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Year End Market Report – CRE Land

Posted on Feb | 2017

 George H. Amos IIILAND OVERVIEW

Hank Amos

President and Designated Broker

The last eight years of the Obama Administration did not bode well for the nation’s and Tucson’s economy.  The U.S. never saw annual GDP of three percent in any of Obama’s eight years, a first for a U.S. president since 1930.  This is not a political statement, but a fact to note, since Tucson’s economy is directly affected by the nation’s GDP.   There are many reasons why the nation never saw growth in excess of three percent, but it was mainly due to the excessive rules and regulations imposed on banks, business and energy.  This, along with the Affordable Care Act put the brakes on the U.S. economy.

Flash forward to today and there is a renewed confidence surrounding America’s future as it pertains to business and the economy.  This is all but attributed to the election of Donald J. Trump.  Now known as the “Trump Effect”.  You see it in the stock market that rose sharply since his election, with the market hitting the magic number….20,000.  You see it with consumer confidence at an all-time high since 2001….16 years ago!  You see it with his promise to repeal and replace the Affordable Care Act.  You see it with his promise to dismiss the thousands of regulations drowning the economy.  Because of this drastic and dramatic change in U.S. policy, businesses and individuals feel that the economy is about to take off.  Interest rates are expected to stay low with only two rate hikes forecasted for the year – the first in June and the second in the fourth quarter.

Couple this with Tucson’s much-improved job market, the governor’s commitment to our community and the understanding now of our local elected officials about just how important growth and jobs play in the vitality of Tucson’s economic fortunes, poses an outlook of positive confidence not seen since the mid 1980’s.  In order for Tucson’s commercial real estate market to achieve, let alone the land market, we need national GDP of over three percent and Tucson to post strong job gains and growth.  Jobs fuel our economy, which is very much real estate centric.  When we are adding jobs and growing, our economy does well and it has a direct bearing on the land market which has been practically dormant since the collapse of the housing industry in 2007.

According to the University of Arizona, our growth grew 0.6 percent in 2016 and is forecasted to grow one percent in 2017 and 1.2 percent in 2018.  This, in addition to the 5,300 jobs added to our economy last year to an estimated 7,100 jobs in 2017 and 7,600 jobs in 2018 according to George Hammond of the University of Arizona, has a direct and positive affect on personal incomes, retail sales, housing permits and the sale of land.

We define the Commercial Land Market into two groups; residential home builder sales and commercial use land sales.  In regard to residential home builders, we forecast much improvement in land sales; however, this is dampened somewhat due to the lack of inventory of platted, let alone improved, lots.  Builders now feel the optimism of Tucson’s future, but will be hamstrung to go full boar and we still have some room to sell existing homes. This inventory competes with the new home builders.  That said, Tucson is about to make a major jump and the homebuilders realize that they will have to meet this need and replace the number of older functionally obsolete homes that can’t compete with better and newer product.

Oro Valley is on fire.  It is a relatively “new” community with a clean and fresh look.  Many newcomers want to live here.  There is virtually little land to meet their demand.  Current price for a front foot per lot is around $1,400.  Expect that to go to $1,500, maybe $1,700 per front foot.  The remainder of the Northwest market, Dove Mountain, Tangerine Corridor and Twin Peaks along with Marana, will see price increases.  Currently at $1,200 per front foot depending on location, expect that to rise to $1,400 per front foot.  West Marana is around $900 per front foot and will move to $1,000 to $1,050 per front foot.  The Southwest market is around $800 per front foot and will move to $900 per front foot.  The Southeast market is around $1,000 to $1,150 per front foot.  This price will likely increase too as the year moves on.

Some of the larger transactions for home builders last year were:

  • Dove Mountain, 26.45 acres for $5,308,507
  • Placita Casa Servilla, 10.74 acres (78 lots) for $2,880,800
  • Hohokam Village Valley, 13.80 acres for $2,000,000
  • Rancho Del Lago, 25.38 acres for $1,969,916
  • Vista Montana Estates, 7.41 acres for $1,980,000

Builder permits in 2016 ran approximately 24 percent over 2015.  About 2,700 were issued.  One would expect to see 2017 permits to be over 3,000.  New home sales were up about 14.3 percent.  The median price for a new home is about $280,614, a 5.1 percent increase over last year.  Average price is $324,716, about an 8 percent increase from 2015.   The top performing builder according to Bright Future was D.R. Horton, followed by Pulte Homes/Del Webb.

As for the Residential home re-sale market, it finished the year with 18,203 homes sold, a 15 percent increase over last year and about $3,528,435,260 in sales volume, up about 15 percent as well.  The median sales was $179,000, up 1.7 percent, but the average home sale was $226,598, up 7 percent.

Residential lot sales continue to be a buyer’s market at all price points.  The median price of sold lots in December was $72,250, up substantially from over a year ago (106%).  There were 489 sales in 2016, up 3 percent over 2015.  Inventory was basically unchanged from a year ago at 1,534, but down from a high back in July of over 1,700.  Expect more lots to be sold in 2017 than 2016 with a continuation of the median price of a lot to increase as we get more into the year and the efforts of a positive economy and added jobs begin to set in.

The Commercial Land Market will also see increased sales and prices rising in most industry segments except Industrial, which still has excessive land inventory.  With the impact of the “Trump Effort” and as Tucson continues to expand its job market, you will begin to see the backfill of Retail, Commercial Businesses (Office) and Industry pick up sites and/or demolishing older buildings for new.  This will be the most activity we will have seen in over a decade.  Downtown will go through another transformation as its skyline changes again with over $700 million in development, according to Fletcher McCusker, Rio Nuevo Board Chairman.

CoStar reported 307 land transactions (commercial/homebuilders) with $154,000,000 in sales, down from the $202,0000,000 of 2015…though this number may be suspect.

Pricing for commercial zoned property varies, but expect premium corners to fetch $20.00 to $30.00 per square foot with some at $35.00.  Infill lots can be had for around $5.00 to $6.00, give or take, and Industrial ranges from $1.50 to $3.00 per square foot, depending on location.

Notable Commercial Land transactions for last year were:

  • Innovation Park Dr., 32 acres for $12,521,739
  • 950 N. Tyndall Ave., 0.71 acres for $10,200,000
  • 1955 W. Valencia Rd., 11.38 acres for $3,300,000
  • 3060 N. Campbell, 0.48 acres for $1,735,392
  • Northwest corner of Cortaro & Shannon Rd., 9.40 acres, mix-use, for $1,675,000
  • 450 N. Freeway, 3.88 acres, Industrial, for $1,650,000
  • 2165 W. Magee Rd., 4.22 acres for $1,835,000
  • 7935 W. Tangerine, 3.64 acres for $1,877,646

One of the biggest land plays expected for 2017 is the potential land lease of 300 to possibly 900 acres of Tucson Airport Authority land for a potential solar farm by the airport or near the prison.

The nation’s economy is improving and is expected to grow.  Tucson’s economy and job outlook may be positioned to be closer to those years of great prosperity in the mid 1980’s than the mid-2000’s.  There is a lot of optimism associated with Tucson’s recent job announcements, a growing downtown and revitalized Rio Nuevo, and a government more committed to job growth (lead by the governor).  All of this bodes well for a resurge in the Land Market, both in sales and price increases…a good start in 2017, even better in 2018.

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