On Balance, a Time to Build

PUBLISHED JANUARY 2026

For Kansas City business owners considering new construction or lease modifications in the coming year, the landscape through 2025 suggests both opportunity and prudence. Industrial and logistics demand remains strong, with notable build-to-suit projects and sub-7 percent vacancy supporting continued investment in space closely aligned with operational needs, particularly along key corridors such as the Northland and Johnson County, where leasing and development activity remain active.

Given this backdrop, construction executives advise owners evaluating lease renewals or expansions to consider locking in longer terms while fundamentals—especially for core industrial and well-located office space—remain favorable relative to many other markets. In office segments, particularly Class A and modern suburban assets, positive absorption and modest rent growth have created room for negotiated improvements, while older office properties may benefit from adaptive reuse or targeted retrofits that reflect hybrid work patterns.

For those contemplating new construction, discipline remains essential. Projects with pre-lease commitments or clearly defined demand drivers are better positioned than speculative builds, as starts continue to moderate both nationally and locally. Multifamily and mixed-use concepts retain steady fundamentals, though construction pipelines are normalizing and financing remains selective. Ultimately, an emphasis on tenant-driven development, lease flexibility and cost control should position businesses well as the region transitions from cyclical recovery toward more sustainable growth in 2026.

Kansas City spent much of 2025 reinforcing its reputation as one of the steadier construction markets in the country, even as national activity settled into a slower and more uneven phase. Elevated interest rates, persistent labor shortages and heightened competition for fewer speculative projects have reshaped decision-making across the industry. 

Locally, however, the construction economy has benefited—as it usually does—from affordability, central geography and a workload pipeline anchored in committed users rather than speculative assumptions. That latter distinction has become increasingly important as developers and lenders recalibrate expectations following the post-pandemic surge.

That dynamic is most evident in industrial real estate, which has continued to serve as both an economic engine and stabilizer. While coastal and Sun Belt markets have contended with overbuilding and rising vacancies, Kansas City’s industrial sector has remained tight by historical standards. 

Quarterly brokerage reports through mid- and late-2025 consistently place vacancy in the 5–6 percent range, reflecting steady absorption rather than constrained supply. In several quarters, net absorption exceeded levels seen in previous full years, underscoring demand driven by occupiers committing to space rather than speculative enthusiasm.

Much of that demand has been build-to-suit. A significant share—often more than 80 percent—of industrial space under construction has been preleased or custom-designed for specific users. High-profile projects such as Panasonic’s battery-related manufacturing facility in De Soto, along with logistics and distribution developments for Amazon, Church & Dwight and other national companies, have provided durable work for general contractors and specialty trades. This stands in contrast to national patterns, where speculative industrial development surged earlier in the decade and has since required correction in many markets. KC largely avoided that cycle, resulting in a steadier pipeline through 2025.

A Muddled Image Nationally

Nationally, construction industry reports describe a bifurcated market. Smaller industrial facilities have seen growth in starts, while large speculative warehouses have declined as developers absorb earlier deliveries. In Kansas City, larger projects have continued to move forward precisely because they are tied to end users rather than forecasts, allowing the metro to remain active even as total nonresidential starts nationally have grown only modestly—or declined in inflation-adjusted terms.

This relative strength is clearer when viewed against the broader national backdrop. U.S. construction spending has remained near record levels in nominal terms, supported by public and infrastructure investment, while private construction has largely plateaued. Industry trackers report modest year-to-date gains in nonresidential starts compared with 2024, though performance varies sharply by sector. Commercial and industrial categories have posted gains overall, while institutional construction has softened slightly and traditional office remains constrained.

Interest rates continue to weigh on
project feasibility, particularly for speculative office, hospitality and large mixed-use developments in higher-cost markets. Tariffs and global supply-chain adjustments have also kept pressure on material prices, especially for steel, aluminum and copper. Labor availability remains a persistent constraint, with industry estimates pointing to the need for hundreds of thousands of additional workers nationally by 2026. Against this backdrop, Kansas City’s ability to sustain a consistent flow of work is notable.

Residential Stability

Residential construction, meanwhile, has added another layer of local stability. While housing starts nationally have been uneven amid mortgage rates in the mid-to-upper-6 percent range, the Kansas City metro has benefited from relative affordability and steady population growth.

The good news? Mortgage rates hit a 2025 low in the final week of the year, at 6.15%. Further drops will begin to get more prospective buyers off the couch, though the financing consideration will be offset by the run-up in home prices since 2020. 

Local permit data shows modest year-over-year increases, particularly in suburban communities such as Olathe, Kearney and parts of Platte and Johnson counties. Builders report cautious optimism, with new home sales expected to improve if rates ease modestly in 2026.

Multifamily construction, while no longer surging as it did earlier in the decade, has remained constructive. Vacancy rates are low by national standards, rent growth remains positive, and thousands of units are under construction, supporting continued demand for labor across multiple trades. Much of this activity is concentrated in infill and redevelopment settings, aligning with broader urban revitalization trends.

Redevelopment more broadly has become a defining feature of Kansas City’s construction landscape. Multi-year projects such as the Berkley Riverfront redevelopment, the transformation of the West Bottoms and mixed-use districts tied to the CPKC Stadium have created a steady stream of work that extends across property types. Collectively, major developments underway or planned exceed $15 billion, reflecting significant long-term capital commitment and helping insulate the local construction economy from downturns in any single sector.

Infrastructure investment has further reinforced that stability. Streetcar extensions, highway improvements and express-lane projects have progressed through 2025 with support from federal funding and regional priorities. While infrastructure spending is a national bright spot, Kansas City’s projects tend to be incremental and continuous rather than episodic megaprojects, providing reliable work for heavy civil contractors during periods of private-sector uncertainty.

Areas of Challenge

Office construction remains the most challenged segment locally and nationally, though Kansas City’s experience has been measured. Speculative office construction has been minimal, reflecting restraint rather than distress. At the same time, leasing data in 2025 shows signs of recovery, with positive absorption in several quarters and asking rents approaching record levels in well-located Class A buildings. Renovations, tenant improvements and adaptive reuse continue to generate work even as ground-up construction remains limited.

Retail has also contributed quietly to the workload. Strong occupancy and steady rent growth in neighborhood and lifestyle centers have supported selective new construction and significant renovation activity. While retail construction remains subdued nationally, Kansas City’s stable consumer base and affordability have allowed it to outperform many larger metros.

The Look Ahead

Taken together, these dynamics place Kansas City in a favorable position relative to other major markets. Coastal gateways and some high-growth Sun Belt metros have experienced sharper swings tied to speculative development and interest-rate sensitivity. Kansas City’s steadier growth profile has proven advantageous in a cooling cycle, resulting in a more predictable construction environment.

Looking ahead to 2026, national forecasts generally call for modest growth rather than rapid expansion, with low-single-digit gains in nonresidential spending led by infrastructure, data centers, healthcare and education. Data center construction, in particular, is emerging as a national bright spot, and Kansas City’s central location, power capacity and land economics increasingly position it as part of that conversation.

For contractors and owners alike, the coming year is likely to be defined less by volume chasing and more by margin management, labor strategy and disciplined project selection. Kansas City’s mix of build-to-suit industrial work, phased redevelopment and publicly supported infrastructure aligns well with that approach. As 2025 closes, the metro’s construction market has shown that resilience does not require explosive growth—only disciplined development, real demand and balanced investment—an advantage likely to carry forward into 2026 and beyond.