Author: David Moore
July 10, 2015
With more capital coming into the market than at any time since the housing market implosion more than six years ago, land investment activity is once again on solid ground and expanding in many U.S. markets.
Employment and population growth, coupled with economic expansion and an improving housing market, are coming together to make land more attractive to investors. Demand for land is largely driven by end users, particularly within the housing sector of growing markets. Taken together, this activity has been the single most important factor for influencing land prices.
Low interest rates are also fueling improvements in the housing industry and providing more opportunities for land investment. Available capital allows developers to build, businesses to expand, and homebuyers to purchase. Further contributing to the growth, home mortgage interest rates are predicted to remain low in 2015, according to Housingeconomics.com from the National Association of Home Builders. The publication cites interest rates on fixed-rate mortgages at 3.86 percent and 2.58 percent on adjustable rate loans as of March.
Stratford Land’s strategy is to buy land in the development path of Sun Belt markets where the economies are coming back. A few market areas that are particularly strong now are Texas metro areas, such as Austin, Dallas, and San Antonio; Atlanta; Orlando, Fla.; and portions of North and South Carolina.
In these markets, most of the demand is for well-located land that is ready or near-ready for residential development. Lots for single-family or multifamily sites are in highest demand when they are zoned and already have roads, sewer, electric, and other infrastructure in place. Builders often find these properties to be in short supply as home construction increases.
Throughout the economic downturn, the Texas economy remained stronger than most of the United States, and all of the state’s major markets offered compelling opportunities for land investment. While other markets suffered, the diversified economy and availability of jobs allowed for continued growth in Texas.
With strong education and employment, not to mention the music scene, the Austin metropolitan area is one of the fastest-growing markets in Texas and the U.S., with a population growth expected to explode by as much as 55 percent between 2010 and 2030, according to an Urban Institute report.
Austin jobs increased at an annualized rate of 4.5 percent — more than 3 percentage points faster than the state — as reported in an April report from the Federal Reserve Bank of Dallas. Increased housing demand has pushed inventories down to a 2.5-month supply throughout the first two months of 2015, spurring home construction. Moreover, housing permits in Austin are up 27 percent year over year, according to the report.
The Dallas-Fort Worth area is another example of a growing market with good opportunities for land investors. The DFW area created jobs at a 3.4 percent pace in 2014 — the fastest among major Texas metropolitan areas, according to the Federal Reserve Bank of Dallas, which says the area is on track to continue its strong job growth.
As in many markets, corporate relocations account for large job growth. Toyota Motor Co. will begin relocating as many as 4,000 employees to the Dallas market this summer as the company moves its headquarters to the area. Additionally, Boston-based Liberty Mutual recently announced that it will also relocate to the DFW area, bringing as many as 5,000 workers. Each company will relocate to Plano, Texas, a Dallas suburb, which bodes well for continued economic growth in the area.
According to the Federal Reserve Bank, DFW home inventories will remain tight, with 1.9 months of inventory in Dallas and 2.1 months in Fort Worth. Strong demand and a limited supply have continued to spur residential construction, fueling demand for well-located land.
Tourist city San Antonio continues to draw visitors from around the world, which helps to keep its economy humming, but the area is also experiencing strong job growth that is fueling population expansion. San Antonio jobs grew at an annualized rate of 3.6 percent throughout first quarter 2015, with growth across all industries. The strongest growth, however, was in construction, insurance, manufacturing, and government jobs, according to data from the Federal Reserve Bank. Housing inventories in the San Antonio market are at a 3.7 month supply.
Other strong markets for land investment are Sun Belt areas in the southeastern U.S. Despite the recession, Georgia and North Carolina continue to be leading destinations for corporate locations. Whether for employment or temperate weather, as the overall economy strengthens, people previously unable to sell their homes up north are now able to sell and are moving south. According to Builderonline.com, which broke down 2014’s gross home building revenue by Census Bureau region, the South Atlantic region led the nation in revenue for the top 200 builders. Stratford is working with a number of these regional and national homebuilders, such as Ashton Woods, Taylor Morrison, Lennar, and Ryland Homes in its southeastern developments.
The Atlanta market, hit hard during the economic crash, is once again showing positive signs of an improving economy and housing market. Between April 2013 and April 2014, the 10-county Atlanta region added 52,700 new residents, the largest single-year growth since the Great Recession, according to the Atlanta Regional Commission. That’s an improvement over the 41,000 new residents added every year between 2010 and 2014.
While still higher than pre-recession levels, unemployment in the Atlanta area is down, with a 6.7 percent rate in 2014 compared to 7.1 percent in 2013, according to the Bureau of Labor Statistics.
Similar to Dallas, corporate relocations have led to employment gains. Mercedes-Benz recently announced the relocation of its U.S. headquarters to Atlanta, a major move that will create about 1,000 jobs. Additional expansions of corporate campuses for Porsche and NCR’s U.S. headquarters continue to add to employment.
Another market making a comeback after struggling through the recession is Orlando, thanks to an improving tourism market, as well as an uptick in the number of buyers looking to purchase both primary and retirement homes. Monthly employment in Orlando increased to more than 41,400 jobs from January 2014 to January 2015, according to Florida Research and Economic Database. For a major market that is good news, but in a market the size of Orlando, that high-growth percentage translates to a very strong recovery.
Stratford is seeing the growth in the market firsthand at Hamlin, a 600-acre residential and commercial development in Orlando. Located just north of Disney World, Hamlin is experiencing strong sales due in large part to the opening of a new tollway that has provided a gateway into west Orange County for builders and developers.
Markets are also improving in strong areas of North Carolina and South Carolina. In the Carolinas, much like other markets in the Sun Belt, interest from buyers looking for a second or retirement homes also is contributing to strong land investment opportunities. Stratford Land also sees this in increased activity at its developments near Hilton Head and Myrtle Beach. Although a good portion of the interest is related to active adult projects, affordable home prices have pushed primary home stats upward.
In the early 2000s, demand for retail was outpacing rooftops in numerous markets. Developers and end users are much more cautious today; however, as rooftops are built, the demand for retail and office strengthens.
Charlotte, N.C., is an example of a market where land in almost every real estate investment category offers compelling deals. Interest in the Charlotte market has grown with its improving economy and job growth. Unemployment fell to 5.5 percent in February 2015 compared to 6.9 percent in February 2014. The Charlotte metro area’s population is projected to grow by 47 percent between 2010 and 2030, and the greater Raleigh area is projected to grow by 50 percent during those two decades, according to a recent report by the Urban Land Institute.
While some U.S. land markets are lagging in their recovery, the overall trend is for improvement. With good investment opportunities, albeit with more competition than there has been in the recent past, activity is expected to continue to climb.
Land investing in 2015 will be active for those who intend to begin construction on single-family residential or multifamily developments. The demand for these asset classes is strong in most markets, particularly those that exhibit clear signs of recovery, and with capital once again coming into the market, land investors should face fewer challenges in securing financing.
David Moore, CCIM, is senior investment manager, Southeastern U.S. for Stratford Land, in Atlanta. Contact him at firstname.lastname@example.org.