2019 Market Outlook

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MARKET OUTLOOK FOLLOWING A ROBUST INSIDE STATISTICS...

2017 & 2018, WHAT OFFICE SHOULD WE EXPECT FOR THE 2019 WICHITA Commercial Real Estate Market Update RETAIL CRE MARKET?

INDUSTRIAL

435 S Broadway St | Wichita, KS 67202 | 316.262.0000 www.NAIMartens.com 18 | Commercial Real Estate Market Update

$ INVESTMENT NAI MARTENS

Office CHARTS

STATISTICS • Net absorption in Wichita’s office market is positive for 2018 with a total

VACANCY VACANCY RATE 21.0% 20.5% 20.0% 19.5% 19.0% 18.5% 18.0% 17.5% 17.0%

2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2

NET ABSORPTION

RENTS (full service) RENTAL RATES

$25.00 $20.00 $15.00 $10.00

Medical Office

$5.00 $-

of 106,692 SF absorbed. Notable lease transactions for 2018 include King of Freight expanding twice in the Ruffin building downtown; the first lease being 32,865 SF and the second lease 23,000 SF. • Overall office market vacancy rate 2018: • Overall: 18.3% • Class A: 15.6% • Class B: 19.6% • Weighted average asking rents in 2018: • Class A: • CBD: $17.17/SF Suburban: $21.48/SF • Class B: • CBD: $11.82/SF Suburban: $12.39/SF • Three buildings totaling 27,000 SF have been completed in 2018.

Wichita Alliance Advisory Group at Oak Creek Office Park at 21st & Greenwich, Lubrication Engineers Headquarters at Eberly Farms, and Keller Williams Hometown Partners at 119th St & Maple.

• Four office buildings are currently under construction totaling 251,400 SF. The Cargill Office Headquarters at 825 E Douglas is under construction and expected to be completed in late 2018. Village Tours & Charters broke ground on their new 48,000 SF headquarters located at K-96 & Ridge. Hayes Co. is building a new 9,400 SF two-story office next door to their current office in Delano. Kice Industries is expanding its Park City campus with a 6,000 SF office located at 5500 Mill Heights Drive.

• Office sales activity (including medical office) in 2018 totaled $26,332,864. The market posted a total of 26 transactions. For general office the average price per square foot was $24.82/SF. In medical office space the average price per square foot was $212.07/SF.

2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2

Class A Weighted Average Rent/Sq. Ft.

Class B Weighted Average Rent/Sq. Ft.

*Source: NAI Martens Research. Charts do not include medical office data. All 2018 figures are reflective of YTD 2018 numbers as of 8-28-18. **Full Service Leases

TRENDS WHAT TO EXPECT IN 2019 VACANCY RATE

NET ABSORPTION

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ASKING RENT

CONSTRUCTION

SALES ACTIVITY

LEASE ACTIVITY

• Nine medical office buildings totaling 126,611 SF have been completed

in 2018. All the completed buildings were in the northeast submarket with the exception of the Heartland Cardiology building in Derby. Other notable medical buildings completed include: Kansas Perio and Dental Implants at 2981 N Webb, Heartland Cardiology at 35th & Webb, Hunter Health Care Clinic at Central & Grove, Kansas Medical Center: Emergency Room near 21st & Webb, Heartland Cardiology in Derby, and Papagallo Oral Surgery Center near 127th & 21st.

• Six medical office buildings totaling 187,500 SF are currently under construction including the Center at Waterfront Rehab Center at 13th & Webb and the Rock Regional Hospital in Derby near 63rd & Rock.

• The medical office building vacancy rate is 8.84% with average asking rates for Class A space at $22.19/SF and Class B at $13.46/SF (Full Service).

ACTIVITY • Work is likely to start this fall/winter on a new 24,000 SF headquarters

for Hutton Construction in Delano.

• Construction has started on the Spaghetti Works District at Naftzger Park in the 600 block of East Douglas. Martin Pringle will be the lead tenant in a new 60,000 SF Class A office and retail complex on the east edge of the park. The building that once housed the Spaghetti Works restaurant is being converted to 41 luxury apartment units.

2019 OUTLOOK

For 2019 rent, absorption and occupancy rates in the will slowly improve over the course of the year. Although upward trends are seen the office market will lag behind the retail, industrial and investment markets in Wichita. There will continue to be a steady demand from buyers looking for free-standing office space. Given large amount of medical office construction in 2018 this segment will likely cool in 2019.

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Commercial Real Estate Market Update | 19

Retail

STATISTICS

CHARTS

• Net absorption in Wichita’s retail market was positive 28,803 SF for 2018.

VACANCYRATE VACANCY

13.00% 12.50% 12.00% 11.50% 11.00% 10.50% 10.00%

2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 ABSORPTION NETNETABSORPTION 2018 Q2 2018 Q1 2017 Q4 2017 Q3 2017 Q2 2017 Q1

(150,000) (100,000) (50,000)

$12.60 $12.40 $12.20 $12.00 $11.80 $11.60 $11.40 $11.20 $11.00 $10.80

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50,000

100,000

150,000

200,000

Restaurants

(NNN) (NNN) RENTALRENT RATES

2017 Q1

2017 Q2

2017 Q3

2017 Q4

2018 Q1

• On the restaurant side, buildings under construction include the Meddy’s

2018 Q2

*Source: NAI Martens Research. Charts do not include restaurant data. All 2018 figures are reflective of YTD 2018 numbers as of 8-28-18. **NNN Leases

TRENDS WHAT TO EXPECT IN 2019 VACANCY RATE

NET ABSORPTION

ASKING RENT

CONSTRUCTION

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LEASE ACTIVITY

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SALES ACTIVITY

New construction retail continues to perform well with high absorption rates, specifically in the northeast and northwest quadrants.

• The retail market vacancy rate for 2018 is 10.9%, slightly down from the end of the year 2017 at 11.2%.

• Weighted average asking rents for retail buildings 2018: • Overall: $12.48/SF, a slight increase from the end of the year 2017 at $12.26/SF. • Power Center: $12.00/SF • Hybrid (Lifestyle/Power): $23.17/SF • Lifestyle: $16.00/SF • Community: $17.05/SF • Neighborhood: $11.59/SF • Regional: $11.11/SF • Strip Centers: $12.15/SF • Urban Retail/Row Building: $12.12/SF • Four retail buildings totaling 75,750 SF have been completed 2018, most notably the Uptown Landing retail space at Douglas & Rutan (18,000 SF).

• Nine retail buildings totaling 155,312 are currently under construction.

Notable include Duluth Trading Co at K-96 & Greenwich (15,600 SF) and Camping World and Gander Outdoors at I-235 & Seneca (77,000 SF) • Total retail transaction volume for 2018 totaled $29,130,072 with 44 transactions completed in the market. The average price per square foot was $68.26/SF.

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2019 OUTLOOK

at 120 S Washington, Chicken N Pickle at the Plazzio near 13th & Greenwich, and Cracker Barrel at Kellogg & Ridge.

• Notable restaurants that have been completed in 2018 include the Buffalo Wings & Rings at Greenwich Place, Chick-Fil-A near Kellogg & Ridge, Freddy’s at 3450 S Meridian, and the 6S Steakhouse on Zoo Boulevard near Ridge.

• Qdoba is opening a west side store at 583 S West near Kellogg in the same center as Starbucks, GameStop and T-Mobile. Ziggy’s is opening a west side store in the Northwest Centre, the shopping center at the corner of 13th & Tyler.

ACTIVITY

• Revolutsia, Wichita’s first shipping container mall located at the corner of

Central and Volutsia is now open. The shipping container center includes a mix of restaurants and retail shops. The first phase of Uptown Landing was completed features about 50 apartment units and first floor commercial space.

• Duluth Trading Co. started construction on their 15,600 SF building in August and is expecting to open early 2019. Dave & Buster’s have submitted landscape plans to the city and is coming to the Greenwich Place development.

• 37,051 SF of in-line retail strip will be built as an addition to the existing Greenwich Place development. The building includes space for three additional tenants including Famous Footwear (6,000 SF), Five Below (8,204 SF) and Michaels (22,847 SF). The completion date is expected to be in mid-year 2019.

• Development continues at the Wichita State University Innovation Campus with the completion of two multi-tenant retail centers in the Braeburn Square development near 21st & Oliver.

• Construction is underway on the new Charlie’s Car Wash going up at 4150 W Kellogg.

• Mall update: Wells Fargo filed a foreclosure petition regarding a 2011 loan to the owners of Towne West Square Mall on July 31st. Towne West Square currently has a 23.5% vacancy rate. New tenants to Towne West since the start of 2018 include: Bosley’s Tire & Wheel, Giorgio Piotti, Steve’s Jam & Jellies, and Krystle Cole Fine Art. Towne East Square continues to perform very well with under 15,000 SF available for lease out of the 1.12 million SF of rentable area.

The retail market will likely remain steady with little change in asking rents. Overall new construction has slowed with the exception of a few build to suit projects in the Greenwich Place and Kellogg & Ridge area. If retail construction continues to slow, businesses will likely move or expand into existing spaces creating positive absorption throughout 2019.

20 | Commercial Real Estate Market Update

NAI MARTENS

CHARTS

STATISTICS VACANCYRATE VACANCY

8.5% 8.0% 7.5% 7.0% 6.5% 6.0%

2017 Q1

2017 Q2

2017 Q3

2017 Q4

2018 Q1

2018 Q2

NETABSORPTION ABSORPTION NET 2018 Q2 2018 Q1 2017 Q4 2017 Q3 2017 Q2 2017 Q1 (100,000) (50,000)

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50,000 100,000 150,000 200,000 250,000 300,000

RENT (IG) (IG) RENTAL RATES $5.00 $4.95 $4.90 $4.85 $4.80 $4.75 $4.70 $4.65 $4.60 $4.55 $4.50 2017 Q1

2017 Q2

2017 Q3

2017 Q4

2018 Q1

2018 Q2

*Source: NAI Martens Research. All 2018 figures are reflective of YTD 2018 numbers as of 8-28-18. **Industrial Gross Leases

TRENDS WHAT TO EXPECT IN 2019 VACANCY RATE

NET ABSORPTION

ASKING RENT

CONSTRUCTION

SALES ACTIVITY

LEASE ACTIVITY

Industrial

• Net absorption in Wichita’s industrial market was a positive 195,072 SF for 2018. Notable lease transactions for 2018 include Hyper Pet’s new 103,500 SF space at the Ironhorse Manufacturing Park as well as FACC Solutions Inc. moving to the 60,000 SF building at 800 E 37th St N. • The industrial market vacancy rate for 2018: • Overall: 6.8%, down from the end of the year 2017 at 7.3% • General Industrial: 6.6% • R&D/Flex: 12.4% • Weighted average asking rents 2018: • General Industrial: $4.57/SF (Industrial Gross) • R&D/Flex: $9.96/SF (NNN) • Eight buildings totaling 853,388 SF have been completed in the Wichita market including the Coleman Co. building at 77th St & I-135 (503,750 SF), Epic Sports Headquarters – Sunflower Commerce Park at 53rd & Webb, Globe Engineering at 3505 S Maize Rd (79,868 SF), and Raptor Manufacturing at 2252 S Hoover (33,580 SF).

• Six industrial buildings are currently under construction totaling 250,636 SF. Notable industrial buildings under construction include: Kyodo Yushi Manufacturing at 53rd St W & 119th (80,000 SF), Empire Wall Systems at the Sunflower Commerce Park near 53rd & Webb (31,600 SF), and the Michaelis Spec Building at 9174 E 35th St N (102,336 SF).

• Industrial sales activity for 2018 totaled $31,787,596 with 45 transactions. The average price per square foot was $31.15/ SF. Notable sales include the Rock Road Business Park at 1719 N Rock Rd, First Global Manufacturing at 2621 S Custer, and Trinity Logistics at 3402-6 S Hoover Rd.

ACTIVITY • The City of Wichita’s tax incentive program has spurred spec development in the community. With this program developers can use industrial revenue bonds, a sales tax exemption on construction materials and a property tax abatement for up to 10 years toward projects.

• Ivan Crossland and Steve Barrett are utilizing the city’s tax incentive program with two speculative warehouse buildings in the Webb Business Park in northeast Wichita. The two proposed buildings will total over 350,000 SF. • Mahaney Roofing is proposing a 42,000 SF office and warehouse building in Bel Aire next to Wickham Glass on 45th & Webb. A letter of intent to issue the company industrial revenue bonds was approved by the Bel Aire City Council. The business would also be eligible for the city’s tax abatement program.

2019 OUTLOOK

The overall market is expected to trend upward in 2019. Due to tax abatement programs in cities surrounding Wichita, industrial development has been strongest in the northeast and northwest submarkets. However, with the renewed emphasis on the City of Wichita’s Speculative Building Program it is possible new projects will be inside the city limits. Developers are limited to areas with sufficient development land, making the northeast and southwest quadrants the most likely to see activity in 2019.

NAI MARTENS

Commercial Real Estate Market Update | 21

Commercial Real Estate Market Update

Investment

MARKET TRENDS

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• In the multifamily market, investment activity has increased due

to the expectation of interest rates increases. Notable multifamily NAI MARTENS sales for 2018 include: Uptown Quarter at 134 N Rutan, Westport ANSACTIONS Apartments at 2526 W 31st St and the Stratford East Apartments

© Copyright 2017 NAI Martens. Reproduction in whole or part is permitted only with the written consent of NAI Martens. The information contained herein was obtained from sources believed reliable; however, NAI Martens Company makes no guarantees, warranties or representations as to the completeness or accuracy thereof.

Nathan Farha, CCIM

316 263 9669 nfarha@NAIMartens.com

316 847 4924 jenglert@NAIMartens.com

Multifamily Team

St sold. InterContinental Hotels Group is opening an Avid Hotel at Kellogg Magnoliaand Towne East Mall Drive north of Bubba’s 33. The 79Residences room hotel is expected to be completed in early 2020. The 98-room Tru Hotel by Hilton opened at the Plazzio development near 13th & Greenwich. An 88-room Hampton Inn opened in northwest Wichita at the Cadillac Lake development near 29th & Maize. The former 100-room Fairfield Inn near Kellogg & Webb has been rebranded to a Country Inn & Suites while a new 113-room Fairfield Inn & Suites opened in May 2018, located closer to Kellogg on Webb.

Construction is nearing completion on the 131-room downtown The Elms Hilton Garden Inn – Commerce Plaza hotel located on Douglas & Topeka. The former Commerce Plaza building is included in a community improvement district with the parking lot to the east.

The community improvement district will charge a 1.5 percent tax, expiring 10 years after the commencement date, with the tax capped at $930,000. Construction is underway at K-96 and 21st St on a Home2 Suites which is expected to open in early 2019 and have 115 suites. Going forward, look for values to remain stable with a possible decrease in activity.

Jeff Englert

quare ts

• In the hospitality market, the 131-room Fairfield Inn at 525 S Main WICHITA MULTIFAMILY UPDATE

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past year, making 2018 an eventful year in the Wichita area for this property type. All of these sales were for properties that were below stabilized occupancy. Communities with upside potential are selling at aggressive cap rate pricing, drawing new sellers into the marketplace. Given the strong interest from investors for this property ParkRidge type, expect 2019 to be another active year for MHC sales. Notable 2018 sales include: Lakeview at 1001 E MacArthur Rd (281 sites), Park Village at 130 S Greenwich Rd (362 sites), Andover Estates at 105 E Rhonda (266 sites), Maple Village at 17000 W Maple (87 Sites), and Riverside MHC at 4560 S Hydraulic (310 sites).

Q3 2018

rk

• Several large manufactured housing communities sold during the

435 S. Broadway Wichita, Kansas 67202

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at 7802 E Douglas. Broadway Autopark Apartments, Maghreb Place, River Vista, Colorado Derby Lofts, and Uptown Landing have all been completed in 2018. The first phase of the Copper Creek Apartments near 37th & Maize is scheduled to be completed in 2018. Over 700 total units will have been completed in the multifamily market by year-end 2018.

Quinton Point

Q3 2018 W I C H I TA , K A N S A S

MULTIFAMILY MARKET UPDATE More information on investment will be available in our Q3 2018 Multifamily Market Update. Coming soon!

• The self-storage inventory has been relatively stable. Recently, NSA

Security Storage purchased six Security Self Storage properties totaling over 1,200 units. Opportunities exist for small to mid-size investors to explore secondary markets and older properties. The former Johnson’s Garden Center site at 802 N Ridge Road has been razed with plans to build a Wichita Self Storage with more than 300 units. A 425-unit storage facility is being built in southeast part of Derby near Rock Road and East Madison.

2019 OUTLOOK

Construction

Sales Activity

Values

Multifamily MHC Hospitality

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Self-Storage 22 | Commercial Real Estate Market Update

NAI MARTENS

Who We Are COMPREHENSIVE RESEARCH ON MARKETS AND SUBMARKETS THROUGHOUT THE WICHITA MSA The Martens Companies provide trends and forecasts of rent, vacancy and inventory for Apartment, Office, Medical Office, Retail, Warehouse/Distribution, Flex/R&D, General Industrial, and the major Aircraft Campuses. Because overall metro averages often conceal significant variations from neighborhood to neighborhood, we report on submarkets across the Wichita metro and Derby. We develop trends and forecasts from property-level data collected by our team of real estate analysts, advisors and appraisers during telephone interviews with building owners and managers as well as property tours and personal inspections.

Our team monitors the local business press and cross-checks our research against the perspectives of local brokers, developers and other commercial real estate professionals. This complete view of the market, including differing perspectives, provides our clients with valuable decision-making information.

HISTORICAL, REAL-TIME DATA, NOT JUST AN ANNUAL SNAPSHOT Reliable historical trends and forecasts are the cornerstone of any accurate market analysis. Celebrating our 70th year, t he Martens Companies have been working in commercial real estate in Wichita since 1948 and have been keeping real-time databases of the Wichita market since the early 1990s. We have published an annual forecast since 2001, but there is no quicker way to get a detailed picture of current and projected Wichita market conditions than reviewing our quarterly market reports.

NAI Martens is the largest full-service commercial real estate firm in Kansas. Founded in 1948 and headquartered in Wichita, NAI Martens provides a vast array of commercial real estate services throughout south-central Kansas and Topeka. NAI Martens is led by CEO Steve Martens, CCIM, CPM, SIOR and President Tom Johnson, CRE – two industry veterans with 80 years of combined commercial real estate experience.

Commercial real estate services include brokerage, appraisal, property management, consulting, site selection, highest-and-best use analysis and more.

NAI Global is a leading global commercial real estate brokerage firm. NAI Global offices are leaders in their local markets and work in unison to provide clients with exceptional solutions to their commercial real estate needs. NAI Global has more than 400 offices strategically located throughout North America, Latin America, Europe, Africa and Asia Pacific, with over 7,000 local market professionals, managing in excess of over 425 million square feet of property. Annually, NAI Global completes in excess of $20 billion in commercial real estate transactions throughout the world.

NAI Global provides a complete range of corporate and institutional real estate services, including brokerage and leasing, property and facilities management, real estate investment and capital market services, due diligence, global supply chain and logistics consulting and related advisory services.

ACCURATE, UP-TO-DATE INFORMATION For every submarket across the primary properties, we offer overviews of trends; describing current conditions, asking rents, notable construction projects announced and completed, and sales and lease activity. Metrics analyzed include market composition, submarket distribution, asking rents, vacancy absorption, inventory levels and new construction.

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In-depth trends and statistics can be found in our quarterly reports. © Copyright 2018 NAI Martens. Reproduction in whole or part is permitted only with the written consent of NAI Martens. Some of the information contained herein has been gathered from sources deemed reliable. However, NAI Martens makes no warranties or representations as to the completeness or accuracy thereof.

NAI MARTENS

Commercial Real Estate Market Update | 23