MONDAY, OCTOBER 26, 2009
by Dan RafterKansas City |
| Kenneth Block |
Kenneth Block is one of the principals of Kansas City-based Block Real Estate Services, LLC. He's a familiar name in Kansas City commercial real estate, and knows the ins and outs of his market. Midwest Real Estate News recently spoke to him about the state of Kansas City's commercial real estate market. The good news? Block found plenty of reasons to be optimistic about the Midwest city's fortunes.
Midwest Real Estate News: How is Kansas City faring during these tough economic times? Is it holding its own?
Kenneth Block: On the whole, Kansas City is doing fairly well. It has not had any disastrous drop in occupancy levels or rental rate levels. There obviously have been some reductions in market sectors, but we've not been hit as hard as other markets have been.
MWREN: What markets are doing fairly well right now?
Block: Multi-family has been the best, and industrial, too. Those are the most stable sectors right now. Multi-family has benefited from the residential problems. A lot of people have not been able to move into houses, so they are going to apartments. Industrial has benefited from the structural changes that have occurred in the distribution channels. Office has not been too badly hurt here, either. There have been some declines in occupancy, especially in the financial sector and in telecommunications. But we don't have as deep a list of these companies as some of the larger cities have. So we haven't been hurt as badly by the slumps in those industries.
MWREN: I assume that retail is one sector that isn't performing that well right now.
Block: Retail is still declining. That's because retail was so hot for so long here. The spigot, though, was basically turned off. The big companies are having difficult times. The small guys who survived because they had a nice line of credit are seeing these lines of credit being removed. That is causing many mom and pops to disappear or shrink.
MWREN: How is commercial construction activity faring?
Block: In almost every sector, construction has almost completely stopped. For the most part, the speculative type of construction has been shut down. Industrial spec building has been shut down. In office, we've seen the same thing. In the retail sector, what projects that are out there have for the most part been put on hold or have been shelved. Even though some are shovel-ready, there is just no financing available for them. A lot of this is based on a lack of financing, a lack of banks being able to provide or wanting to provide it. That has kind of shut down construction in terms of our marketplace. That is good, though. There is no reason at all to be building in a market where you have declining occupancies.
MWREN: What are some of the positives now in the Kansas City commercial market?
Block: This market did not get overbuilt. Some of the more significant big markets in the country did see overbuilding. There have been a number of high-profile markets that have been very badly overbuilt. They are suffering right now with no one to take on the extra space. It's a much more difficult market outside of Kansas City in terms of that. For the most part, everyone says the same thing, but it continues to be true: We don't see the big highs. We don't see the low lows.
MWREN: Kansas City, like many markets in the Midwest, generally tends to be a steadier market, right?
Block: The money goes to the high-growth areas, places like Phoenix or Las Vegas. It doesn't come that often to Kansas City in the middle of the country. There are no major tourist attractions here like the beach or the mountains that would cause people to come from various other parts of the country. That's why we don't have the high highs or the low lows. Once you come off of a high high, everyone freaks and panics. Money goes out as fast as it came in.
MWREN: How about in the future? Do you see good things happening in Kansas City?
Block: As far as industrial, long-term I am seeing a lot of good things happening. We are going to see a lot of big users coming to this market. You are seeing a lot of consultants advising clients to look at Kansas City. We are the second heaviest rail-traffic city in the country, behind Chicago. That is extremely beneficial. You are seeing intermodals starting to pop up. You are seeing major changes in the amount of infrastructure that is being built in our marketplace. That will be a significant factor long-term for industrial.
MWREN: What about in other sectors?
Block: For office long-term I think we'll stabilize. Our market should stabilize later by the end of the year or in the first month or two of next year. Then I think there will be a gradual rise. We are seeing a lot of people coming in from out of state. Kansas City is a great location for back office because of the central time zone. It's perfect for call-center operations. I think for retail, it's going to be another six to 12 months before all that shakes out. What has made this market good for retail in the past is that it is a very large land area. It is the second largest land area for a city in the country. You are constantly having people moving farther away from the core. Where people go, you need to have retail services. Long-term, our market is going to continue to be good. But it is going to take a period of time here for all of this to wash itself out.
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