Trending in the Land Market
The Delmarva Land Market in 2014 has demonstrated several trends to watch in the New Year. While I don’t expect to see these topics appear on Twitter or Facebook, these observations from our perspective are clearly relevant if you are in the land market in 2015.
Timberland buyers are coming back to the market as hunt clubs with liquidity and private buyers seek investments in both small acreages of 50 acres up to purchases nearing 1000 acres. In fact, Timber Real Estate Investment Trusts (REIT) reported higher returns in the third quarter of 2014 than Agricultural REITs did, according to Agrimoney.com. While this is a rare occurrence it is nonetheless notable.
Farmland leasing for quality production land remains strong and highly competitive, even in face of lower grain markets. This fall, more than 50 producers participated in a bid process on 2000 acres of farmland in Maryland and Delaware. Annual land rents averaged over $230 for awarded bids which the producer will irrigate and lease for 7 years. The take home of this outcome dictates as land income remains strong the underlying land value will ultimately follow a similar trend line, if however agricultural rents significantly decline this will put downward pressure on farmland values. Based on these recent outcomes, there is not much evidence of this decline yet.
The poultry industry on the Delmarva is driving farmers and investors to seek land for construction of new poultry houses. This change in land use from small grain or timber as poultry houses are built will be tempered by environmental and zoning restrictions in Maryland, Delaware and Virginia. This trend will continue to meet the demand of local poultry integrators on the Delmarva currently estimated to have significant room for growth.
Conservation easements have had a notable impact on land values on the Delmarva Peninsula over the past few decades. A recent analysis of timberland values over the past two years in Maryland have demonstrated a clear but subtle spread in value for timberland encumbered with a conservation easement versus those lands which are not encumbered. This clearly begs the question of what value is being removed from the land in the sale of development rights, but it may also be demonstrating the lack of development value in a marketplace which remains saturated with residential lots and zoning policies restricting development from parts of a county without municipal services. This lack of “delta” creates a challenge to land protection in that a different set of parameters must be established in order to evaluate and justify continued land protection on the Eastern Shore.
Agriculture and forestry are the largest land uses on the Delmarva Peninsula, and in light of the current level of growth slated for the region now and in the foreseeable future these uses will continue to be highest and best use for land under most conditions. A range of factors influence land values, including agricultural commodities, development pressure, timber value, as well as the intangible factor of the user value we place on the utility of open space, clean water, and wildlife. These intangibles are on the radar of some professionals that are working to monetize these values through the trade of “credits” for avoidance of loss or the addition of more ecosystem services through practices like stream or wetland restoration. If such a trade programs were instituted this would be another factor to watch shaping our land values.
A myriad of issues are shaping the land market in 2015 on the Delmarva, and the The Land Group remains confident that land will remain an attractive and adaptable asset to own. We welcome the opportunity to put our team and resources to work for you.