With rising real estate values and homebuyers returning to the city core, developers have started to get creative with infill development.
Fueled by buyers’ demands for a more exciting, less commuter-oriented urban lifestyle, a new wave of developers is cresting into spaces of Metro Phoenix once sought only by commercial developers. Old buildings are being torn down and empty lots are springing up with medium- and high-rise apartments and condos.
And that’s putting the squeeze on commercial and retail infill, according to Valley developer Ryan Foley.
“Infill itself isn’t new [in the Valley], but what is new is that residential developers are coming into areas they long ignored and outbidding [commercial developers], which they can do every time,” Foley says. “Residential has a higher rent vector [than commercial]. They can pay more for the dirt.”
Foley estimates that a vacant lot worth “$5 or $6 a square foot” in the recessionary year of 2010 would sell for roughly double that amount in 2017. Along the way, infill has become the backbone of growth in the Phoenix Metro area – not the vast suburban subdivisions that traditionally powered the economy.
“Infill development has increased five to 10 times more than it used to be [in the 1980s],” says infill specialist and commercial broker Michael Lieb. “Downtown Phoenix and Scottsdale have gotten around 3,000-5,000 [infill] units each. This is a huge movement locally as well as nationally.”
Behind the push: renewed interest in local restaurants, shopping and other hallmarks of “city living,” tipping off a scramble for shrinking space within the metro core.
“With this new generation of urban living, public home builders are looking at urban housing more and more,” Lieb says. “It is hit or miss in bigger cities because the cost to build it is so much more; however, it’s just starting to get to the point where it makes sense to make a profit [in Phoenix].”
Even private home and land owners are getting in on the act, chopping up large residential lots to create high-density living opportunities in desirable neighborhoods – a phenomenon that’s led developers to explore infill potential in residential areas
“We usually stick to raw land or portions of a large estate that can be sold out,” says Ryan Larsen, vice president of Porchlight Homes. “Our target is a strong area where there is a high resale value. We recently did a community [on top] of 24 [empty] lots [in northeast Mesa].”
It’s all a far cry from the underwater nightmare of the Great Recession, which was especially brutal to Valley real estate. Now, the Phoenix housing market’s steady growth and tight new home market is making the Valley one of the healthiest markets in the country, with home prices expected to climb almost 6 percent, according to industry analyst Realtor.com.
Although infill properties are being snatched up at a furious pace, Bobby Lieb, realtor with the HomeSmart Elite Group and brother of broker Michael Lieb, doesn’t expect the trend to wane anytime soon. He says a lack of land won’t start becoming an issue for a few years.
“For right now, I see at least a three- to five-year inventory,” he says. “I predict a big and continuous increase because homes are always getting older.”
If the trend does continue, it may herald a new era of homeownership and selling in Valley real estate, with developers in the mix as potential buyers and the actual homes taking a backseat to the potential of the land itself. A new cityscape may be metamorphosing, Michael Lieb says.
“Phoenix spent billions of dollars to try to get people to come down there with the light rail, sports venues and malls, and it’s finally starting to come to fruition,” Michael Lieb says. “Infill development in the city is not a trend, it’s a way of life.”
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