Strong Retail Absorption Jump-Starts Development Activity in Metro Kansas City

by Kristin Harlow

Nearly all of Kansas City is seeing a significant increase in retail and restaurant construction, with many new development projects now coming to fruition. Several of these new construction projects incorporate apartments and other types of entertainment, office or residential space above first-floor retail.

Propelled by the recent opening of the streetcar and new apartment complexes across the city, retail in downtown Kansas City received a lot of leasing attention in 2016, according to CoStar Group.

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David M. Block, Block & Co. Inc. Realtors

“More people are moving downtown for walkability and a taste of urban living, so retail positioned near the streetcar route or on the ground level of apartment buildings could see more demand,” wrote CoStar in its third-quarter overview of the Kansas City retail market. “In the area running from River Market down to Country Club Plaza, as much space leased in the first three quarters of 2016 as did in all of 2015.”

Meanwhile, we are experiencing a number of projects where the traditional, older enclosed malls and retail strip centers are being torn down and redeveloped as mixed-use properties across the Kansas City retail market.

Standout submarkets, corridors

Annual deliveries in greater Kansas City averaged just over 1 million square feet per year from 2012–15, but absorption has bested those totals and allowed vacancies to shrink each year.

Johnson County has historically experienced the largest retail growth in the Kansas City market and continues to see major shopping center development and redevelopment. The areas of Johnson County undergoing the most construction include 91st to 95th Street and Metcalf Avenue, the Metcalf Avenue corridor, west Shawnee Mission Parkway, 95th and Quivira Road and the 135th Street corridor. There are multiple developments with grocery anchors, entertainment users and big-box users that are gobbling up the new and existing retail opportunities.

Johnson County is a reflection of the other 21 counties throughout greater Kansas City that are experiencing strong retail occupancy as well as new construction of retail projects.

Some of the strongest growth areas outside of Johnson County include the Kansas Speedway area in Kansas City, Kan.; the Barry Road corridor along with the Metro North Mall redevelopment in North Kansas City, Mo.; the Liberty/Kansas City, Mo. area north of the river; the Independence Center Mall area in Independence, Mo.; Blue Springs, Mo. along the I-70 corridor; Lee’s Summit, Mo. along I-470, 50 Highway and 291 Highway; and the Grandview/Raymore/Belton, Mo. areas along I-49 (71 Highway).

The middle section of Kansas City is on the hunt for future retail development opportunities, but accumulating a large enough parcel of ground for retail development remains a challenge.

A variety of incentives including tax increment financing, community investment districts, transportation development districts and sales tax revenue bonds are a catalyst for continued retail growth in greater Kansas City on both sides of the state line. We do not expect a curtailment of these incentives in the immediate future, which will allow for continuation of new construction and redevelopment in the market.

 Healthy Vital Signs

Annual deliveries averaged slightly more than 1 million square feet per year from 2012 through 2015, but absorption has bested those totals and allowed vacancies to shrink each year, according to CoStar Group. Absorption totaled 1.6 million square feet during the 12-month period that ended Sept. 30, 2016

The vacancy rate in greater Kansas City stood at 5.3 percent at the end of third-quarter 2016, about 200 basis points below the historical average.

Now that many of the enclosed malls have been torn down or are in the process of demolition for redevelopment, there are few existing large spaces available.

Small shops continue to be leased up by local, regional and national retailers, which helps main the low existing vacancy rate throughout greater Kansas City.

Retailer Roster Grows

National retailers and regional chains continue to enter and expand in the Kansas City market while others are researching the area for future expansion. A few of the retailers that have made commitments or are considering adding locations in greater Kansas City include Sam’s Club, Costco, IKEA, Sprouts Farmers Market, Natural Grocers, Our House Furniture, At Home, Academy Sports, Dollar Tree, Genesis Fitness, Off Broadway Shoes, Planet Fitness, Lowe’s, Menards, Scheels All Sports and Restoration Hardware (new concept).

Restaurants entering or expanding in the Kansas City market include Eddie V’s Prime Seafood, Slim Chickens, Zaxby’s, Raising Cane’s Chicken Fingers, Andy’s Frozen Custard, HopCat, SPIN! Pizza, Pot Belly Sandwich Shop, Maggiano’s Little Italy, Qdoba Mexican Eats and more. There are also multiple urgent care and micro hospitals expanding in metro Kansas City.

2016 saw a major change in ownership with the sale of the world-renowned Country Club Plaza, one of the most popular and oldest retail shopping districts in the nation. Plaza KC Partners LLC, a venture owned by Taubman Centers Inc. and the Macerich Co., purchased the Plaza for $660 million from Highwoods Properties, the owner since 1998. Currently, it looks like business as usual under the new ownership and only time will tell if the new owners will make any major changes to Kansas City’s crown retail tourist destination.

In 2017, we expect the retail market conditions in the Kansas City area to continue as they did in 2016 provided there are no drastic changes in interest rates and incentives continue to stay in place. In short, it is an exciting time to be in the commercial real estate business in Kansas City.

-By David M. Block, President, Block & Co. Inc. Realtors. This article first appeared in the January 2017 issue of Heartland Real Estate Business magazine.

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