Viewpoint on Kansas City's
Real Estate Market

by Kevin Nunnink

Integra Realty Resources (IRR) recently held its annual forecasting seminar in Kansas City. Twenty-five leading real estate devel-opers participated in panel discussions for each of the four basic real estate property types--office, ind-ustrial, retail and multi-family. The opening address introduced Viewpoint 2004, the company's annual publication that analyzes U.S. real estate markets across all four property types, as well as details about the Kansas City market.

In the KC office market, the overall vacancy rate is 20 percent. This rate is higher than the national average, which is reported in Viewpoint 2004 to be 16 percent. KC continues to feel the hangover of the Sprint layoffs, which totaled approximately 10,000 employees, and left landlords scrambling to re-tenant their once-occupied buildings.

With vacancy rates ranging from 10% – 25%, the Country Club Plaza remains the healthiest submarket, but South Kansas City is experiencing vacancies in excess of 25% when shadow space is included.

The big news in the local office sector is the speculative construction of the Plaza Colonnade building and the revitalization of downtown KC. In addition, H&R Block has agreed to anchor the Cordish Entertainment District, and Stinson Morrison Hecker will occupy most of the 1201 Walnut Building.

The boundaries of downtown have been extended to Crown Center with the IRS planning to occupy the Main Post Office (to be developed by MC Realty/DST) and the new Federal Reserve Bank construction south of Liberty Memorial. Retail continues to be the healthiest property sector in Kansas City with a current vacancy rate of approximately 10.6 percent, which is higher than the national average of 7.95 percent, as reported in Viewpoint 2004.

The Legends at Village West development in western Wyandotte County continues to set new records with sales at Nebraska Furniture Mart and Cabela's setting new highs. However, Cordish has offered it competition by entering into a development agreement with Kansas City, Missouri, to develop the Kansas City Live District adjacent to the H&R Block corporate headquarters downtown. Neither of these two districts will likely affect the two crown jewels of Kansas City: the Country Club Plaza and Oak Park Mall. Retail sales at both of these centers average $400 per square foot.

In the suburbs, SummitWoods Crossing continues to dominate southeastern Kansas City, while current redevelopment decisions in Blue Springs include the proposed Adams Dairy Parkway and the redevelopment of 40 Highway and Missouri 7 Highway, which will both affect I-70.

The big news north of the river is the Zona Rosa lifestyle center at Barry Road and I-29. The City of Liberty has attracted Lowe's Home Improvement Warehouse to its 88-acre Liberty Triangle redevelopment utilizing tax increment financing. Developers Diversified Realty recently acquired Ward Parkway Shopping Center in south KC. In conjunction with the demalling of the development, a Target store and several new junior anchors have been added.

The most significant news in Johnson County is the Jones Store re-tenanting the Jacobsen's space at Leawood Towne Center. Further south, the Cormac Group has announced the development of a 1 million-square-foot lifestyle center at 135th and Metcalf.

Kansas City's multifamily property sector currently maintains a 9.8 percent vacancy rate, which is also higher than the national average of 6.9 percent.

The central business district (CBD) currently boasts the lowest vacancy rate of 6 percent, while southern Johnson County currently has a 12.9 percent vacancy rate (the highest in 10 years) largely due to low mortgage interest rates, oversupply and the weak economy.

Recently there has been a strong demand for CBD housing in converted industrial buildings in the River Market, CBD and Mid-Town areas. The Library Lofts located at 10th & Baltimore and the Western Auto Building located at 21st and Grand are noteworthy projects of this kind. These redevelopment projects are providing a new face to Kansas City's inner core.

The Country Club Plaza submarket also continues to maintain its stalwart status. In fact, condominium conversions continue to decrease supply, thus putting upward pressure on current rents. Recent conversions include Sulgrave, Regency House and Plaza Pavilion. New construction on the Plaza includes Kirkwood Circle, which has attracted many of Kansas City's most prestigious Kansas residents to Missouri for the empty-nester lifestyle.

While the industrial sector in Kansas City is experienc- ing a 10.3 percent vacancy rate and outperforming the national average, the outlook is anything but bright. Demand for industrial space has been gradually declining since 1998 and new construction has been offset by demolition or changes in use. This year, speculative construction will be limited and any new construction will likely be owner occupied or build-to-suit.

 

Kevin K. Nunnink is Chairman of Integra Realty Resources. He can be reached at 913.236.4700 or by e-mail at knunnink@irr.com.