by Dan Rafter
The multifamily and industrial markets continue to boom in the Kansas City market. Just ask Jeff Stingley and David Hinchman, both with CBRE. Stingley, a senior vice president with the office, specializes in multifamily, while Hinchman, a first vice president, is an expert in the industrial market. Both CRE pros said the multifamily and industrial markets in Kansas City are thriving today. Even better? Both markets are showing no signs of a slowdown.
Midwest Real Estate News: Multifamiy is a hot sector across the country right now. What does the multifamily market look like in Kansas City today?
Jeff Stingley: In 2015 and 2016 we will see close to 9,000 new multifamily units added to the Kansas City market. That looks like a lot, but you have to keep in mind that between 2008 and 2012, the slow times, we only averaged 500 new multifamily units a year. There has been some pent-up demand for new units that is fueling the rise in multifamily construction that we are seeing today.
MREN: The new construction, then, doesn’t look like it’s too much for the demand?
Stingley: It’s a different kind of market this time around than during past cycles. You have the Millennials, an important demographic, and the Baby Boomers who are selling their bigger houses who both want to rent in a Class-A type multifamily community. They want the freedom to not have to do yard work. They want to travel. The homeownership rate across the country is down. That’s because many people who rent today are renting because they want to, not because they have to.
MREN: Where are you seeing the most new multifamily construction today?
Stingley: A lot of our new construction is in submarkets that hadn’t been seeing much new construction, like downtown Kansas City. Our urban core is really taking off with the Power & Light District in downtown and the Sprint Center (a multi-use arena in downtown Kansas City). This is becoming the place where young folks want to live. There is not enough apartment supply downtown to satisfy the demand. There are properties under construction in downtown right now. They are leasing up considerably better than anyone could have imagined.
We are going to be flirting with $1 billion in multifamily sales this year. That would be Kansas City’s best year for multifamily sales. Before this year, $650 million in sales in 2012 was the market’s best year.
MREN: Is the word getting out there that Kansas City is a hot multifamily market?
Stingley: You are seeing investors looking for new markets today. On every deal we make in the multifamily market in Kansas City, we are capturing new investors who weren’t on our radar previously. We are seeing a lot of new blood enter the market that hadn’t been here previously. This year alone, we’ve had three or four of what I consider bigger sales. Three of these sales were new buyers in the market.
MREN: What type of amenities are tenants looking for in newly built apartment projects?
Stingley: You are seeing more apartments that are adjacent to a retail center or mixed-use project. There is a new urbanism concept. That helps to attract the active Millennial base as well as the empty nesters. They can walk to restaurants or bars. When it comes to amenities of the apartment projects themselves, we are seeing state-of-the-art fitness centers and very nice pools. We are seeing outdoor kitchens around those pools. Some have big-screen TVs adjacent to those pools. There are granite countertops, plank hardwood flooring throughout the living spaces. There are very nice finishes that are appealing to folks who are on the fence between buying and renting. When you tour a rental property with those nice finishes, it does make a different. You can get those finishes in your budget more easily with a rental property than you can when you’re buying a house. That helps make renting look more attractive than owning.
MREN: Earlier you mentioned the downtown of Kansas City as being a hot market. We’re seeing that across the Midwest. Is the city continuing to invest a lot into its downtown core?
Stingley: The city is very focused on growing the rental base downtown. The city wants to create a 24/7 living and entertainment feel there. In the old days, people would head downtown to their offices and then clear out after the working day ended. In 2008, the Power & Light District was finished. Then the Sprint Center arena was built. Since then, the activity in downtown has built every year. It is now an entertainment center that appeals to the younger folks. For the first time in what feels like forever, you can live in downtown Kansas City without a car.
MREN: The industrial market in Kansas City is a hot one, too. How strong is this sector today?
David Hinchman: We’ve seen a shift in Kansas City’s industrial market that started in late 2011, early 2012. The market had always been solid, but it really began taking off at that time. If you look at Kansas City during the recession, we were still building in the industrial sector. We were still doing build-to-suits here where in many other parts of the country all industrial building had stopped. Even when Wall Street was in a complete mess, companies were still willing to make major capital commitments in the Kansas City market. These companies needed to look toward the future, and Kansas City was a part of that.
MREN: And since the recession ended are you seeing even more industrial activity?
Hinchman: As we came out of that period, we have seen the absorption of more than 4.5 million square feet of industrial space. We are closer to 5 million square feet of industrial absorption since the recovery. So it’s a good strong market today.
MREN: What about new industrial construction?
Hinchman: A year ago in March, we had 70 of our industrial clients sitting at a breakfast. They said that they had 3.5 million square feet of industrial construction going up. That is a lot for Kansas City. But we absorbed all of that. In 2014 alone, there was 2.5 million square feet of absorption.
MREN: What is behind some of this activity?
Hinchman: For a long time in Kansas City we had big-box envy. Memphis, Indianapolis, Columbus and St. Louis were all getting the type of big-box activity that we were not getting. Now, that has changed. As people started looking more closely at Kansas City, we became a good choice, a logical choice. Kansas City’s sweet spot is for companies that either want a single industrial facility or if they have a distribution center with three major hubs. We’re a good choice, too, for companies that want to set up a five-distribution-center network or anything greater than that. The companies that want a distribution center with two major facilities or four aren’t usually going to consider us. If they want just two major distribution centers, they’ll put one on each coast. If they have four, they’ll go with Chicago, Dallas and the East Coast and West Coast. In all those other models, though, Kansas City fits in well. If you look at the UPS and FedEx delivery charts, you’ll see that you can hit a high percentage of the country in a two-day drive from Kansas City.
MREN: What kind of industrial facilities are being built today in Kansas City?
Hinchman: For Kansas City, we are seeing a strong focus in facilities that are 150,000 square feet to 500,000 square feet. I’d say that 250,000 square feet and 450,000 square feet are the most common type of industrial spaces we are seeing under construction today.
MREN: What type of amenities are tenants looking for in modern industrial space?
Hinchman: They want a modern cross-dock facility. They want a dock door for every 10,000 square feet. Some even want a dock door for every 4,500 square feet. And right across from the dock door they want a trailer drop. They are trying to run their facilities as efficiently as anything you’d see near Chicago’s O’Hare Airport. They are also looking for more energy savings. LEED certification is becoming a growing demand.