A City on the Move

Things are happening in Downtown Kansas City, and on multiple fronts.

Since the renaissance of the area began to hit its stride a decade ago, an estimated $6 billion in public and private funding has transformed the commercial core of Downtown. It is increasingly a draw for night life and cultural activities, and that transformation has now taken on residential elements: Thousands of apartments—many of them higher-end, and most of them market-rate—are now in the construction or planning phases, both within the Interstate 670 loop and across the greater Downtown area.

All of that has been vital in the push to raise the Downtown population from roughly 5,000 people in 2000 to more than 20,000 this year. At that pace, the city is well on its way toward a goal of 40,000 residents, considered by civic planners as the number needed to create a vibrant, sustainable community in its own right.

If Census bureau figures are any indication, they are onto something. While the sprawling metropolitan area saw its population increase by 0.7 percent over the past year, the rate of growth Downtown was more than twice that—1.8 percent. As a result, occupancy rates for Downtown apartments are estimated at between 95 and 97 percent, a figure that has triggered substantial interest in multifamily residential development.

Because of that demand, rents are increasing at a sharp rate: Just this year alone, rental properties Downtown have seen the average rates rise to $1,165 a month—16.7 percent higher than the metro-wide average of $998, according to Realtor.com. And for the comparatively few single-family residences that sit within the borders of greater Downtown, “property is in very high demand and likely to sell quickly, even if it is overpriced or not in the best condition,” the realty Web site said. “Sellers receive multiple offers and the price is usually bid up above the seller’s initial asking price.”

That has contributed to an average sales price of $217,400 for single-family homes in the area, a premium of $25,000 compared to the average price of $192,500 for Kansas City proper.

Despite an infusion of young artists and people working for companies in the creative sector, the median age of a Downtown resident is 36, a year older than the average for the city overall, and the median income Downtown is $35,634.

That vigor in the residential property markets is, after a long lull, starting to show up on the office-space side, as well.
According to CBRE, the global real estate firm, activity in the Downtown area has made a steady dent in the over-supply of office space in recent years. From vacancy rates of 25 percent or more, the conversion of outdated spaces to residential units, along with other increased demand, had lowered Downtown’s overall vacancy rate to 22.4 percent by mid-2014.

For Downtown specifically, that means 14.9 million square feet of leasable space remained on the market at mid-year, with Class A and B accounting for nearly all of that, and almost equally divided—7.07 million square feet of Class A, and 7.3 million square feet of Class B. Class C accounted for just 3.5 percent of available space, at 529,383 square feet.

The reduced vacancy rate was contributing to slight increases in rental rates, with Downtown overall at $16.71 per square foot. Class A space commanded a premium at $18.45 per square foot, while Class B was below the Downtown average, at $15.29, and Class C stood at $12.83.

All of those figures come against a backdrop of an increasingly vibrant market in the broader metropolitan area. Since the first quarter of 2013, vacancy rates metro-wide have fallen from 18.2 percent down to 15.6 percent, an overall reduction of better than 14 percent in the amount of available space.

Changes in the Downtown market are expected to continue reducing the overall vacancy rate in the commercial center of the region, which will eventually put pressure on rental rates.

While Downtown Kansas City trailed the national downtown office vacancy rate of 11.3 percent, it was still in better shape than comparable big-city downtown areas like St. Louis, with a rate of 24 percent, Dallas, at 23.7 percent, and Phoenix, at 24.4 percent. Kansas City’s Downtown, in fact, was fifth-highest among big cities in reducing its vacancy rate in the third quarter of 2014.

One element skewing property values up—at least along the Main Street corridor—is the $102 million streetcar project now under way. Along a 2.2-mile stretch of that street, running from the River Market to Crown Center, the city is installing a streetcar system that is expected to be operating in the late Fall of 2015.

Some companies, particularly small, locally owned businesses, have complained about a sharp decline in customers because of traffic snarls created by the construction, but backers say the system will ultimately benefit commercial growth Downtown, and
especially along the corridor.

What becomes of it south of Crown Center remains a mystery; earlier this year, voters resoundingly shot down a proposed $515 million expansion of the starter line that would have taken it south to the Country Club Plaza, and into east Kansas City.

In terms of its business mix, Downtown has some of the same resiliency factor that marks the broader economy in Kansas City. Because this region is dominated by no single industry—the way car making does in Detroit, or banking in Charlotte, N.C.—it has a built-in bulwark against wide economic swings. Studies by the Federal Reserve Bank of Kansas City have shown that the Fed’s 10th district consistently is among the last to enter a nationwide recession, and among the first to emerge from economic downturns.

Downtown is home to the main offices of the region’s biggest banking and financial services operations, as well as large law firms that dominate the legal marketplace here, plus professional services firms in accounting and consulting. With the presence of Hospital Hill, there also is a large health-care component to the work force, drawing workers to both Truman Medical Center and Children’s Mercy Hospital, sitting side-by-side on the southeast corner of the Downtown area.

Tied in with those assets for health-care delivery is a strong health-care education presence. The University of Missouri-Kansas City, one of fewer than 30 universities nationwide with all four health-care programs—medical, nursing, dental and pharmacy—is tied in with both hospitals, and maintains the program offices for those disciplines Downtown.

The university’s Downtown footprint is expected to grow as efforts continue to raise funds for an arts campus adjacent to the $414 million Kauffman Center for the Performing Arts, which opened in 2011. If that civic goal is reached, it would bring more than 1,000 students and staff members to the Downtown area every day, and many of them are expected to be prime candidates for renting or owning residences in and around the Crossroads Arts District.