Gib Kerr, CCIM, managing principal at Cushman & Wakefield, and Jason Wengler, director of estimating at McCownGordon Construction, spoke at the 2024 KCRAR Commercial Real Estate Forecast held last week. Kerr discussed what’s happening in downtown Kansas City, Mo., and Wengler discussed what’s happening with construction costs.
Since 1995, there have been 17 million SF of development Downtown, including 60 historic buildings containing more than 9 million SF that have been renovated using the historic tax credits.
Kerr said some of the key drivers affecting the boom in Downtown development include the creation of the community improvement district, the Power & Light District, the T-Mobile Center (formerly, the Sprint Center), and the H & R Block Headquarters building.
“And (then) the KC Streetcar came along, and the streetcar had a bigger impact than really anything. The streetcar has been one of the most successful streetcar systems in the country. If you look at all the development activity, it’s almost all within two, three, or four blocks -- an easy walk to the streetcar. The highest land values are the land values along the streetcar,” Kerr said.
No new hotels were built Downtown in 30 years, resulting in the loss of conventions coming to Kansas City because there weren’t enough rooms.
“Then over the last 7 or 8 years, we’ve had like 12 or 14 new hotels. The number of rooms has increased 50 percent. We’ve got more hotels on the way and we’re starting to see some of the real upper-end brands — the four or five-star hotels that are not Downtown yet. They’re starting to look for opportunities here,” said Kerr.
Since 2004, Downtown has seen very little new office construction, making it “the missing link in Downtown’s comeback,” Kerr said.
There also has been a significant drop in deliveries of Downtown residential units due to COVID and passage by the city of the affordable housing ordinance which drove a lot of developers out of Kansas City.
“The pipeline is starting to come back, and the city is backing off on the affordable housing ordinance,” Kerr said.
Kerr discussed some of the catalytic projects underway or planned Downtown, which include the planned $200 million South Loop Project covering four blocks over I-670 which will reconnect the central business district to the Crossroads. About half of the funding for that project already has been raised. The goal is to complete the project by 2026.
“It’s going to be surrounded by a lot of new high-density, high-rise buildings,” said Kerr.
Other catalytic projects include the development of the Berkley Riverfront; extension of the streetcar line; a $500 million redevelopment project in the West Bottoms planned by SomeraRoad Inc.; the Greenline, a 10-mile loop around Downtown; further development of the Hospital Hill/Health Sciences District; and the $220 million John Jordan “Buck” O’Neil Memorial Bridge (formerly, the Broadway Bridge) under construction and scheduled for completion in 2024.
There also is the prospect of a new baseball stadium in the East Village and the $2 billion overall development of Ballpark Village next to it, although the Kansas City Royals have not announced the new stadium location yet.
Kerr said the catalytic projects are going to drive a lot more new private sector development.
There are more than 113,000 people who work Downtown every day, and Kerr said more employees are coming back to work in Kansas City than in the downtowns of other cities.
According to Kerr, Downtown has 33,000 plus residents, gaining more than 4,000 new residents since 2020. If Downtown were its own town, it would be the fastest-growing municipality in the metro area, he said.
“I think the next five to 10 years could be some of the best years Downtown has ever seen,” said Kerr. Wengler told the audience that long-term predictions of construction costs are difficult because prices have been so volatile in recent years, and there are new challenges facing the construction industry.
Labor has been a problem for the construction industry for a while, and the pandemic amplified the problem because many left the industry. Those who left have been replaced by a younger or new workforce which affects productivity and costs.
“Younger people coming in, taking longer time to ramp up. Maybe not willing to work overtime like the older crews used to do,” Wengler said.
In addition, he said, the big projects in the market like the plant being built by Panasonic or the Meta data center use a lot of the local construction workforce.
“It’s being allocated to those big projects, and that’s a continuing concern for us moving forward, making sure we have the workforce,” said Wengler.
Wengler said a lot of the materials that were in short supply and high cost during the pandemic, such as roofing materials and steel, are more readily available.
“Roofing is very close to what it was in the past with the normal inflation. And I would say the same for steel,” he said.
Weather events, and not just major events like hurricanes, can affect the cost and availability of construction materials. For example, Wengler said, the freeze that hit Texas in 2021 damaged some PVC pipe-producing facilities, causing them to close. Most of the PVC pipe in the nation is made in Texas.
Wengler said the industry is watching the conflicts in Ukraine and the Middle East. Demand for metals by the defense sector could impact construction.
“Copper and aluminum affect a lot of different trades throughout construction. It has a bigger impact on electrical pricing than I thought. Aluminum hits a lot of things. When you think of any storefront system or any curtain wall, a third of that is aluminum. And then it will hit roofing materials, metal panels of course,” said Wengler.
Lead times for procurement of materials remain a challenge for the construction industry. For example, Wengler said, it can take as long as 66 weeks to procure diesel fire pumps, 120 weeks to procure electrical transformers, and 85 weeks to procure electrical switchgear.
“We have to get ahead of it early. A lot of times, we’re asking our design team before they finish drawings what the equipment is going to be so we can work that (in) early,” Wengler said.
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FEATURE PHOTO: Gibb Kerr speaking at the 2024 KCRAR Commercial Real Estate Forecast. Photo credit: MWM KC | Marcia Charney