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Q3 2011 | office

Kansas city Metro Area

Market Report

market overview The most significant news occurring in the office market in the third quarter was the announcement that AMC Entertainment, Inc. would be leaving their downtown location in favor of a new build-to-suit building at Park Place, in Leawood, Kansas. AMC, the second largest movie theater chain in North America, presently occupies approximately 98,000 square feet at 10 Main Center, which equates to approximately one-third of the building. Their new headquarters will be a 127,000-square-foot, fourstory building, with them occupying 115,000 square feet. Since this property is yet to be built, the move will not take place until the second quarter of 2013.

market indicators Q3 2011

Q4 2011 (P)

AMC wasn’t the only company to reveal their intentions to relocate to Leawood this quarter. Ascend Learning will be consolidating their local offices into approximately 83,000 square feet at Two Hallbrook Place in the second quarter of 2012. Two Hallbrook Place, located in Leawood, Kansas, is a 110,000-square-foot, Class A building that was completed in 2009, early on in the recession. After a two-year stretch of inactivity, this is the second tenant that they’ve been able to land.

Vacancy

In addition to the noteworthy lease transactions that took place in the South Johnson County submarket this quarter, the market leading sale was located in this submarket as well. The U.S. Bank building, located at 12800 Foster in Overland Park, Kansas, sold to Whiterock REIT for $38,000,000. The $205 per square foot price tag was the result of a credit tenant with a long-term lease in place. The capitalization rate was reported as 7.5%.

Net absorption construction rental rate *Relative to prior period

The second Class A office sale that occurred was also located in the South Johnson County submarket, but the circumstances were much different than the first. The Midwest Trust Company, the buyer of 5901 College, Overland Park, Kansas is also the largest tenant. They purchased the building off market for a reported $14,500,000, or $128.94 per square foot.

summary statistics Q3 2010

Q3 2011

13.7%

13.3%

(387,967 SF)

361,642 SF

Deliveries YTD:

0 SF

95,726 SF

1,040

Under Construction:

0 SF

263,510 SF

1,020

$18.32

$17.42

Absorption YTD:

Asking Rents/SF:

kansas city MSA Employment Seasonally Adjusted - Nonfarm Employment

Seasonally Adjusted - Nonfarm Employment in Thousands In Thousands

Number of Employees

Vacancy Rate:

Kansas City Office Vacancy 14.0% 13.8%

1,000 980 960 940

13.6%

920

13.4% 13.2%

900 Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Sources: CoStar and Colliers Research

Sources: CoStar and Colliers Research

Q1 2 Q2 007 20 Q3 07 2 Q4 007 2 Q1 007 20 Q2 08 2 Q3 008 2 Q4 008 20 Q1 08 2 Q2 009 2 Q3 009 20 Q4 09 20 Q1 09 2 Q2 010 2 Q3 010 2 Q4 010 20 Q1 10 2 Q2 011 20 11

13.0%

Source: Bureau of Labor Statistics

www.colliers.com/markets/kansas_city


Market report | Q3 2011 | Office | Kansas City Metro

Absorption

Absorption

With 144,000 square feet of positive absorption this quarter, it marks the third time out of the most recent four quarters where positive absorption occurred. That pushed the year-todate total to more than 360,000 square feet.

300,000 200,000 Square Feet Square Feet

100,000 0 -100,000

Vacancy

-200,000 -300,000 Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Sources: CoStar and Colliers Research Sources: CoStar and Colliers Research

rental rates

$ Per Square Foot

$ Per Square Foot

$25 $19.86

$20

$16.93 $12.80

$15 $10 $5 $0 Class A

Class B

Class C

Sources: CoStar and Colliers Research Sources: CoStar and Colliers Research

deliveries

Deliveries & construction

70,000

There were not any deliveries of new product to the market in the third quarter. Building F in Park Place is nearing completion and is expected to be completed in the fourth quarter. Construction of the AMC headquarters building is anticipated to commence soon, so that will add 127,000 square feet to the construction figures next quarter.

Square Feet

Square Feet

60,000 50,000 70,000 40,000 60,000 30,000

Square Feet

50,000 20,000 40,000 10,000 30,000 0 20,000

Q3 2010

The positive absorption from the third quarter resulted in a 20 basis point reduction in the vacancy rate, bringing it down to 13.3%. The current vacancy rate is as low as it has been since the first quarter of 2010, but is still about 140 basis points higher than what the vacancy rate was when the economy crashed. Based upon the existing market size, approximately 1,270,000 square feet would have to be absorbed to once again achieve the 11.9% vacancy rate that was in place in the third quarter of 2008. If the market could continue to absorb office space at the rate that occurred in the third quarter, the vacancy rate would approach 11.9% in the fourth quarter of 2013.

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q1 2011

Q2 2011

10,000

Sources: CoStar and Colliers Research

Sources: CoStar and Colliers Research

The West Edge property, located on the Country Club Plaza, was removed from the construction figures as that property is currently being disassembled. Once construction of the future home of Polsinelli Shughart PC commences, it will be added back into the statistics.

rental rates The overall average asking rent fell by $0.05 psf to $17.42 over the past quarter. Since there is nearly twice as much vacant Class B office space than Class A, the overall rate tends to track the movement of the Class B space, which fell by $0.07 psf. The Class A properties fared better than the other classes this quarter, pushing average asking rent up by $.08 psf, an increase of 40 basis points. With 38% of the Class A vacant space located in the Central Business District, the Downtown submarket had the largest impact on the Class A asking rent increase. The average asking rent moved from $18.44 psf in the second quarter to $18.58 psf in the third quarter, a 76 basis point increase.

0 Q4 Q3 2010

Q4 Q1 2011 2010

Q2 Q2 Q1 2010 2011

Q3 Q2 2010 2011

Q4 2010

recent transactions & major developments

Sources: CoStar and Colliers Research

sales activity Property

Submarket

sale price

size SF

price / SF

buyer

seller

12800 Foster

South Johnson County

$38,000,000

185,000

$205.41

Whiterock REIT

The Opus Group

5901 College

South Johnson County

$14,500,000

112,452

$128.94

The Midwest Trust Company

MEPT/New Tower Trust Company

6201 Johnson

North Johnson County

$1,550,000

45,000

$34.44

Waddell & Reed, Inc

Great American Financial Resources, Inc

500 W 5th

Downtown

$1,000,000

29,200

$34.25

TTB Real Estate, LLC

Free State Real Estate, LLC

Leasing activity Property

Submarket

Leased sf

Building class

Company

Park Place

South Johnson County

115,000

A

AMC Entertainment

Two Hallbrook

South Johnson County

83,037

A

Ascend Learning

7101 Tower

South Johnson County

44,877

A

General Electric Company

1010 Walnut

Downtown

42,000

B

US Department of Education

1201 Walnut

Downtown

39,877

A

AXIS Reinsurance Company

903 E 104th

South Kansas City

34,446

A

North American Savings Bank, FSB

p. 2

| Colliers International


office overview existing properties Class

Bldgs

vacancy

absorption

Total

Vacancy

Vacancy

Net Absorp

SF

SF

%

Curr SF

Construction Deliveries

Rents Under Const.

Ave Rent

YTD SF

Curr SF

YTD SF

SF

Rate $

Urban Downtown A

24

8,025,940

1,407,243

17.5%

38,056

188,819

0

0

0

$18.58

B

164

15,053,553

2,022,878

13.4%

12,704

-132,216

0

0

0

$15.85

C

105

4,365,609

377,564

8.6%

-7,461

67,758

0

0

0

$12.68

Total

293

27,445,102

3,807,685

13.9%

43,299

124,361

0

0

0

$16.54

A

12

2,362,733

355,017

15.0%

17,065

49,624

0

0

0

$23.34

B

72

3,519,034

308,399

8.8%

-6,249

-40,470

0

0

0

$17.90

C

58

1,735,171

150,620

8.7%

-9,020

-48,363

0

0

0

$12.55

142

7,616,938

814,036

10.7%

1,796

-39,209

0

0

0

$19.28

A

36

10,388,673

1,762,260

17.0%

55,121

238,443

0

0

0

$19.54

B

236

18,572,587

2,331,277

12.6%

6,455

-172,686

0

0

0

$16.12

C

163

6,100,780

528,184

8.7%

-16,481

19,395

0

0

0

$12.64

Total

435

35,062,040

4,621,721

13.2%

45,095

85,152

0

0

0

$17.03

Plaza / Midtown

Total Urban Total

Suburban East Kansas City A

2

207,516

96,504

46.5%

6,845

-61,474

0

0

0

$21.00

B

122

4,998,552

540,998

10.8%

24,444

-28,108

0

0

0

$15.90

C

107

2,303,787

212,554

9.2%

5,822

42,756

0

0

0

$10.85

Total

231

7,509,855

850,056

11.3%

37,111

-46,826

0

0

0

$15.22

Kansas City North A

6

947,284

69,692

7.4%

-4,806

1,308

0

0

0

$15.68

B

112

4,689,779

1,007,957

21.5%

502

17,253

0

0

12,500

$15.88

C

61

1,391,687

148,218

10.7%

-2,796

-15,178

0

0

0

$15.32

179

7,028,750

1,225,867

17.4%

-7,100

3,383

0

0

12,500

$15.80

A

12

1,551,767

375,122

24.2%

2,652

-184,302

0

0

0

$18.05

B

156

6,611,786

660,281

10.0%

26,709

18,900

0

0

0

$16.39

C

71

1,350,556

234,535

17.4%

15,722

-10,087

0

0

0

$13.16

239

9,514,109

1,269,938

13.3%

45,083

-175,489

0

0

0

$16.28

Total North Johnson County

Total South Johnson County A

64

9,999,687

1,340,532

13.4%

-84,274

282,025

0

65,726

59,000

$21.20

B

290

12,796,920

1,948,986

15.2%

-23,398

56,361

0

30,000

0

$18.90

C

37

675,086

52,162

7.7%

521

23,246

0

0

0

$16.38

391

23,471,693

3,341,680

14.2%

-107,151

361,632

0

95,726

59,000

$19.78

A

14

1,949,742

216,590

11.1%

101,918

97,578

0

0

0

$18.63

B

58

2,726,902

303,409

11.1%

8,794

5,298

0

0

0

$17.23

C

23

536,736

44,162

8.2%

-1,807

25,813

0

0

0

$10.48

Total

95

5,213,380

564,161

10.8%

108,905

128,689

0

0

0

$17.24

Total South Kansas City

Wyandotte County A

2

275,454

0

0.0%

0

0

0

0

0

B

32

1,552,765

112,379

7.2%

5,824

-10,225

0

0

0

C

38

1,027,899

91,934

8.9%

16,250

15,326

0

0

0

$12.35

Total

72

2,856,118

204,313

7.2%

22,074

5,101

0

0

0

$13.95

A

100

14,931,450

2,098,440

14.1%

22,335

135,135

0

65,726

59,000

$20.18

B

770

33,376,704

4,574,010

13.7%

42,875

59,479

0

30,000

12,500

$17.32

C

337

7,285,751

783,565

10.8%

33,712

81,876

0

0

0

$12.91

1,207

55,593,905

7,456,015

13.4%

98,922

276,490

0

95,726

71,500

$17.66

A

136

25,320,123

3,860,700

15.2%

77,456

373,578

0

65,726

59,000

$19.89

B

1,006

51,949,291

6,905,287

13.3%

49,330

-113,207

0

30,000

12,500

$16.91

C

500

13,386,531

1,311,749

9.8%

17,231

101,271

0

0

0

$12.80

1,642

90,655,945

12,077,736

13.3%

144,017

361,642

0

95,726

71,500

$17.42

$15.25

Suburban Total

Total All Kansas City Total

Total

Note: Inventory includes office properties 10,000 SF and up. It excludes office properties that were built with the intent to house only medical users and those properties where the government is both 100% owner and occupier.

Colliers International |

p. 3


Market report | q3 2011 | Office | Kansas City Metro

definitions Deliveries: Buildings that complete construction during a specified period of time. In order for space to be considered delivered, a certificate of occupancy must have been issued for the property. Existing Inventory: The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. It does not include space in buildings that are either planned, currently under construction or under renovation. Net Absorption: The net change in occupied space over a given period of time. Unless otherwise noted, Net Absorption includes direct and sublease space. Weighted Average Asking Rental Rates: Weighted by the total square feet available for direct lease. Data is based on Full Service Gross

rents, and includes all costs associated with occupying the space, including taxes, insurance, maintenance, janitorial service and utilities. Reported on an annual PSF basis. Vacant Space: Space that is not currently occupied by a tenant, regardless of any lease obligation that may be on the space. Inventory: Includes all existing multi- or single-tenant leased and owner-occupied office properties greater than or equal to 20,000 SF (net rentable area). Does not include medical or government buildings. Note: SF = Square Feet

512 offices in 61 countries on 6 continents United States: 125 Canada: 38 Asia: 32 ANZ: 182 LATAM: 18 EMEA: 117 • $1,531.1

million in annual revenue

million square feet under management

• 978.6 • Over

15,000 professionals and staff

PSF = Per Square Foot

Colliers International Kansas City Office

CBD = Central Business District

4520 Main Street, Suite 1000 Kansas City, MO 64111

P = Projected

tel +1 816 531 5303 FAX +1 816 531 5409

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KEARNEY

Sherman Army Airfield

PLATTE CITY

Clay County Regional Airfield

EXCELSIOR SPRINGS

KANSAS CITY

Kansas City International Airport

NORTHLAND

Researcher:

GLADSTONE

Brent Hansen Research Services Manager 4520 Main Street, Suite 1000 Kansas City, MO 64111

LIBERTY

CLAYCOMO

tel +1 816 556 1102

NORTH KANSAS CITY

FAX +1 816 531 5409

KANSAS CITY, KANSAS

WYANDOTTE COUNTY

Downtown Airport INDEPENDENCE

DOWNTOWN PLAZA/ MIDTOWN

SHAWNEE

NORTH JOHNSON COUNTY

EAST KANSAS CITY

KANSAS CITY

OVERLAND PARK

LENEXA

OLATHE

BLUE SPRINGS

RAYTOWN

This report has been prepared by Colliers International for general information only. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers International does not guarantee, warrant or represent that the information contained in this document is correct. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This report and other research materials may be found on our website at www.colliers.com.

SOUTH KANSAS CITY

SOUTH JOHNSON COUNTY

Colliers International is continuously refining its database. The data shown in the historical tables and graphics in this report have been adjusted to take into account these changes in the database.

LEE’S SUMMIT STANLEY

GRANDVIEW Richards Gebaur Airport BELTON

GREENWOOD RAYMORE

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4520 Main Street, Suite 1000 Kansas City, Missouri 64111

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Kansas City Metro Office Submarkets


Q3 2011 Kansas City Office Trends Report