking advantage of the demand sweeping the vacant land front in these cities. Should such traction continue, it’s only a matter of time until other secondary markets with complementary economic fundamentals reap similar benefits.
To learn more about the national state of the vacant land market, read our full report here.