The apartment market in metro Kansas City is in an expansion phase, driven in large part by strong renter demand and an improving economy. Developers are building and opportunistic sellers are bringing properties to market. Meanwhile, the core, growth and value-add investors are gobbling up assets.
Lenders are competitively financing both acquisitions and new developments in all classes of properties. Renters can feel the momentum as well, with more product to choose from and higher rents.
Employment Summary
It all starts with jobs. The Mid-America Regional Council, which serves the nine-county Kansas City metro area, estimates that the local economy added 12,300 jobs in 2013, correlating to annual GDP growth of 2.7 percent. This figure compares favorably with U.S. GDP growth of approximately 2 percent during the same period.
The 12-month period from August 2012 to August 2013 provides a window into the rebound in the local employment market. The leisure and hospitality sector created 5,800 net new jobs during that stretch, while the professional and business services sector added 5,700 new jobs.
Meanwhile, the mining, logging and construction industries added a total of 2,600 jobs in the metro area (mostly construction), including 1,900 in Kansas and 700 in Missouri.
Development Accelerates
To keep pace with this economic expansion, developers delivered a total of 1,300 new apartment units in 2013, nearly double the deliveries in 2012.
The larger Class A assets that opened in 2013 included the 212-unit Village at Mission Farms, located just west of Mission Road and north of I-435 in Overland Park, Kan. (This development actually opened in December 2012, but for absorption purposes is included in the 2013 figures.)
Other projects completed in 2013 include:
• Prairie Creek Apartments, 208 units off Renner Road north of 95th Street in Lenexa;
• West 39th Street Apartments, 71 two-bedroom units at State Line Road and 39th Street in the University of Kansas Medical Center area;
• Residences at Burlington Creek, 298 units in the Northland just west of I-29 off Tom Watson Parkway;
• Lodge at Highlands Village, 230 units just east of Roe Boulevard and north of I-435 in Overland Park;
• Village West Luxury Apartments, 306 units in western Wyandotte County.
Four of the six developments were the work of two local developers, Price Brothers and VanTrust Real Estate.
As of mid-December 2013, 760 of the newly delivered apartments had been leased. The South Overland Park area led the way with 430 units leased. Absorption is expected to continue at a healthy pace even through the winter months.
Other developments that may open in 2014 or 2015 include:
• 51 Oak, 150 units atop a Whole Foods grocery store on the west edge of the UMKC campus;
• the downtown Power & Light District apartments, comprised of 250 units in twin high-rises;
• the Woodside Village mixed-use development an estimated 330 apartment units; and an additional 180 units at the growing Prairiefire development;
• Briarcliff Riverfront Apartments, 340 units encompassed in the larger Briarcliff mixed-use development;
• Mission Gateway Apartments, 330 units at Shawnee Mission Parkway and Roe Avenue;
Developers are expected to pull back on applications for building permits in 2014, requesting an estimated 2,600 units, down approximately 7 percent from last year’s permits.
The increase in new supply will keep developers and their lenders on guard, to say the least.
The good news is that the employment picture in the Kansas City area continues to brighten. Total nonfarm payrolls locally are expected to grow by 18,200 in 2014.
Rents Trending Upward
During the past 12 months, the average asking rent across the metro area increased 3.2 percent to $869. Rents in the University of Missouri-Kansas City (UMKC)/Plaza submarket climbed an impressive 8.7 percent, resulting in an average rent per month of $1,332.
Submarket vacancy rates ranged from 1.6 percent in the almost-full Merriam/Mission/Prairie Village submarket to 9.9 percent in the Raytown submarket.
Year-over-year occupancy across the metro area dipped 30 basis points to 94.1 percent in response to new supply.
The sales volume decreased slightly in 2013 compared with 2012, with an estimated 47 transactions as of mid-December totaling approximately $450 million.
The average price per unit increased an estimated 5 percent to $71,500 per unit from $68,000 per unit.
— By Laurel Wallerstedt, Vice President, Hendricks-Berkadia | Apartment Real Estate Advisors. This article first appeared in the January 2014 issue of Heartland Real Estate Business magazine.