The office sector has enjoyed a renewal of leasing activity in suburban Johnson County and South Kansas City, while the remainder of the market continues to be sluggish. Large tenants — 50,000 square feet and above — have accounted for most of the activity, whereas the smaller tenants have remained stagnant. The majority of tenants continue to renew their leases unless there is a compelling reason to relocate, such as a business expansion or downsizing. The economic uncertainty continues to be the most significant factor affecting the overall office market. However, many large space users have chosen to jump across the state line to relocate to either Kansas or Missouri due to the attractive economic incentives either state is offering. That trend has helped boost the overall leasing activity. In 2011, Johnson County and South Kansas City recorded net absorption of 646,000 square feet, which is remarkable considering the average for the entire Kansas City metro area since the late 1990s has been 401,000 square feet annually. This trend has continued in the first half of 2012 as tenants absorb large blocks of contiguous space. For example, Netsmart Technologies has leased 64,000 square feet in Overland Park, Kansas. Netsmart is …
Midwest Market Reports
Recently employed residents are forming new rental households in metro Chicago, generating positive net absorption, a decline in vacancy and a rise in apartment rents. Additional payroll growth will stimulate new demand and reduce marketwide vacancy to its lowest annual level in 5 years by year’s end to about 4 percent in the city and suburbs. Over the longer term, the market’s stature as a primary destination for college graduates should sustain a vacancy rate of approximately 4 percent, though the delivery of new rentals may more significantly offset demand growth in the quarters ahead. The potential influx of college graduates, many of whom will occupy rentals and remain there for an extended period as they pay off student loans, has attracted developers. While the pipeline of planned projects in the suburbs is also expanding, the greatest potential effect of supply growth will register in the city, where completions will rise this year and additional projects wait to proceed. Steady hiring in the first quarter has sparked demand. Across the metro area, 8,000 jobs were added during the period, raising the number of positions created in the past 6 months to 14,400. The private sector continues to set the pace, …
Consumers are loosening their wallets in St. Louis, and the thaw in spending has given the local retail market a much-needed shot of adrenaline. The discount retailer is still king, but new concepts and developments are gaining ground. With positive absorption of space on the rise, investment sales are increasing. St. Louis is poised to see a major development in the central trade area at the former Hadley Township site. After several failed attempts at development in the past 10 years, Hadley seems destined for redevelopment at last. The 40-acre site is located on I-64 in the central suburb of Richmond Heights and will consist of an assemblage of 150-plus commercial and residential parcels. In the southern half of the development, Menards was selected by the city over Costco and will open one of its first St. Louis locations in early 2014. The site plan includes a 240,000-square-foot store with additional out parcels for retail and restaurant users. In the northern half, Pace Properties has received approval to develop a two-story, 400,000-square-foot, big-box store for an as yet unnamed retailer. This development will further enhance the desirability of the Richmond Heights/Brentwood area as a retail destination and will boost asking …
The Kansas City industrial market is healthier than most, largely because the market was not overbuilt during the last expansion phase. So, the overall vacancy never topped 10 percent. Currently, we are seeing major shortages in spaces ranging from 100,000 square feet and above, with only a 2.5 percent to 3 percent vacancy rate in that segment. That’s particularly true among buildings with 24-foot clear height ceilings. Because vacancies are on a steady decline in building sizes of about 75,000 square feet — specifically in quality, high-cube warehouse space — the need for speculative construction is overdue. Few developers have had the fortitude or the financing to undertake speculative development in recent years. A Sun Life Financial-owned facility, which spans 600,000 square feet in Olathe, Kansas, is now fully leased to Bushnell and FedEx. The facility was built in 2008. Kessinger/Hunter & Co. is developing a second building for Sun Life at I-35 Logistics Park. The state-of-the-art, 800,000-square-foot facility will be the largest building ever built on a speculative basis in the Kansas City area. On the northern side of the market, Horizons Business Park in Riverside, Missouri, has broken ground on a 155,000-square-foot distribution center and is contemplating additional …
There is almost a perfect storm gathering in the multifamily markets in Kansas City. Rents are rising, vacancy is decreasing, cap rates have compressed and valuations are up for sellers. Debt capital is cheap for buyers, and there’s plenty of pent-up demand for multifamily investment. Meanwhile, developers are coming out of hiding, and some great new projects are either under construction or on the drawing board. The fundamentals of the Kansas City multifamily market continued to show strength through the first quarter of 2012. At the end of 2011, the average rent was $727 and is forecast by credible sources to grow in excess of 4 percent in 2012. Kansas City’s vacancy has decreased by 50 basis points. Overall vacancy in the marketplace stood at 5.6 percent at the end of the first quarter, according to New York-based real estate research firm Reis. Net absorption totaled about 2,800 units in 2011, the highest annual absorption since 2000, according to Reis. Net absorption in the Kansas City apartment market was 592 units in the first quarter of 2012. At the end of the 2011, Class A apartments were selling at or above $100,000 per unit at cap rates consistently below 6 …
With the local economy recovering from the Great Recession, the commercial real estate industry in Cincinnati is heating up. Strong office leasing activity in recent quarters has driven down the vacancy rate. From a high of 21 percent in the first quarter of 2011, total vacancy has steadily dropped to its current rate of 19 percent, the result of approximately 700,000 square feet of positive absorption, according to Jones Lang LaSalle. The real estate services firm tracks Class A and B office properties greater than 20,000 square feet, excluding owner-occupied medical and government buildings. The growth of Cincinnati businesses has sparked increased demand for office space, leading to approximately 1 million square feet of product currently under construction or planned for the next year. Meanwhile, the lending climate has improved greatly since the depths of the recession. Cincinnati has welcomed corporate relocations and expansions during the past year. Following several years of short-term lease renewals and tenants giving space back, this is welcome news that is already improving market fundamentals. Driving the increase in office demand is job growth in the healthcare industry as well as the professional and business services sector. The three largest leases within the last year …
Unlike many other major U.S. hotel markets in 2008 and 2009, Kansas City did not experience devastating decreases in occupancy and average daily rate (ADR). The severe drop in revenue that stung markets such as Detroit, Cincinnati, Chicago, Phoenix, San Diego as well as Dallas did not occur in Kansas City. In some instances, these other markets experienced decreases in revenue per available room (RevPAR) of 30 to 35 percent, while Kansas City experienced a decline of 15 to18 percent. The Kansas City hotel market recorded increases in ADR, occupancy and RevPAR throughout 2011 and the trailing 12-month period ending in March 2012. During this period, occupancy increased 3.4 percent to 57.3 percent, average daily rate increased 2.3 percent to $82.61 and RevPAR increased 5.7 percent to $47.37. According to Smith Travel Research, the data was based on 285 reporting hotels with a total of 31,927 rooms. The biggest improvement in real estate fundamentals occurred in the Overland Park-Lenexa market and the Country Club Plaza area. Both areas posted overall RevPAR growth of an impressive 10 percent, while the Kansas City North Airport market experienced growth of only 3.8 percent. Occupancies in the downtown hotel market are projected to remain …
After posting slightly positive net absorption for three consecutive quarters, the industrial market in Cincinnati bucked that trend in the second quarter by recording negative absorption of 836,000 square feet, according to Xceligent. This setback can partially be attributed to a falloff in demand, but was largely the result of several large owner-occupants moving out of their buildings. As a result, the overall vacancy rate climbed 20 basis points in the second quarter to 10.2 percent. Still, that’s below the peak vacancy rate of 10.7 percent reached in the second quarter of 2011. Significant new vacancies in the second quarter included Avon (750,000 square feet), Hamilton Fixture (330,000 square feet), and Sonoco Corrflex (319,000 square feet). This wiped out the positive absorption recorded in the first quarter. Through the first half of 2012, the market has posted 395,000 square feet of negative net absorption. Underlying Trends Similar to what we experienced in 2011, tenants are taking advantage of discounted rental rates in Class A product. There has been marginal activity involving Class B or C product. The good news is that there are growth opportunities with some space requirements of more than 100,000 square feet. That demand is driven by …
The Chicago downtown office market is on a roll. Vacancies have fallen for more than 12 months straight as corporations pull the trigger on new or rehabbed office space in marquee locations to accommodate consolidation and growth. One of the big stories is that the market is far more geographically diverse today. We are seeing the suburban sprawl in reverse as corporations leave far-flung business parks to seek out trendier 24-hour neighborhoods such as River North (Chicago’s tightest submarket), the West Loop and the Millennium Park/East Loop-area. Where you work is also increasingly where you live. Chicago’s 136.7 million-square-foot office CBD market reported a 14.9 percent vacancy rate at the end of the first quarter, a welcome decline from the 15.4 percent reported during the fourth quarter of 2011. According to CBRE Group, downtown vacancy has fallen in every quarter since the end of 2010, when the rate was 17 percent. It peaked at 17.3 percent midway through 2010. Overall vacancy numbers include sublease space. Direct vacancy was 13.6 percent in the first quarter of 2012, down from 14 percent in the prior period. Compare that to the suburbs, where the first-quarter vacancy rates rose to 24.6 percent after consecutive …
There is substantial industrial development occurring in the Cincinnati market on a non-speculative basis, with three projects in various stages of completion. Foreign capital and the need for a French firm and a Japanese company to have a significant American manufacturing and distribution presence have spurred two of the developments. Usui International Corp., a Japanese automotive/engine components maker of fuel injection systems for Ford, Honda and Toyota, has nearly completed a 90,000-square-foot, heavy industrial facility in the Cincinnati suburb of Sharonville, just north of downtown. Usui toured the region for nearly a year before selecting the Sharonville site and purchased approximately 12 acres. Cincinnati Commercial Contracting is the developer of the build-to-suit project, which Usui will own. The project is scheduled for completion in the second quarter of this year. The Usui deal reflects a trend among Japanese auto companies of building facilities in North America for several reasons: Japan’s energy infrastructure is aging and its production capacity is limited, particularly with the closure of its nuclear generators; the high value of the yen versus the U.S. dollar has increased the price of Japanese-made products; a need to minimize logistics and shipping time and costs by switching much of Japan’s …