Office sector continues to have a healthy business climate.
The Kansas City office market remains at historical lows in terms of vacancy, as a result of sustained demand for office space, driven by business growth and lack of new construction deliveries. The overall vacancy rate remains at 8.2%, down from 8.7% this time one year ago. In Q2 2019, the office market totaled 188,619 SF of positive absorption, which remains on pace with recent quarterly absorption figures. With a healthy business climate and continued growth, there are limited quality options in several submarkets throughout the Kansas City metro, especially the Johnson County submarkets and the Country Club Plaza. Construction within the Kansas City metro remains elevated compared to historical standards, however is still driven by mostly build-to-suit requirements, which will continue to keep vacancy rates low and demand levels elevated for the near future.
Overall asking rents within the Kansas City metro have increased to $18.87/SF across all product classes. Rates have continued an upward trajectory as a result of current demand levels within the metro. Both occupancy and rents have held firm at cycle highs throughout the metro. Class A rates have risen to an average of $22.09/SF, while Class B rates have increased to $18.05/SF. Overall, the average asking rents rose by nearly $0.18/ SF across the metro from the previous quarter.
Moves and Growth around the Metro
A strong business climate continues to facilitate growth and expansion within the Kansas City market. Office tenants both large and small continue to drive current demand levels throughout the metro. Several office users recently announced new deals to accommodate for their growth. In the Northland, Maximus has doubled the footprint of their existing service center needs with the expansion of an additional 131,650 SF at the JWilliams Technology Centre. In South Johnson County, Intouch Solutions renewed their existing lease and expanded to a total of 132,000 SF at Renaissance III. CityPlace, located just west of Corporate Woods, continues to make progress. The first office building within the CityPlace Development was delivered in late June. WellSky, which initially leased half of the 120,000 SF building, elected to expand their footprint to the entire CityPlace III building. Worldwide Express preleased 45,000 SF within CityPlace I, allowing for the 120,000 SF office project to start construction.
Two additional large-scale office occupier announcements were made throughout the second quarter as well. The Kansas City metro area was able to attract two key USDA agencies after a nationwide search. Kansas City will become the new home offices for Economic Research Services (ERS) and National Institute of Food and Agriculture (NIFA). The relocation will result in over 560 new jobs to the Kansas City metro. The USDA team is looking at several 120,000 SF options across the Kansas City metro to house the two agencies. One of the largest local employers, Waddell & Reed, announced their intention to relocate from their existing Overland Park campus to a new single corporate office on the Missouri side of the stateline in the coming years.
Transaction Activity in Kansas City
One of the largest office transactions within the Kansas City metro closed in July 2019. Wichita-based Occidental Management acquired the 3.9 million SF Sprint Campus in Overland Park, KS for $250.9 million. Sprint will lease-back a portion of the campus for their existing office needs, while Occidental plans to transform the office environment of the campus in the coming months. Occidental has had recent success changing other office environments, most notably the OP Xchange, located just east of the Sprint Campus, after they acquired the asset in 2014.
On the Country Club Plaza, Platform Ventures acquired Plaza Vista from EverWest Real Estate for $118.25 million. The 10-story, 253,702 SF building is fully occupied by Polsinelli PC headquarters and street level retail. The building traded at $466/SF, which is a new high watermark for the Kansas City metro. Two additional high-profile office towers located within the CBD traded ownership interest recently, however are not considered market rate transactions. Town Pavilion a 33-story, 802,000 SF building, was believed to trade for around $149/SF. 1201 Walnut, a 29-story, 480,000 SF building, was believed to trade for around $112/SF.
FOR MORE INFORMATIONMartin Maguire CPRC Senior Research Director | Kansas City
ContributorsPat Coppinger Senior Vice President | Kansas City
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