Grocery Stores, Restaurants Dominate Retail Development in Kansas City Market

This rendering shows the Bluhawk mixed-use development in Overland Park, Kansas.

As most that pay attention to commercial real estate know, the retail real estate market is constantly evolving. That said, with change comes opportunity, and we are both recognizing and capitalizing on that opportunity in the Kansas City market.

As has been the case for the last few years, we continue to see a significant amount of “right-sizing” from big box and junior box retailers. Although e-commerce remains a prevalent means of purchasing for consumers, retail closures are not as abundant as many have predicted. Rather, many retailers are tweaking their square footage needs in search of the perfect footprint to optimize in-store sales in conjunction with e-commerce.

Max DiCarlo, Block & Co. Inc. Realtors

While e-commerce continues to gain market share, it still accounts for less than 10 percent of retail sales nationwide, as of last year. The need for brick-and-mortar stores remains imperative to the success of most retailers.

In the Kansas City metro area, retail vacancy rates remain low at 5.6 percent as of the second quarter. While that is a slight increase over 5.5 percent in the first quarter, it is a significant improvement over last year’s second-quarter figure of 6.3 percent.

A few major 2018 transactions contributing to the positive net absorption over the last year in metro Kansas City include Target moving into 125,301 square feet at 5201 N. Belt Highway, Price Chopper moving into 55,000 square feet at 1191 NE McQuerry Road and Hobby Lobby moving into approximately 51,000 square feet at 3311 S. Iowa St.

New construction trends

Although construction costs have been on the rise, we continue to see a significant amount of new development, from single-tenant retail buildings all the way up to large, grocery-anchored mixed-use developments. During the second quarter of this year, approximately 104,000 square feet of retail space was completed in metro Kansas City. This keeps pace with the last four quarters of approximately 590,000 square feet.

A great example of a new mixed-use project from developer Price Brothers is Bluhawk, which is located at 159th Street and 69 Highway. Now open in Phase I is Bluhawk Marketplace, which is anchored by a 65,000-square-foot Cosentino’s Market. Additional plans for Phase I development include a Holiday Inn Express hotel and a sports park and arena. Phase II calls for the Cosmosphere Innovation Space, a satellite of the Hutchinson, Kan. Cosmosphere, as well as two hotels, office and outlet retail space.

Another exciting development that is underway in metro Kansas City is Oddo Development’s Sonoma Plaza. A 60,000-square-foot McKeever’s Market will anchor the project, which is located at 87th Street and I-435. In addition to the market, there will be approximately 70,000 square feet of retail and restaurant space built on the site. Planned tenants include Chick-fil-A, Culver’s, Kneader’s Bakery, Chipotle and Starbucks. Beyond the retail component, construction is underway on residential villas, and there is a planned four-story apartment building to be constructed on the site.

As evidenced by BluHawk and Sonoma Plaza, the majority of large-scale retail development in the area is driven by grocery anchors, but traditional power center development continues in underserved markets as well. Christie Development’s Belton Gateway project is a prime example. Phase I is fully completed and occupied by anchors Hobby Lobby and Academy Sports, with pad users Heartland Dental and Fazoli’s rounding out the tenant lineup.

Phase II construction is nearing completion, and spaces are being delivered for retailers Five Below, Party City, Petco, Marshalls and Ross Dress for Less. Kneader’s Bakery has opened on a pad site at the main intersection, and multiple pad opportunities remain for future restaurants and retailers.

Fast-casual leads the way

Restaurant activity in metro Kansas City continues to follow national trends. Casual dining is struggling along, as once-iconic brands like
Applebee’s and Bob Evan’s shutter stores throughout the metro area. Many of these stores are being redeveloped into multi-tenant retail and restaurant buildings.

Fast-casual restaurants continue to account for the most significant growth in the restaurant sector.
Chicken franchises such as Slim Chickens, Zaxby’s, Raising Cane’s and Chick-fil-A continue to add multiple units annually. Quick-service pizza continues its growth trend in the market with Blaze Pizza and MOD Pizza leading the way.

Beyond that, we are seeing continued expansion from many of the traditional fast food users such as Taco Bell, Dairy Queen, Burger King, Hardee’s, Culver’s and more. All in all, it’s safe to say that restaurant growth is as healthy as we’ve seen in a long time, with nearly all of that growth being driven by quick-service and fast food users.

In sum, the retail market in Kansas City is alive and well. Although many fear — and have feared for the last few years — that a “retail apocalypse” is on the way, many signs point to the contrary. Prevalent retailers continue to open stores, developers continue to build and new restaurant concepts are coming to a neighborhood near you. Change within the retail sector is sure to continue, but whereas many fear that change, I believe it should excite and motivate those in retail real estate. New tenants are joining our retail centers and unique opportunities are continuing to present themselves as part of the evolution of retail.

— By Max DiCarlo, Retail & Investment Specialist, Block & Co. Inc. Realtors. This article originally appeared in the September 2018 issue of Heartland Real Estate Business magazine.

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