February 24th, 2023
Each year, our industry experts evaluate and review the Raleigh, Durham, and greater Triangle commercial real estate market’s annual performance. We share activity and trends from the market data we analyzed and experienced in 2022 to activities we anticipate in 2023.
What are the key market drivers? How have the different real estate sectors performed?
In this segment, we interviewed Rob Griffin, Associate Director of Development & Land to share his thoughts on land trends.
2022 was an absolute roller coaster ride. The land rush of 2021 continued unabated well into 2022 with record prices paid for sites all over the Triangle. The Fed rate hikes toward the end of the year cast a cloud over all CRE, including land, but interest in our market hasn’t waned and we continue to see new firms making moves to get development opportunities in the region.
The demand for land in 2021 carried over into 2022 with no letup. The big winners were sellers, especially those owners of land suited for industrial and multifamily development, who enjoyed the pricing surge of the last two years. Additionally, those buyers who had placed property under contracts, but long entitlement processes dragged closings into 2022 certainly came out looking like winners given the inflation of land prices between 2020 and 2022.
Single family for rent is a trend that really took off in 2022 and I see this product type as here to stay. With the rise in land pricing, densification of existing property can unlock additional value in land already held. Growth will continue to push out along corridors such as US 1 (north and south), US 64, 401 and I-87. 540 has made pushing growth further out along these corridors viable for both developers and end users.
The near vertical trajectory of land prices over the last two years should begin to level off in the face of interest rates rising. Sellers should prepare for longer contract terms to get the pricing they want (or protect the pricing they have) as municipalities are taking longer to approve entitlements and financing has proven harder to achieve.
Opportunities abound for developers savvy enough to understand that the time needed to get entitlements can also be a blessing in disguise as it gives the financial markets time to correct. A lot can happen (good and bad) over a typical 12–24-month land contract, but the strength of the Triangle market makes it worth the gamble.
Zoning and utility availability have been, and will remain to be, among the most significant challenges to land development in our area. Sites with the right zoning already in place, and utility service with available capacity, are increasingly rare and neither buyer nor seller has any control in either.
The challenges above are always factors but the ability to get the time to navigate those drive decisions from both sides of the deal. A lot of municipalities have moved to regain control over development, pushing a lot of development into some level of judicial review process; even “by right” development still requires time to secure votes for special use permits and the like that buyers need in order to have confidence to close, especially as lenders have gotten more cautious. The uncertainty in the financial markets that came in Q4 2022 is, and will continue to, cloud all deal making decisions until the Fed hikes level off.
I love the different challenges that each piece of land and each deal brings. I love being a part of the creative team, and process, that overcomes those challenges in order to make deals successful for our clients.
As you look ahead, planning your CRE goals for 2023, let our real estate advisors help guide you with insider market knowledge and experience.
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