Retail market records impressive year, promises a rosy 2016

Kansas City pulls an impressive ranking as one of the most bullish retail markets across the U.S. Source: Integra Realty Resources Viewpoint 2016

Kansas City pulls an impressive ranking as one of the most bullish retail markets across the U.S. Source: Integra Realty Resources Viewpoint 2016

Despite its challenges, Kansas City’s retail market performed impressively well in 2015. With a 130 percent uptick in retail transactions over the previous year, Kansas City reeled in roughly $863 million in total investment sales in 2015, “an envious figure for any market, primary or secondary,” CBRE says. In fact, Kansas City neared the top of the list of U.S. markets that have seen sharp increases in retail transaction activity.

The U.S. retail sector is posting encouraging numbers. In the third quarter of 2015, RCA reports that the country saw $90.4 billion in annual transaction volume, an increase of $20 billion from the prior year, and up $22.9 billion in transaction volume in 2010.

With fundamentals improving and notable transactions ahead, the local retail landscape holds even more promise for 2016. Here’s a look back at the market’s performance in 2015 and a glimpse at what the next year holds, based on a compilation of the latest research from CBRE, Real Capital Analytics, and Integra Realty Resources.

Kansas City’s retail market is making a full recovery from the depths of the recession, and is seeing increasing vacancy rates and moderate amounts of new construction. Source: Integra Realty Resources Viewpoint 2016

Kansas City’s retail market is making a full recovery from the depths of the recession, and is seeing increasing vacancy rates and moderate amounts of new construction. Source: Integra Realty Resources Viewpoint 2016

THE STATS

Vacancy

While submarket vacancy rates are in constant flux, historical vacancy rates for the market as a whole are trending downward. At 7.7 percent overall vacancy in the fourth quarter of 2015, Kansas City is seeing its lowest rates since 2007. The Country Club Plaza posted the lowest vacancy at 3.1 percent, while South Johnson County posted a stable rate of 6.7 percent, “alluding to the successful balancing act between completions and absorption in the metros most active retail submarket,” CBRE says in the report.

Lease rates

The average metro-wide asking lease rate jumped 9 basis points to an average of $12.55 per square foot, up from $12.46 the previous quarter. South Johnson County continues to flex its muscles as its average rates increased 5.7 percent to $17.71 per square foot. Midtown, however, saw its average lease rates plunge 13.8 percent to $11.84 per square foot, compared to $13.74 per square foot in the previous quarter. As a whole, average asking lease rates have been trending upwards since the fourth quarter of 2014. The report says that within the next several quarters, Kansas City could reach its 2008 average rate of $13.18.

Construction

In the fourth quarter, construction numbers increased slightly with 263,074 square feet and a total of 19 buildings under construction. Year-over-year deliveries measured 890,454 square feet across 42 buildings in 2015, signifying “a strong but not stellar year for retail construction in KC, but with several projects in the pipeline for 2016, we should expect to see even more activity in the year ahead.”

Net absorption in the fourth quarter marked a positive 339,386 square feet. Compare that to 60,086 square feet absorbed in the previous quarter. All in all, 1.32 million square feet were absorbed in 2015.

Investment

Kansas City recorded strong investment sales in 2015 with a total of $863 million in total transactions, a “photo finish.” The fourth quarter brought $82.9 million in sales with an average per-square-foot value of $197, marking near record highs. This was achieved with the sale of revered assets like Park Place, Town Center Plaza and Town Center Crossing.

One of the most exciting local retail projects on the horizon is the 45,000-square-foot Whole Foods under construction as part of a mixed-use project adjacent to the University of Missouri-Kansas City.

One of the most exciting local retail projects on the horizon is the 45,000-square-foot Whole Foods under construction as part of a mixed-use project adjacent to the University of Missouri-Kansas City.

WHAT’S AHEAD

Expect a bullish 2016 for retail in Kansas City as the imminent sale of Kansas City’s crown jewel, the Country Club Plaza, draws to a close. By the end of the first quarter, when the parties expect to close on the asset, Kansas City will already hit 76 percent of 2015’s total investment sales. With that momentum, CBRE predicts that the retail market in 2016 has the ability to outdo 2015.

“With an expanding economy, Kansas City’s retail market is poised for continued improvement,” CBRE says in its Q4 MarketView report. “Solid economic fundamentals will help consumers hold onto their buying power, a bright spot for the market.”

Interested in hearing more about the changing retail landscape in Kansas City? Register here to attend MetroWireMedia’s 2016 Retail Summit, where we’ll discuss the latest projects, numbers and trends with the region’s top experts.