Midwest Real Estate News August 2010 : Page 4

4 Midwest Real Estate News® August 2010 PROFILE | KANSAS CITY Kansas City commercialmarket holding up well, despite challenging economy By Dan Rafter, Editor Tim Schaffer, executive vice president of Kansas City-based Red Brokerage, con-siders himself lucky: He’s brokering com-mercial office deals in Kansas City. That, he says, beats doing the same in many other markets across the country. That’s because the commercial real es-tate market in the city is actually holding up better than in most other similar sized cities. Schaffer points to Kansas City’s diverse economy and its ideal location in the mid-dle of the country as two of the reasons why this Midwestern market has been so stable even during the worst days of the recession and its slow recovery. And he’s far from alone. The commercial real es-tate pros working the Kansas City market say that, they, too consider themselves fortunate to be doing business here. “The market here is holding up reason-ably well,” Schaffer said. “Activity is off from what it was several years ago. You can’t argue that. But we’ve had pretty de-www.rejournals.com cent activity on the tenant front, consid-ering the state of the economy. I’d say Kansas City remains a solid market today.” Positive Signs Kenneth Block, managing principal of Kansas City’s Block Real Estate Services, is one of those commercial pros who’s finding positive signs in the Kansas City region. He’s not naïve, though. He knows that though the commercial real estate market is fairly steady in Kansas City it still faces challenges. “There are positive signs in some sec-tors and not-so-positive ones in other sec-tors,” he said. On the positive side, Block points to in-dustrial. Kansas City has become a more visible target for large distribution ware-houses, he said. There are several reasons for this. Rail service has become more important for companies hauling goods across the country thanks to new laws setting limits on how many hours at a time that drivers can log as they crisscross the country. Block also points to the increase in fuel costs, increases that are causing some companies to shift gradually from truck transportation to rail. Then there is the matter of the increas-ing number of imports coming into the country. Distribution centers in San Diego and Los Angeles are getting overwhelmed by these imports, and aren’t able to send the goods coming in toward their final destinations quickly enough. This is lead-ing to spoiled perishables. Efforts are now underway to develop a new port in Mexico, Block said. This would allow goods to come up Interstate-35, a highway that moves right through Kansas City. “People are looking for sites from which they can reach a good portion of the country in two days,” Block said. “Kansas City meets this goal.” Three new intermodal centers have ei-ther opened in the Kansas City area or re-ceived approval in the last three years: CenterPoint-KCS Intermodal, KCI Inter-modal Business Centre and the Burlington Northern Santa Fe Corporation’s inter-modal park in nearby Gardner, Kansas. Block says that the intermodal activity

Holding Steady In KC

Dan Rafter

Kansas City commercial market holding up well, despite challenging economy<br /> <br /> Tim Schaffer, executive vice president of Kansas City-based Red Brokerage, considers himself lucky: He’s brokering commercial office deals in Kansas City. That, he says, beats doing the same in many other markets across the country.<br /> <br /> That’s because the commercial real estate market in the city is actually holding up better than in most other similar sized cities.<br /> <br /> Schaffer points to Kansas City’s diverse economy and its ideal location in the middle of the country as two of the reasons why this Midwestern market has been so stable even during the worst days of the recession and its slow recovery. And he’s far from alone. The commercial real estate pros working the Kansas City market say that, they, too consider themselves fortunate to be doing business here.<br /> <br /> “The market here is holding up reasonably well,” Schaffer said. “Activity is off from what it was several years ago. You can’t argue that. But we’ve had pretty decent activity on the tenant front, considering the state of the economy. I’d say Kansas City remains a solid market today.” <br /> <br /> Positive Signs <br /> <br /> Kenneth Block, managing principal of Kansas City’s Block Real Estate Services, is one of those commercial pros who’s finding positive signs in the Kansas City region.<br /> <br /> He’s not naïve, though. He knows that though the commercial real estate market is fairly steady in Kansas City it still faces challenges.<br /> <br /> “There are positive signs in some sectors and not-so-positive ones in other sectors,” he said.<br /> <br /> On the positive side, Block points to industrial. Kansas City has become a more visible target for large distribution warehouses, he said.<br /> <br /> There are several reasons for this. Rail service has become more important for companies hauling goods across the country thanks to new laws setting limits on how many hours at a time that drivers can log as they crisscross the country. Block also points to the increase in fuel costs, increases that are causing some companies to shift gradually from truck transportation to rail.<br /> <br /> Then there is the matter of the increasing number of imports coming into the country. Distribution centers in San Diego and Los Angeles are getting overwhelmed by these imports, and aren’t able to send the goods coming in toward their final destinations quickly enough. This is leading to spoiled perishables.<br /> <br /> Efforts are now underway to develop a new port in Mexico, Block said. This would allow goods to come up Interstate-35, a highway that moves right through Kansas City.<br /> <br /> “People are looking for sites from which they can reach a good portion of the country in two days,” Block said. “Kansas City meets this goal.” <br /> <br /> Three new intermodal centers have either opened in the Kansas City area or received approval in the last three years: CenterPoint-KCS Intermodal, KCI Intermodal Business Centre and the Burlington Northern Santa Fe Corporation’s intermodal park in nearby Gardner, Kansas.<br /> <br /> Block says that the intermodal activity can only mean good things for Kansas City’s commercial real estate industry.<br /> <br /> “Those intermodal sites have caused the beginning of large tracts of ground to be made available for development,” Block said. “Infrastructure is in place. We have sites ready. And we have a number of qualified developers that can up a building up in short order. That’s a complete change from just three years ago, and it’s a significant change.” <br /> <br /> Given the economy, though, even the industrial and distribution markets in Kansas City are down, despite their relative strength when compared to other commercial sectors.<br /> <br /> The sluggish national economy isn’t doing any commercial sector any favors, Block said.<br /> <br /> “The economy is still so slow. And when retail is slow, that obviously hurts the distribution side of the industry,” Block said. “The retailers have pulled back on distribution. Manufacturers have pulled back on providing new supplies. This is a slow period in which very little is going on.”<br /> <br /> Block said that industrial vacancy rates in the Kansas City market remain near 7.7 percent. That’s actually quite strong considering the economy.<br /> <br /> But there are challenges. The biggest, according to Block, is that there is almost no development in the region.<br /> <br /> He pointed to the Sprint campus in Kansas City’s suburban region as an example of the ups and downs of the commercial market in the area. The 3.9-million-square-foot campus is leasing out space, with Block expecting the powers that be behind the campus to lease out about 1.5 million to 2 million square feet before filling the campus with tenants.<br /> <br /> This will mean activity, but Sprint is pricing its space to undercut the rest of the Kansas City market. The campus, then, is capturing large deals that otherwise would have gone to new buildings in the Kansas City market.<br /> <br /> “The Sprint campus is pushing out build-to-suit activity for the next 24 months,” Schaffer said. “Most of the large deals in the market are taking place out there right now. A lot of deals that normally would have been build-to-suit have found themselves deals that they are satisfied with at the Sprint campus.”<br /> <br /> Among these deals are JPMorgan Chase, which leased 210,000 square feet in the campus and CareCentrix which has leased about 30,000 square feet at the site. Apria Healthcare has leased an additional 110,000 square feet of space at the Sprint site.<br /> <br /> “The Sprint deals will continue to be a disruptive factor in the suburban office market, and will dramatically affect our ability to add new construction in the next couple of years,” Schaffer said.<br /> <br /> North Kansas City <br /> <br /> The city of North Kansas City has also experienced fairly steady times in what has been a difficult economic climate. In fact, the city recently announced the beginning stages of a significant commercial transaction.<br /> <br /> The city recently announced a Request for Qualifications solicitation for the redevelopment of about 50 acres at the southeast quadrant of the Interstate- 29/Interstate-35 and Armour Road/M- 210 intersection. City officials hope to entice developers to submit bids for mixed-use projects at this site.<br /> <br /> Jeff Samborski, economic development manager of North Kansas City, said that the Request for Qualifications is just one example of how active city officials have been in guiding the city through the recession and recovery. “The downturn took longer to reach the Kansas City area than it did other areas across the United States,” Samborski said. <br /> <br /> “The downturn seemed to reach markets like Chicago long before it reached us. Overall, we’re seeing some pretty good activity starting again here. There are signs of hope. I don’t want to jinx it, and I’d hate to say that we are out of the woods, but our vacancies are down from last year and the year before. That’s a positive sign.”<br /> <br /> The weak economy has opened some opportunities for businesses to purchase their own buildings, Samborski said.<br /> <br /> “Owner-occupied businesses are now able to buy some top properties,” he said. “Before the recession it was very difficult for them to be able to get into ownership position. As some of the larger companies have been dialing back, the owner occupancy market has still been pretty productive.” <br /> <br /> For Block, there are still plenty of bright spots in the Kansas City market, despite the economy’s struggles. He points to the region’s multi-family market as an example of this.<br /> <br /> “Multi-family continues to be the strongest sector in our market,” Block said. “For the most part, it’s the strongest sector in markets across the country. Financing continues to be available for multi-family. That’s the big thing. With financing, you’re able to make deals.

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