Understanding Land Prices Per Acre in the South Bay of the San Francisco Bay Area
As of my last knowledge update in August 2023, land prices in the South Bay of the San Francisco Bay Area can vary significantly based on location, zoning, and the type of property—residential, commercial, or agricultural.
Overview of Land Price Ranges
Land prices in the South Bay of the San Francisco Bay Area can range widely, with residential land generally being the most expensive. Prices often range from $1 million to over $3 million per acre in desirable areas like Cupertino, Palo Alto, and Mountain View. In tech-centric areas, commercial land can be even more expensive, often exceeding $3 million per acre. Rural or less developed areas typically have lower prices, potentially around $500,000 to $1 million per acre.
Factors Influencing Land Values
The value of each piece of land within a city is directly related to the development potential of the property. Development options are restricted by counties and cities, which create zoning and land use restrictions limiting development to specific property types such as residential, commercial, industrial, agricultural, or even open space designation. Within these designations, there are more specific categories such as single-family, multi-family, manufacturing, light-industrial, and many others.
Residential Land Values
To better understand residential land values, we can use the model where developers determine the value of the land based on the sale price of a completed project. For a project to be financially viable, developers will usually not want to pay more than one-third of the final sale price of a home for the land. In this model, one-third of the final sale price is the cost of the land, one-third is the cost of construction, and the final one-third is the profit for the project minus carrying costs.
Example of Residential Land Value
As of December 2017, according to the California Association of Realtors, the median single-family home price in Santa Clara County was $1,300,000. Using the model above, that would put the land value of the median property at approximately $433,333, which we can round down to $400,000. With zoning typically allowing between 6 and 8 homes per acre, we will use 7 for this example. Therefore, the value of a typical acre of residential land in Santa Clara County would be approximately $2,800,000.
Unique Challenges in Property Development
All properties are unique in location and geography, presenting specific challenges in the development of any site. Properties that have been graded and prepared for development and have the proper entitlements will have greater value than properties that are raw land and need to go through the planning/approval process. These processes can be lengthy and involve numerous steps, including obtaining necessary permits and approvals from local authorities.
Commercial Land Values
The value of commercial land is highly variable and context-specific. Without specific details on the individual property, it is challenging to provide a precise valuation. Commercial land often commands high prices due to its potential for industrial, retail, or office use. Factors such as proximity to transportation hubs, access to utilities, and existing infrastructure can significantly impact the land's value.
Conclusion
Land prices in the South Bay of the San Francisco Bay Area are influenced by a multitude of factors, including location, zoning, and the type of land. Residential land can be the most expensive, ranging from $1 million to over $3 million per acre, while commercial land can exceed this figure. Rural or less developed areas have lower prices. Understanding these factors can help potential buyers and developers make informed decisions about property investment and development.