The effect of the economy and its grip continues to be felt through all markets, specifically in office and commercial real estate. Ingram’s spoke with Aaron Mesmer, Principal-Acquisitions and Investment Sales at Block Real Estate Services to further investigate the current state of Kansas City and its respective realty markets.
People are trying to be very intentional about planning. If they’re looking at a deal over five, seven or 10 years, they don’t want to spend $85 a square foot to redo a space and be stuck with something that doesn’t work for the next 10 years. That’s a bad bet.
Note, this interview is part of a larger piece for Ingram’s next print edition. Be sure to look for more of Aaron Mesmer’s insights in the May 2023 print and online editions of Ingram’s.
Q: What have you seen occurring in the office market that makes Kansas City somewhat unique in the commercial realty space?
A: Even before the pandemic, I think the office market in Kansas City, new construction, was restricted to a certain degree by the Sprint overhang. A huge amount of space was available that everybody knew was coming, or about to be dumped on the market. Now, you see the Cerner effect with the same result, though not as well located geographically as Sprint. I think that really slowed down our supply side more than if that had not been out there.
Q: The U.S. lifted pandemic-related travel restrictions last month, but the after-effects will be felt for years in commercial real estate. What are your expectations there?
A: I think companies are still trying to figure things out; nobody is out there with a magic formula. It’s going to be different for each company as to what their culture and their work product requires. To use our company as an example, we can do repetitive property accounting from anywhere. Take the income, pay the bills and do the money report on a property at home; where you are doesn’t matter. But to process a cost-segregation study, or to do some things we do where you upgrade your tech on the back end, integrate a new tool on your accounting software, that’s hard to do remote. And it’s hard to train people, for example.
Q: What does that dynamic look like across the broader market?
A: Well, there’s a lot of trial and error still going on. The world today looks different than it did in 2021. Some segments are growing rapidly, some are shrinking, some are stagnant with how they use space. Some are culture heavy, some not. The one thing I think I do know is that construction costs related to making big changes within office space, how you use it and map out different workstations, etc., has become very expensive.
Q: The consequence of that being . . .
A: People are trying to be very intentional about planning. If they’re looking at a deal over five, seven or 10 years, they don’t want to spend $85 a square foot to redo a space and be stuck with something that doesn’t work for the next 10 years. That’s a bad bet. If you miss on the short side and don’t have enough room, and they do want people to be back in the office, that’s as much of an issue as overbuilding and people not using that space the way you’d planned.