Vacant Land Prices Flat, Low Through 2009

Approximately 400 acres of vacant land, most of it raw land and all of it non-resort land, changed hands during the second quarter, a 40% increase from the first quarter and a 77% increase from the second quarter of 2008, according to the company's research. The average price per acre was $255,300, or $5.86 per square foot. The pricing is up 6.2% from the first quarter, ending five consecutive quarters of price declines, but is still 55.2% below the year-ago average of $570,300, which was 20% below 2007.

A significant share of the total activity was made up of trustee sales and deed-in-lieu-of-foreclosure transactions, suggesting banks are taking back more property than they have in the past, says AA principal Brian Gordon.

"Near-term improvements in the vacant land market are unlikely, particularly with distressed transactions representing an above-average share of the total," he concludes. "While national and local economic conditions began to slow their pace of decline in the second quarter of 2009, local unemployment continued to rise in almost every sector. Residential and commercial builders remain on the sideline even as existing home prices appear to be stabilizing, albeit at price points not seen since 2003. Additionally, the amount of occupied space in the office, industrial, and retail markets are at levels not witnessed in over two years. With limited demand for new homes and commercial space, we see little upward pressure in the raw land market in the next two quarters."

Through the first six months of 2009, a total of 676.6 acres changed hands, a 42.4% increase compared to the first six months of 2008. "As mixed economic indicators percolate the financial markets, we may see some investors shift investment strategies in search of gains outside of Wall Street," Applied Analysis Project Manager Jake Joyce says. "While real estate has historically been an investment strategy on the radar of many, current fundamentals provide limited upside outside of deeply-discounted opportunities. Significant holding periods, which will be measured in years not months, will be programmed into the majority of pencil-ready transactions, which ultimately translates into lower residual land values."

One of the only recent non-distressed land sales was a fully improved site in North Las Vegas that Cox Communications acquired to fulfill a near-term, non-speculative development requirement within its network boundary. Cox paid $788,436 for the 1.8-acre site at Ann and Simmons, behind a Taco Bell, a Chevron and Star Nursery and across from an Albertson's shopping center. The company plans two sub-5,000-square-foot buildings.

"They didn't need frontage and all the utilities are already in," said Marcus & Millichap broker Art Macaraeg, who brokered the deal and also assisted in the site selection process. "It was perfect for them; they were willing to pay for that."