Ingram's May 2023

KC Comparison Industrial space is in high demand nation- wide, but even more so in Kansas City than the rest of the country. Meanwhile, the two commercial sectors currently ailing—retail and office—are healthier in the Kansas City market than the national averages for each.

their feet set as to what that’s going to look like. What we’re seeing is many companies are considering reducing their footprint, but they still want an office and want to be in a nicer and different configuration, with more amenities in that space.” From a broker’s point of view, he says, “That makes life more difficult; uncertainty means tenants, in most cases, are less willing to commit to a long-term lease. They’re consid ering how to reduce or change their space for the better, if they can. That means a shorter term in net reduction and more expensive buildouts. That makes things challenging.” While slow, the office market is nowhere close to dead, Brooks says. Rather, “more and more, employers are really now recovering from the hybrid work model, not that it’s going away, either, but many are trying to get employees back into the office.” According to Jones Lang Lasalle’s market assessment for the first quar ter of 2023, technology has been de throned as the top sector for office leasing activity, something to be ex pected following the layoffs of tens of thousands in that sector. Leasing in that sector was off more than half from its pre-pandemic levels. Tech ceded the No. 1 spot to bank ing and finance for office lease deals in the quarter, accounting for 29.4 million square feet of deals. Of course, the industrial market that caught fire in this region a de cade ago continued to burn, notching a 3.1 percent vacancy rate in the quar ter. And multifamily remains strong, though having backed off a bit from its peaks over the past five years. That leaves retail, where Owen Buckley of LANE4 Property Group continues to navigate seas that turn ed stormy long before the pandemic showed up. But the owners of retail spaces are figuring out a response to the e-commerce explosion of the past 15 years. Speaking just hours after Bed, Bath & Beyond became the latest big box gladiator to fall in battle, Buckley nevertheless says, “I do think things have stabilized a bit. Online and the physical store will both be very im portant outlets for retail, each play

ing an important part. People like convenience; that never goes out of style. With most things you see in this country, no matter what it is, success seems to be based on the convenienc es of something—people enjoy that experience because it saves time. Or dering online and getting products delivered to your door is something people like.” At the same time, there are shop ping experiences for which a comput er is no substitute. People want to as sess the look, the feel, and the style of something before they buy it. That’s hard to do from a mobile app. “We’re social creatures, we like to interact, to touch, feel and try differ ent things on, try different foods, so the physical part of retail will contin ue to be strong,” Buckley said. “We haven’t seen a lot of new construction in general over the last 10-12 years, so I think that’s helping, too. Every day, the country is getting bigger, but we haven’t built much retail,” which helps right-size the environment in a changing sector. One important issue facing com mercial realty is the way investors are assessing opportunities. With office space, said Kerr, “I think the money is there; the question is how much pre-leasing you have to do to kick a project off. In the past, it’s been about 40 percent, but now that number may be a little higher.” Because of bearish sentiment on offices in the lower tiers of Classes B and C, he says, there’s a flight to qual ity—by both investors and companies seeking space—in the newer Class A properties that are more attractive and have better amenities such as coffee bars and on-site gyms for em ployees. “People gravitate to the new office space,” he said. “A lot of it because it has been a tight labor market. More owners are viewing office space as an HR tool, and companies need to be in a really nice office building if they want to attract and retain the best talent in the business. Because of that and how well Class A is doing in Kansas City, we do have available opportunities for some new offices to be built, and I think they will lease up. I think the demand is there.”

OFFICE

Inventory U.S.: 8.2 billion square feet KC Area: 128 million square feet Vacancy Rate U.S.: 12.31% KC Area: 10.20% Rental Rate U.S.: $34.37/sf KC Area: $21.32/sf Sales Price U.S.: $325/sf KC Area: $144/sf

RETAIL

Inventory U.S.: 11.8 billion square feet KC Area: 131.5 million square feet Vacancy Rate U.S.: 4.26% KC Area: 4.10% Rental Rate U.S.: $23.70/sf KC Area: $17.20/sf Sales Price U.S.: $242/sf KC Area: $165/sf

INDUSTRIAL

Inventory U.S.: 18.1 billion square feet KC Area: 349 million square feet Vacancy Rate U.S.: 4.00% KC Area: 3.20% Rental Rate U.S.: $11.01/sf KC Area: $6.43/sf Net Absorption U.S.: 397 million square feet KC Area: 17.1 million square feet

Source: Block Real Estate Services 2023 market report

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I ng r am ’ s

May 2023

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