Kansas City Office Overview
The Kansas City office market posted another successful year throughout 2018 because of a strong business climate and continued job growth. The overall vacancy rate declined to 8.5%, down from 9.0% this time one year ago. In Q4 2018, the office market totaled 189,068 SF of positive absorption. By the end of 2018, the Kansas City metro recorded 866,749 SF of positive absorption related to office product, which was well-short of 2017 metro absorption totals. However, 2017 figures were inflated due to the delivery and occupancy of Cerner’s first phase at their new Innovation campus that totaled more than 805,000 SF.
Demand continues to remain strong, while the lack of new construction deliveries continues to tighten the market. Vacancy rates remain at historically low levels for the Kansas City market. Overall asking rents within the Kansas City metro have increased to $18.56/SF across all product classes. Rates continue to be a direct reflection of the current demand levels within the top performing submarkets, while demand is also fueled by the lack of recent office product deliveries. Class A rates have risen to an average of $21.54/SF, while Class B rates have increased to $17.66/SF. Overall, the average asking rents rose by nearly $0.27/ SF across the metro from the previous year. Class A asking rents have risen by $0.29/SF, while Class B rents have increased by $0.26/SF relative to last year.
Moves and Growth Around the Metro
Office activity related to several smaller sized companies was particularly strong throughout 2018. Job creation and organic growth facilitated the need for several companies to occupy larger footprints or expand from their existing space. Numerous lease deals completed throughout the year added to a healthy positive net absorption figure for the suburban markets, as businesses development remained strong throughout 2018.
Office activity around the metro remained active throughout Q4 2018. In the Northland, MAXIMUS Federal Services will occupy nearly 130,000 SF at the JWilliams Technology Centre. The company will provide service center support for government agencies on a short term basis. In South Kansas City, North American Savings Bank renewed and extended their 61,800 SF lease at Executive Hills C. NASB will consolidate a couple of their existing area operations into the Executive Hills building. In Lenexa, Mortgage Research leased 26,000 SF within Building D of the College and Renner Corporate Center. In East Jackson County ProfessionalChats, who was recently acquired by Ruby Receptionists leased 20,000 SF at 3651 Ralph Powell, while Diagnostic Imaging Centers renewed their 14,000 SF space within the Pointe de Bleu Medical Building in Independence.
Office development within the Kansas City metro continues to largely be constructed on a build-to-suit basis, however several office developments that are currently under construction have accounted for speculative space. In Overland Park, The Edison District, a mixed-use development located in the heart of downtown Overland Park, broke ground in October. The development calls for up to 100,000 SF of speculative office space to the area. The project will also feature a food hall, a public courtyard, and a new parking garage to accommodate additional parking needs in the area. Additional partially speculative office developments around town include 46 Penn, CityPlace and the Penn Buildings at Lenexa City Center. Build-to-suit construction remains ongoing for the Cerner Innovations Campus, the Burns & McDonnell HQ expansion, and the Kiewit expansion.
Transaction Activity in Kansas City
In 2018, office investment activity within Kansas City followed the national trends in terms of stronger investment activity related to suburban submarkets, with a handful of large transactions within the urban core markets. Fourth quarter transactional activity followed suit. In South Johnson County, Price Brothers acquired Renaissance I & II, two buildings totaling nearly 295,000 SF along the College Boulevard corridor from CA Ventures. The two building portfolio sold for approximately $37.8 million. Another College Boulevard asset also traded in Q4 2018. 8300 College, a three-story 57,000 SF office building was purchased by KC Residence LLC for $9.5 million. Additional suburban transactions in Q4 include the former Dairy Farmers of America building in the Northland, along with 8080 Ward Parkway in South Kansas City and 7070 Renner in North Johnson County.
In Downtown Kansas City, City Center Square, a 663,000 SF building was purchased by Somera Road from Nightingale Properties for $37.4 million. The New York-based firm acquired the 30-story building, and a co-working operator is rumored to be looking to open their second area location within the building. Looking ahead to the coming year, expect investor interest in the U.S. property markets to remain strong. The lack of yields in gateway cities should continue to create additional investment opportunities for fundamentally sound secondary markets, such as Kansas City.
FOR MORE INFORMATION
Ellen Fisher Associate | Kansas City
Rollie Fors Executive Vice President| Kansas City
Jim Gates SIOR Senior Vice President | Kansas City
Phil James Senior Vice President | Kansas City
Bryan Johnson CEO | Kansas City
Reagan O'Toole Associate | Kansas City
Ross Simpson Senior Vice President | Kansas City
Matt Stover Senior Vice President | Kansas City
Sven Sykes Executive Vice President | Kansas City
Adam Tilton Executive Vice President | Kansas City
Tom Volini Executive Vice President | Kansas City
Evan Warwick Senior Vice President | Kansas City