Understanding Infrastructure’s Impact on Commercial Land Values

Understanding Infrastructure’s Impact on Commercial Land Values

Matt Mellott
Matt Mellott | CCIM, SIOR

Montana commercial land prices show significant variation, ranging from $10,000 to over $4.5
million per acre in the first half of 2023. Many factors influence these prices, including location
and parcel size. A key factor in determining land prices is the availability of infrastructure.

What is Infrastructure?

Infrastructure encompasses facilities and systems that are essential for a community. It supports
daily activities for residents and businesses. Common examples include:

● Utilities (water supply, sewage systems, and electrical grids)
● Transportation (roads, bridges, highways)
● Communication networks (broadband, telephone services)
● Public services (schools, hospitals, police stations), and recreational facilities (parks,
sports complexes).

Well-developed infrastructure enhances commercial land value by providing more development
opportunities. Inadequate or poorly maintained infrastructure can limit development and impact
land desirability.

Public vs. Private Infrastructure

Public Infrastructure: Managed and funded by the government, typically through tax dollars.
Projects, such as extending water and sewer services, may involve special taxes on properties
in specific areas.

Private Infrastructure: Developed and managed by private entities. For instance, a developer
building an industrial park with its water and septic system. Ongoing maintenance is often
covered by a homeowners association (HOA) set up for property owners.

Why Infrastructure Matters to Commercial Land Value

Commercial land value is determined by the amount of economic activity it can support. The
more intense the supported uses are, the more the land is generally worth. The more densely
the land can be developed, the more it is generally worth.

Intensity

Intensity measures what can be done on a piece of commercial land. A high intensity industrial
use would be a steel plant. A low-intensity industrial use would be a sign shop. High-intensity
uses need access to considerable infrastructure.

For example, a steel plant would need a lot of infrastructure. Easy access to rail and interstates
keeps raw materials coming in and finished products going out efficiently. An ample and steady
supply of water would be important. To power the plant, an enhanced electrical grid would be a
necessity.

The sign shop would use less infrastructure. Fewer deliveries of materials are needed, so no
need to access rail or an interstate. Water would be needed for basic plumbing, and could be high-intensity
supplied by a well. Access to the base electric grid could run the needed tools.

Density

Density measures the amount of space that can be developed on a piece of land. This can be
measured in terms of square feet or number of units. For example, an acre of land may be
developed with four houses or 10,000 square feet of industrial space.

The higher the density, the more economic activity a site can support. For example, a 0.15 acre of
land with 2,500 square feet of office space could house 20 workers. That same land developed
at a higher density of 25,000 square feet multi-story office building could house 200 workers.

Case Study

A recent case study highlights how infrastructure impacts land value:

● Site: 5 acres zoned for multifamily use.
● Infrastructure: No access to city water or sewer but has access to paved roads,
electricity, and broadband.
● Allowed development based on zoning: 100 apartments.
● Allowed development based on existing infrastructure: 2 homes.
● Value based on existing infrastructure: $300,000.
● Value with city water and sewer: $1,700,000.

Access to city water and sewer increased the land value by over 5-fold due to a 50-fold increase
in density.

If you are thinking about selling your property, it is an excellent idea to get an updated Broker
Opinion of Value. Recent changes in zoning in cities across Montana, new community land use
plans, and expansion of water and sewer services have increased the values of many properties.

Contact us today for a complimentary Opinion of Value.

Matt Mellott
Matt Mellott, CCIM/SIOR

Understanding Infrastructure’s Impact on Commercial Land Values

Matt Mellott
Matt Mellott | CCIM, SIOR

Montana commercial land prices show significant variation, ranging from $10,000 to over $4.5
million per acre in the first half of 2023. Many factors influence these prices, including location
and parcel size. A key factor in determining land prices is the availability of infrastructure.

What is Infrastructure?

Infrastructure encompasses facilities and systems that are essential for a community. It supports
daily activities for residents and businesses. Common examples include:

● Utilities (water supply, sewage systems, and electrical grids)
● Transportation (roads, bridges, highways)
● Communication networks (broadband, telephone services)
● Public services (schools, hospitals, police stations), and recreational facilities (parks,
sports complexes).

Well-developed infrastructure enhances commercial land value by providing more development
opportunities. Inadequate or poorly maintained infrastructure can limit development and impact
land desirability.

Public vs. Private Infrastructure

Public Infrastructure: Managed and funded by the government, typically through tax dollars.
Projects, such as extending water and sewer services, may involve special taxes on properties
in specific areas.

Private Infrastructure: Developed and managed by private entities. For instance, a developer
building an industrial park with its water and septic system. Ongoing maintenance is often
covered by a homeowners association (HOA) set up for property owners.

Why Infrastructure Matters to Commercial Land Value

Commercial land value is determined by the amount of economic activity it can support. The
more intense the supported uses are, the more the land is generally worth. The more densely
the land can be developed, the more it is generally worth.

Intensity

Intensity measures what can be done on a piece of commercial land. A high intensity industrial
use would be a steel plant. A low-intensity industrial use would be a sign shop. High-intensity
uses need access to considerable infrastructure.

For example, a steel plant would need a lot of infrastructure. Easy access to rail and interstates
keeps raw materials coming in and finished products going out efficiently. An ample and steady
supply of water would be important. To power the plant, an enhanced electrical grid would be a
necessity.

The sign shop would use less infrastructure. Fewer deliveries of materials are needed, so no
need to access rail or an interstate. Water would be needed for basic plumbing, and could be high-intensity
supplied by a well. Access to the base electric grid could run the needed tools.

Density

Density measures the amount of space that can be developed on a piece of land. This can be
measured in terms of square feet or number of units. For example, an acre of land may be
developed with four houses or 10,000 square feet of industrial space.

The higher the density, the more economic activity a site can support. For example, a 0.15 acre of
land with 2,500 square feet of office space could house 20 workers. That same land developed
at a higher density of 25,000 square feet multi-story office building could house 200 workers.

Case Study

A recent case study highlights how infrastructure impacts land value:

● Site: 5 acres zoned for multifamily use.
● Infrastructure: No access to city water or sewer but has access to paved roads,
electricity, and broadband.
● Allowed development based on zoning: 100 apartments.
● Allowed development based on existing infrastructure: 2 homes.
● Value based on existing infrastructure: $300,000.
● Value with city water and sewer: $1,700,000.

Access to city water and sewer increased the land value by over 5-fold due to a 50-fold increase
in density.

If you are thinking about selling your property, it is an excellent idea to get an updated Broker
Opinion of Value. Recent changes in zoning in cities across Montana, new community land use
plans, and expansion of water and sewer services have increased the values of many properties.

Contact us today for a complimentary Opinion of Value.