Land Market Driven by Industrial Build-to-Suits, User-Driven Retail, Multi-Family Urban In-Fill; Developers Seeking Prime Sites with Little Risk
- Pricing discounts continue as sellers are motivated to sell
- National homebuilders are gearing up and buying raw land again in select areas within strong school districts
- Multi-family developers are racing to buy land and obtain approvals; urban in-fill sites are in highest demand
- Build-to-suit development is driving industrial land sales
- Retail development is user-driven as expanding retailers take advantage of depressed land prices and obtain good sites
- Agricultural land prices are soaring as farmers bid prices to new highs
There remains a strong mitigation of risk in the land market. While activity for land positions is increasing for retail, industrial, single-family and multi-family residential, deals are being structured so there is very little risk. Retail is preleased, and users are committed for industrial build-to-suits before developers buy land. National homebuilders are taking down land in smaller, less risky 20-acre tracts. Developers are relying on subsidies, tax credits and attractive interest rates to build both affordable and market-rate projects.
Meanwhile, land acquisitions are primarily cream-of-the-crop sites. They are the urban in-fill, premier corners for retail; the communities with the best school districts for single-family residential; and the prime downtown Minneapolis, Uptown Minneapolis and University of Minnesota markets for market-rate multi-family. Land pricing discounts continue as sellers are motivated to sell and opportunistic buyers look to acquire.
Industrial Land Activity Driven by Build-to-Suits
Most activity in the industrial land market is focused on build-to-suits for corporate users seeking big, contemporary warehouse/distribution facilities. Users are taking down the best sites from the last cycle. More than a dozen are underway with more planned. Issaquah, Wash.-based SanMar Corp. purchased land in Shakopee and has a 580,000-sf warehouse/distribution center under construction. Faribault-based Trystar Inc. purchased land in Shakopee to build a 175,000-sf manufacturing plant. Land prices paid by SanMar and Trystar were approximately 10% higher than one year ago. Activity will likely continue as more users explore sites.
What is still missing in the industrial market are speculative land buyers; no one wants to take that “middle risk” position yet. That means the majority of acquisition activity will continue to come from corporate users.
Retail Activity Is User-Driven
Expanding retailers are finding plenty of opportunities to buy good land sites at discounted prices. Walmart continues taking land positions and recently purchased land in Burnsville for a new store. Drugstores, thrift shops like Goodwill, and convenience store operators like Kwik Trip are also active. Urban in-fill demand is heating up for preleased, class A retail locations. There are plans to redevelop the high-profile Southdale Sinclair site in Edina into a small in-line retail building. Most retail land pricing is still relatively depressed, but attractive, in-fill A locations have pricing power.
Single-Family, Multi-Family Land in Demand
Record-low multi-family vacancy rates are driving the residential land market. Urban in-fill apartment sites near mass transit are in highest demand; downtown Minneapolis, Uptown Minneapolis and student housing around the University of Minnesota campus are hot markets. While vacancy rates remain low in outer-ring suburbs, rents are not high enough in those areas to justify new construction for market-rate product.
The development of affordable multi-family housing is being driven by the availability of subsidized tax credits. Much of this product is underway in class A suburban communities as they strive to meet their affordable housing quotas. Duffy Development acquired land along I-394 in Minnetonka to develop a 64-unit project.
National homebuilders are buying raw land after working through the excess supply of better-positioned, bank-owned lots left over following the housing crash. They continue to pursue prime locations in communities with the strongest school districts. On average, pricing for residential land has been discounted by 60-70% from peak prices in 2007-2008. Land values continue to hold up best in communities served by strong school districts.
Farmers Bidding Agricultural Land Prices to New Highs
Farmland is selling for a premium as commodity prices continue to increase. Minnesota farmers have experienced bumper years for their crops, and some are using surplus cash to buy land and expand operations. For three consecutive years they have experienced not only high yields, but received high prices for their crop yields; that is ultimately driving land prices to new highs. Farmers are competing for land with speculators and each other. The value of farmland will likely continue to increase, but perhaps not at the near record-breaking rate that it has been. While experts worry that farmland prices could be the next real estate “bubble,” there is no sign of a downturn yet.
The land market should see continued steady activity through 2012 and into 2013. Build-to-suit activity should continue to drive industrial land transactions with a moderate increase in volume. Speculative industrial development could occur in the next 12 months as the market for large modern warehouse/distribution space continues tightening.
The single-family residential land market is expected to remain active as national homebuilders aggressively acquire raw land in favorable communities. This activity could lead to multiple offers in prime locations in the next 12-24 months.
Expanding retailers will likely continue to find good sites at discounted prices.
Pricing for user-driven marketable land is trending upward, but that does not apply to most land sites. Many sites that are not marketable still exist; they are C-class or off-locations, and in those cases pricing is declining. (Source: The Compass)