The famous Kansas City song — first recorded by Wilbert Harrison in 1959 — says, “I’m going to Kansas City, Kansas City here I come.” Well, in 2013, the retailers did come to Kansas City, which was beautiful music to the ears of developers and landlords throughout the area. Some of the most notable new additions to the Kansas City retail scene include IKEA, The Container Store, Academy Sports + Outdoors, Scheels Sporting Goods, REI, Fresh Market, Rock & Brews, Cinetopia, Eileen Fisher, Freebirds World Burrito, Chuy’s and Hallmark’s new store concept called “HMK.” Still other retail additions include Pinstripes, an upscale entertainment and dining venue featuring bocce and bowling, as well as Sprouts and Corner Bakery. Geographic proximity to other established markets for these retailers led to a natural migration pattern to Kansas City. However, the following factors created new inventory opportunities and supplied the key ingredients for an active retail climate in 2013 that should continue in 2014: • the metro’s declining unemployment rate to 6.3 percent from a recent high of 8.4 percent in 2010; • the buoyant housing market, with an estimated 5,960 new residential and apartment units added during 2013 versus 2,342 units in 2010; …
Missouri
Downtown St. Louis has always marched to the beat of a different drummer. Despite a sluggish economy and a history of major corporations leaving for a variety of reasons, the downtown office market has experienced steady, incremental growth that has been reflected by the positive absorption since 2009. Much of this growth is due to tenants looking to expand or relocate in order to take advantage of the many options downtown, which generally are less expensive than suburban locations. Since 2012, downtown St. Louis has gained 425,000 square feet of positive absorption in the office sector. New Life for Older Buildings Recent building renovations also play a part in the growth. Creative companies are looking for open, contemporary facilities, which can be found in old buildings that have been redeveloped. These revitalized buildings now offer new infrastructure and modern space that exude a cool look and vibe. Indeed, that trend can be found in historic structures like the 450,000-square-foot Park Pacific, once the headquarters of the Missouri Pacific Railroad and now 80 percent luxury apartments and 20 percent office (tenants are CBS Radio and Creative Producers Group) and retail space. Cupples 9, a 144,000-square-foot building that was once part of …
Speculative construction in Kansas City’s industrial market has exceeded the height of the last boom for a couple of reasons. On a macro level, the economy is improving, so it’s only natural that the local market would follow suit, especially given its logistical advantages. The development of intermodal facilities, the aging stock of existing product combined with no new construction in the past four years — plus a thriving automotive sector — are pushing this new wave of development locally. During the first half of this year, the Kansas City industrial market has absorbed more than 2 million square feet of space, driving down the vacancy rate to 7.5 percent, slightly lower than the historical average of 7.6 percent and down from the peak of 8.4 percent in 2011. We’re likely to experience an increase in vacancy during the next 18 months, however, as six properties totaling slightly more than 2 million square feet deliver. In fact, 2013 will post the most speculative development of the past decade, exceeding 2008’s total of 753,000 square feet. New Logistics, New Product One of the key demand drivers for the latest boom involves the more sophisticated approach to logistics on the part of …
Consumer spending in St. Louis is up, according to the latest Federal Reserve Beige Book. Likewise, the Fed reports that residential real estate activity is increasing at a moderate to strong pace with escalating home sales and prices. All around, there is a sense of optimism that has jump-started retail activity. The vital signs are just starting to reflect this surge in activity and are expected to continue improving for the foreseeable future. Asking rates, averaged across all retail sectors, have remained near $12 per square foot triple net over the last three quarters, while vacancy rates have fallen from 9 percent to 8.5 percent during that same period. Net absorption has seen positive gains over the last three quarters with the delivery of a few new fully occupied projects. These positive changes in absorption and vacancy rates should result in higher asking rates going forward. Competitive Landscape An example of a successful project is in Chesterfield Valley, where two outlet mall developers have created more than 660,000 square feet of new retail space within a two-mile radius. The two projects, headed by Taubman Prestige Outlets and Simon Property Group, will open this month in time for back-to-school shopping. The …
The St. Louis industrial market continues a slow and steady march toward recovery. The Midwest is often looked to for stability and consistency, and with the vacancy rate and lease rates changing little over the past two years, the description is holding true. In fact, the overall average lease rates for warehouse space have only dipped slightly after holding steady, while vacancy has been a consistent 8.7 percent for warehouse product. While the lease rates have been stable, we have begun to see sale prices drop, especially for vacant product. As these pricing changes begin to hit the market, the sense that we are at the bottom is prevalent, and the opportunities are there for anyone who can buy buildings with cash. Changing of the Guard While the real estate fundamentals may have remained the same for two years, the property ownership picture has changed quite a bit. The exit from the St. Louis market by TA Associates in January resulted in the entry of Cobalt Capital, which purchased the 13-building portfolio. Beverly Hills, Calif.-based Blue Real Estate has seen its flex portfolio of 850,000 square feet go back to the lender, opening the door for another player to get …
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 …
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 …
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 …