Are Land Sales Slowing in Phoenix?

Land sales appear to be slowing in Phoenix. According to research from Colliers International, land sales were down 25% in the first half of the year, compared to the second half of 2017. However, land sales are up 20% compared to the same time period in 2017. While these numbers show that land sales are still strong in the Phoenix market, sales activity has also lost momentum since the end of last year.

“While we slowed in the first half 2018 compared to the second half of 2017, the second half of 2017 was our cyclical peak in the market for land sales,” Pete O’Neil research director of the Greater Phoenix at Colliers International, tells GlobeSt.com. “If I compare it the first half of 2018 to the first half of 2017, however, we are up 20%. It is tough to decide what is the most appropriate comparison. I would say that it is mixed. We are off to a strong start, but we are not sustaining the momentum when we were at the absolute peak, which turned out to be the end of last year.”

In investment sales, generally the second half of the year is stronger than the first half, which would account for the slowed activity compared to late 2017; however, O’Neil says that pattern isn’t true for land sales activity. “I haven’t seen that pattern emerge on the land side of things,” he says. “At the end of 2017, people were anticipating higher costs and acted before the end of the year before costs increase. That might have prompted some activity at the end of the year. That was probably it more than anything else.”

Pricing in the first half of the year also slowed, dropping 25% compared to the median price in 2017. The median price for land in the first half of the year was $3.59 per square foot, down from $4.19 in 2017. “In the first half of this year, in addition to the dip in activity, is that pricing slowed a little bit too,” adds O’Neil. “I think that really had to do with rising development costs and materials costs.”

Single-family homes account for most of the new development activity in the Phoenix market. In the first half of the year new permitting surged, which is likely due to the land activity in the second half of the year. “About 60% of all land sale in our market are for residential development,” O’Neil says. “We have seen that prices are growing in the overall housing market, but new home prices aren’t really growing. If we were seeing stronger growth on new home sales prices, then you might have more flexibility on land prices. To this point, the last few years, prices for new homes have really leveled off at around $300,000, and we have seen stronger growth in older home sales.”

Multifamily permitting slowed during the first half of the year as well, but rent growth for multifamily remains strong, around 6%. O’Neil says that industrial and office development will remain healthy, despite the slowed land sales. “I think that we are going to continue to see industrial development and office development,” he adds. “The office vacancy rate has ticked below 15%, and that is our equilibrium point in Phoenix. So, I think that we will continue to see office development.”