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Great Expectations: Finding Equilibrium in New Construction 

New construction’s market performance serves as an instructive litmus test for luxury consumers’ demands and desires. Over the past few years developers and builders have introduced a variety of products, at numerous price points, in many different neighborhoods whilst tackling rising lot prices, construction costs and evolving stylistic trends. This rather rapid injection of inventory has become a fascinating experiment in identifying the target audience, the ideal home and the optimal price. Thus, throughout the year we have observed and asked: What is the demand for these brand new homes? What qualities are instrumental in determining a successful product? And how many of these spec homes can the market support? After analysing the last twelve months of data we are starting to receive answers that strengthen our initial hypothesis about the qualities that define the new construction market equilibrium – that optimal moment when those two fickle factors, supply and demand, find harmony. 

Demand for new construction homes has been healthy over the past twelve months and is forecasted to remain robust. This, perhaps, should not be too surprising in a market that values luxurious amenities and places a premium on the convenience of ready-to-inhabit homes. There have been 54 sales of new construction homes over the last twelve months in our subject areas of Park Shore, the Moorings, Coquina Sands, Olde Naples, Aqualane Shores and Port Royal, up from 44 a year ago. The Moorings leads with 20 sales, followed closely behind by Olde Naples with 18. The advent of successful sales of new construction waterfront properties in Park Shore and the Moorings ranging from $6,000,000 – 6,775,000 serve as price discovery for these markets. When considering price performance, however, it is important to recognise the distortion caused by the inclusion of these sales in the figures on the following pages. After adjusting for this, the average sold prices per sqft for Park Shore and the Moorings are $598.95 and $772.83, respectively, reflecting a decrease in Park Shore and marginal increase in the Moorings. Only Port Royal stands apart with a substantial increase in this metric since our last newsletter on the subject back in April. 

No matter how strong demand may be, supply continues to outpace desire on an almost daily basis. There are currently 73 new construction listings available, and in Park Shore alone, prices range from $2,695,000 to $7,999,500. Average list prices per sqft are slightly down from our December 2016 report – the average in the Moorings is now $762.78 rather than $843.97. This drop is arguably a result of price reductions on homes that are compromised by either quality or location – a new construction sector that continues to grow despite market reaction. Whilst a subjective concept, lower quality points to products lacking in amenities, generically designed and constricted by small lots. Furthermore, new constructions homes in less traditional, largely untested areas such as Park Place, Alamanda Drive or the northeast quadrant of Ridge Lake are accumulating CDOM and carrying costs that price reductions have yet to alleviate. In direct contrast, properties situated on prime side streets in the Moorings and Park Shore and in close proximity to the beaches and attractions in Olde Naples continue to sell and be absorbed. The market continues to suggest that even more substantial price reductions will be required to entice buyers to choose from the ever-expanding selection of lower price per sqft over the rarer high-quality addresses. It may not be novel, ground-breaking or particularly exciting, but it is simple and looks to be true in the new construction market– there is reasonable demand for the right product. A desirable location is our greatest expectation.