The demand for land is holding up better compared to the demand for apartment, retail, and office buildings, and REALTORS® expect to have more sales transactions in residential and industrial land sales in the third quarter, according to REALTORS® who responded to a quarterly survey in the second quarter that are reported in NAR’s 2020 Q2 Commercial Market Trends and Outlook report.
Among 352 REALTORS® who responded to the survey1, respondents expected land sales to increase one percent year-over year in 2020 Q3. In comparison, sales for apartment and commercial structures are all expected to decline, with the largest year-over-year decline in sales deals for 2020 Q3 in retail buildings (-5% to -7%), office (-4% to -5%), and modest declines in apartment buildings and industrial warehouses (-1%).
By type of land, REALTORS® expected the strongest increase year-over-year increases in 2020 Q3 for land for residential and industrial use (3%), followed by agricultural and ranch lands (1% to 2%). Similar to the outlook for commercial structures, REALTORS® expect a decline in sales transactions for developed land for office/retail/hotel use (-1%) and brownfield development land (-2%). Minor declines are expected in land recreational purposes (e.g., sports, hunting, camping) and timber (-1%).
REALTORS® also expect the strongest year-over-year increases in prices of residential and industrial land (1%), compared to year-over-year declines in the price of developed land for office/retail/hotel use.
What’s driving the demand for land?
One factor that might be driving the positive outlook for land sales is the expectation that people may be moving to the suburbs and out of dense cities. The demand for land might also be related to affordability because land is cheaper than buying a home on a lot (fee simple). As of 2020 Q2, the value of land held by households was 37% of the value of total real estate holdings.
1 Among 352 respondents who answered the question “By property type, what is your expectation of your total dollar sales volume during the next three months compared to sales one year ago (we ask for y/y change to take account of seasonal changes). Skip options that don't apply or that you don't know.” NAR sent out the survey to about 76,000 members who are engaged in commercial real estate.