KANSAS CITY—The big economic story of 2014 was certainly the healthy expansion in jobs, and according to a new report by DTZ, the Kansas City region generated 22,300 new jobs during the year and all of its commercial real estate sectors benefited. And even though the most impressive growth was in the industrial and office markets in the surrounding suburbs, the downtown is also undergoing a revival.
“There is a great deal of activity taking place in the downtown's residential market,” Carolyn Bagnall, director of research at DTZ in Kansas City, tells GlobeSt.com. “There is also a fair amount of new retail activity in the downtown. It is much more healthy and active than it was a decade ago.”
Kansas City's apartment market closed 2014 with a significant increase in rents compared to the prior year, DTZ found. The average per square-foot rent was $0.88, an increase of 3.5% for the year. And in terms of occupancy, the downtown led the way. Its year-end occupancy was 96%, while both the city's Country Club Plaza submarket and suburban Johnson County were at 95%. The metro-wide average was 94%.
Much of the downtown's revival is driven by lifestyle choices, Bagnall adds. “Young adults simply have more of a preference for living downtown than previous generations.” The central city, for one thing, provides far more entertainment options than the suburbs. The Baltimore-based Cordish Co., for example, built the nine-block Power & Light District, an $850 million project that now provides a host of live music venues, theaters, bars, restaurants and nightclubs. Demand for new apartments continues to be strong and should keep pace at least through 2015, DTZ also found.
But even though apartment seekers may be driving the downtown revival, Bagnall adds that an increasing number of companies have chosen the downtown over the big suburban markets. As reported in GlobeSt.com, for example, Sungevity, Inc., a provider of residential solar services, was just the latest high-tech firm that picked downtown as the site for a significant new office space. Officials from the Oakland-based company said they will locate a new sales and service center in the CBD and bring about 595 new jobs here over the next five years.
Vacancy for the region's office sector peaked at 21.5% early in 2011. Since then, however, it has fallen steadily, and hit 18.1% at the end of 2014. South Johnson County continued to lead the region. Class A vacancy there, for example, was just 5.7% by the end of the year. And although the submarket around the city's Country Club Plaza has a class A vacancy rate of 18.1%, it will plummet to single digits when CBIZ moves into more than 100,000-square-feet next summer, Bagnall says.
During 2014, the average asking rate increased by 3% for both class A and class B offices, according to the new DTZ report. And available space fell from 12 million to 9.8 million square feet over the same period, an indication that vacancy will continue to fall.
The region's 196 million square foot industrial market continues to put up solid numbers as well. It produced 926,000 square feet of net absorption during the fourth quarter and 3.9 million square feet for the year, DTZ found. The vacancy rate did edge up from 7.4% at the end of 2013 to 7.8% at the end of 2014, but the firm attributed the rise to the 5.2 million square feet of space added by developers.
“Kansas City has been blessed by a number of things,” Bagnall says. For example, in January 2013, GM announced that it would spend $600 million to upgrade its Fairfax plant. A few months later, Ford announced that it would add 2,000 workers to its Kansas City Assembly Plant to meet consumer demand for the Ford F-150 and produce the new Ford Transit. This has fueled a huge expansion among auto parts suppliers in the region.
Furthermore, Bagnall adds that BNSF's new Logistics Park Kansas City, a 1,500-acre master-planned distribution and warehouse development in the Kansas suburb of Edgerton, is having a major impact. Bulk and modern distribution space accounted for 3.7 million square feet, or 64%, of the industrial space added in 2014, DTZ found. Johnson County now accounts for 28% of the metro area's industrial space, but has 44%, or 12.3 million square feet, of the bulk and modern distribution space.
Still, “the areas of employment producing the greatest growth in Kansas City are healthcare and professional and business services,” says DTZ managing principal Michael Mayer. “This, combined with a rise in housing prices and increased consumer buying, will make for a strong 2015 Kansas City commercial real estate market.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
