CRE Midwest

The big news for Kansas City? 2019 looks to be another strong CRE year

The big news for Kansas City? 2019 looks to be another strong CRE year,ph01
An expansion of the Kansas City Airport is expected to provide a boost to the region’s economy.

Kansas City’s commercial real estate market might not get the headlines generated in bigger cities such as Chicago, New York or Los Angeles. But as 2019 begins, the CRE market here looks to be as strong as any in the Midwest.

And leading the way? To little surprise, the Kansas City region’s multifamily and industrial markets are both thriving. The office sector here is steady, if not booming. And retail? Smart retailers are evolving to meet the changing needs of consumers, providing a boost to this sector even as it struggles with the closures and bankruptcy filings of big-name companies.

The news in Kansas City, then, is positive, as commercial real estate professionals here look forward to another busy year.

Greg Duvall, senior vice president and managing director with the Kansas City regional office of NorthMarq, said that the area’s location has been a boon to its commercial real estate market.

Kansas City, of course, is centrally located, encouraging companies to open warehouses and distribution centers here. It’s easy for these companies to ship their products quickly from Kansas City and to their customers.

But that location helps in other ways. Being in the center of the Midwest means that Kansas City takes a more moderate approach to new construction and spec projects.

“Being located at the heart of ‘fly-over’ country has its benefits,” Duvall said. “Our growth has historically been moderate but steady. As a result, we are not impacted by the infusion or withdrawal of ‘hot’ money seeking exception or fast returns.”

Kansas City’s economy has also become more diverse, Duvall said.

“Companies like Sprint, Cerner, Garmin and others have attracted and nurtured talent that has created career opportunities beyond Kansas City’s traditional, but slow-growing, pillars of employment such as government and agriculture,” Duvall said.

Kenneth Block, managing principal of Block Real Estate Services, says that he expects the Kansas City real estate market to remain strong in 2019, thanks in part to several important projects now underway both in the real estate and municipal sectors.

On the municipal side, Block pointed to the Kansas City Streetcar’s Main Street extension that is now moving forward both at the local and federal funding levels. If the project receives the about $227 million in federal funds that local officials expect, the extension should be built in the next two to three years. Block says that such an extension would bring more people, and foot traffic, from Kansas City’s downtown corridor through its Midtown area.

Block also cited the expansion of the Kansas City International Airport as another large infrastructure project that could provide a boost to the region’s commercial real estate market. The city and airlines were aiming for a final agreement on this project by the end of January. An agreement would move the $1.6 billion project forward, one that local leaders, including Kansas City Mayor Sly James, say could be the most important economic development project that the city has taken on in the last 50 years.

On the private side, Block says that the Sprint campus in Kansas City is currently under contract to sell, a deal that should be wrapped by spring of this year. A sale/leaseback of part of the buildings to Sprint and a redevelopment of about 1 million square feet will transform the campus into a mixed-use facility.

Another big project? Netsmart is expanding into the 150,000-square-foot Teva Pharmaceutical building, a project that will be completed this year. Developer CityPlace is also targeting Kansas City, planning another 370 units in the Apex multifamily project here and two office buildings in CityPlace Corporate Centre III and CityPlace Corporate Centre I totaling 240,000 square feet.

Galleria 115, a $50 million mixed-use retail, multifamily and office project at 115th and Nall is slated for construction in the middle of 2019. And Indianapolis’ Millhaus is planning a $65 million mixed-use project of 4.3 acres in Kansas City’s East Crossroads District. Construction is expected to start this year.

Block said these are just some of the bigger projects that he expects to shape the Kansas City commercial real estate market this year.

“We expect 2019 to be a very strong real estate year as long as the interest rates stay in check and the global economy does not continue to deteriorate as it began to in late 2018,” Block said.

Block pointed to the industrial and multifamily sectors as the strongest in the Kansas City area. More than 6 million square feet of industrial space was completed in 2018, while developers added more than 2,000 multifamily units last year. Block said that an impressive 8,400 multifamily units are under construction now and expected to be delivered to the Kansas City area in 2019 and 2020.

“The biggest surprise in writing our annual report was the amount of investment activity in Kansas City real estate,” Block said. “Not only have investors increased their allocations to second-tier cities like Kansas City, but we are seeing a substantial increase in international monies through sovereign funds and joint ventures with institutional developers.”

Block says that the influx of institutional capital should only increase, and significantly, once the new airport expansion is completed.

This doesn’t mean that commercial real estate in the Kansas City region – and across the country – won’t face challenges in 2019. Block looks overseas and sees a global economy that is weakening. He also said that the tariffs in place between the United States and China, and those between the United States and the European Union, will continue to slow global growth.

“Our biggest concern is a weakening global economy that will then affect the national economy and, thereafter, affect our Kansas City economy,” Block said. “This could cause lenders to pull back the reins on financing and investors to move their allocations into more liquid positions such as cash, bonds and equities.”

That, Block says, would slow both development activity and growth in Kansas City.

“So, while projections are for a strong Kansas City economy in 2019, these challenges could affect that prognosis,” Block said.

Duvall, though, said that despite these challenges, 2019 should be a strong year for Kansas City.

“I expect 2019 will be another good year for the Kansas City commercial real estate market, although much will depend on the course of interest rates and the U.S. economy in general,” Duvall said. “Provided rate increases occur relatively in line with existing expectations, our markets should be able to continue to grow in a healthy manner.”