Q1 2019 Market Update

Q1 2019 W I C H I T A K A N S A S

MARKET UPDATE

OF F I CE

RETA I L

I NDUSTR I AL

I NVESTMENT

435 South Broadway, Wichita, KS 67202 • (316) 262-0000 • naimartens.com

16.6%

Q3 ‘18 OFFICE Q4 ‘18

Q1 ‘18

Q2 ‘18

Q1 ‘19

75,916

The Wichita office market had an optimistic start to the year ending the first quarter with 33,880 SF of positive absorption. Vacancy rates in both Class A and Class B dropped slightly. Weighted average ask- ing rental rates increase in Class B, but decreased in Class A. With all of the momentum in downtown Wichita, more companies have been looking to relocate to the core area. IMA Financial Group will be moving from K-96 & Rock to a new TGC Development Group building at Douglas & Emporia. IMA will be the anchor tenant in the 74,000 SF mixed-use development that will feature about 12,000 SF of retail and restaurants as well. Construction is expected to start in June and be completed by late 2020. Simpson Construction an- nounced they will be moving their office from west Wichita to the Delano District in the new Hayes Co. building at 567 W Douglas. Construction on 9,400 SF building is nearing completion.

18.7%

18.3%

45,001

17.9% 35,162

33,880

31,772

17.0%

16.6%

Q1 ‘18 Q2 ‘18 Q3 ‘18 Q4 ‘18 Q1 ‘19

Q1 ‘18

Q2 ‘18

Q3 ‘18

Q1 ‘19

Q4 ‘18

75,916

$18.94

Q1 ‘18 Q2 ‘18 Q3 ‘18 Q4 ‘18 Q1 ‘19 Q1 ‘18 Q2 ‘18 Q3 ‘18 Q4 ‘18 Q1 ‘19

18.7%

$19.13

18.3%

$19.16

45,001

17.9%

It is very exciting to see all of the office development downtown, much of it driven by the desire to recruit and retain employees.

$19.14

35,162

33,880

31,772

$19.39

17.0%

$12.30

$12.23

16.6%

Q1 ‘18 Q2 ‘18 Q3 ‘18 Q4 ‘18 Q1 ‘19

$12.17

Patrick Ahern, CCIM, SIOR VP - Office Services

$12.19

$12.32

Q1 ‘18

Q2 ‘18

Q3 ‘18

Q1 ‘19

Q4 ‘18

In the northwest quadrant, Open Mortgage has started construc- tion on their 3,300 SF building in the Estancia development at 37th & Ridge. Other office buildings under construction include the Vil- lage Tours & Charters new 48,000 SF headquarters north of K-96 & Ridge, which is expected to be completed this summer, as well as the 13,825 SF Icon Structure building at K-96 & 13th. Holmes Garci Advertising moved into their 4,500 SF newly constructed office at 7511 W 37th St N. Work is expected to be completed by the end of the year on the FireWorx project at Lewis & Topeka. The former fire station will be transformed into office spaces ranging from 900 SF - 1,900 SF, as well as co-working space. Work continues on the Spaghetti Works District 60,000-square-foot development. The Class A office portion of the building will be oc- cupied by Martin Pringle Law Firm. The mixed-use development is expected to be finished later this year. Notable sales in the first quarter include the former Accident Re- covery Team building at 221 N Topeka. Sean Brennan, a partner with the Accident Recovery Team, purchased 833 N Waco and has moved the company to the 10,200 SF space.

75,916

$18.94

Q1 ‘18 Q2 ‘18 Q3 ‘18 Q4 ‘18 Q1 ‘19 Q1 ‘18 Q2 ‘18 Q3 ‘18 Q4 ‘18 Q1 ‘19

$19.13

$19.16

45,001

$19.14

35,162

33,880

31,772

$19.39

$12.30

$12.23

Q1 ‘18 Q2 ‘18 Q3 ‘18 Q4 ‘18 Q1 ‘19 $12.17

$12.19

$12.32

NOTABLE LEASES

Tenant

Address

Size

IMA Financial Group Douglas & Emporia

40,000 SF

$18.94

Q1 ‘18 Q2 ‘18 Q3 ‘18 Q4 ‘18 Q1 ‘19 Q3 ‘18 Q4 ‘18 Q1 ‘19

$19.13 8301 E 21st St

6 Meridian

9,324 SF

$19.16

$19.14 Simpson Construction 567 W Douglas

2,200 SF

$19.39

$12.30

(316) 262-0000

$12.23

$12.17

RETAIL

11.90%

11.90%

11.80%

11.50%

Q1 ‘19

Q4 ‘18

Q1 ‘18

Q2 ‘18

Q3 ‘18

The Wichita retail market dipped slightly during the first quarter. The quarter ended with 54,039 SF of negative absorption and a slight increase in vacancy, this is likely due to a number of smaller va- cancies in various community retail centers and multiple retailers leaving Towne West Square. Weighted average asking rental rates increased by $0.13/SF. Duluth Trading Co., located at the Greenwich Place development, and the Twin Lakes – Huddle House Strip Center located at 21st & Amidon were completed. Multiple buildings are currently under construction at Greenwich Place. Michaels, Five Below and Famous Footwear all have inline space under construction. Work has also started on Dave & Buster’s new 30,000 SF building, just east of Cavender’s. Saltgrass Steak House will also be coming to Green- wich Place and is expected to open late this summer.

12.30%

38,999

11.90%

11.90%

11.80%

18,783

12,702

11.50%

Q1 ‘18 Q2 ‘18 Q3 ‘18

Q4 ‘18 Q1 ‘19

Q1 ‘19

Q4 ‘18

Q1 ‘18

Q2 ‘18

Q3 ‘18

(21,035)

(54,039)

12.30%

38,999

While the national retail forecast expects growth to slow a bit while transitioning to accomodate technological advances, Wichita’s retail market remains vibrant in the Northeast, Northwest & Downtown/Riverfront core trade areas.

$12.07

Q1 ‘19

11.90%

11.90%

18,783

11.80%

12,702

$11.94

Q4 ‘18

Q1 ‘18 Q2 ‘18 Q3 ‘18

$11.90

Q3 ‘18

Q4 ‘18 Q1 ‘19

11.50%

$12.41

Q2 ‘18

Troy Farha VP - Retail & Investment

(21,035) $12.19

Q1 ‘18

Q1 ‘19

Q4 ‘18

Q1 ‘18

Q2 ‘18

Q3 ‘18

$12.41 The intersection of Kellogg & Webb will be undergoing some major transformations. Floor & Decor is opening in the 90,000 SF former Builders Square space. Groves Retail Liquor, which is currently in the former Builders Square space, is moving to a new 15,000 SF building just east of the current location. Both of these develop- ments will be located near the planned 102,000 SF Extra Space Storage three-story building. Charlotte Russe announced it was closing all stores nationwide, including its two Wichita locations in the Towne West Square and Towne East Square shopping malls. Both Towne East and West had negative absorption for the first quarter. Foot Locker, Rue 21, and GNC have all vacated Towne West. Towne West has been put on the market for sale. At Towne East, Lady Foot Locker moved out of the mall, while SEVEN, which offers discount clothing and accesso- ries for $7.99 or less, moved in. Notable retail sales in the first quarter include 360 N Rock near Rock & Central, which is being converted into a Dunkin that’s expected to open in August 2019. Other notable sales include the former Mat- tress Firm building at 2191 N Rock and One Kellogg Place - 11333 E Kellogg Dr at Kellogg & Greenwich. Construction continues on the Delano Gate development on Sene- ca just north of Kellogg. Huddle House will be the first tenant in the 14,000 SF development. Other retail buildings under construction include the Hilton Garden Inn Hotel commercial space and Gander Mountain & Camping World near I-235 & Seneca which are expect- ed to open in July.

(54,039)

38,999

$12.07

Q1 ‘19

18,783

$11.94

Q4 ‘18

12,702

Q1 ‘18 Q2 ‘18 Q3 ‘18 Q3 ‘18 $1 .90

Q4 ‘18 Q1 ‘19

Q2 ‘18

(21,035)

$12.19

Q1 ‘18

(54,039)

NOTABLE LEASES

Tenant

Address

Size

$12.07

Q1 ‘19

Floor & Decor

9609 E Kellogg

90,000 SF

$11.94

Q4 ‘18

Vasa Fitness

2120 N Woodlawn

55,000 SF

$11.90

Q3 ‘18

Dollar Tree

2120 N Woodlawn

12,800 SF

$12.41

Q2 ‘18

$12.19

Q1 ‘18

naimartens.com

6.80%

6.6%

INDUSTRIAL

6.40%

5.87%

5.70%

Q1 ‘19

Q4 ‘18

Q1 ‘18

Q2 ‘18

Q3 ‘18

The Wichita industrial market ended the first quarter with 11,139 SF of positive absorption, though the vacancy rate increased slight- ly from the previous quarter. This is mainly due to the completion of the Michaelis Industrial Spec Building at Webb & 35th bringing 103,000 SF into the market. The weighted average asking rental rate increase by $0.06/SF overall. Rates were up for General Indus- trial, while they dipped slightly for R&D/Flex. New construction has slowed down some with a couple proposed projects waiting to break ground. A total of 355,336 SF of industrial space was completed in Q1 2019, with the Michaelis Industrial Spec Building and WinField United Solutions 253,000 SF distribution cen- ter in Park City at Broadway & Briar Rose Lane, north of 77th St N. Shuttle Aerospace is still under construction at 119th & 53rd. The 21,000 SF space is expected to open this spring. Modig Machine Tool Sweden is opening their new North American Headquarters in Wichita at 208 S Commerce St. The company is refurbishing the entire building and plans on completing the headquarters in 2019. Modig is renowned as one of the world’s leading companies in man- ufacturing aircraft production equipment.

6.80%

6.6%

263,704

6.40%

255,207

149,469

5.87%

5.70%

11,139 Q1 ‘19

Q1 ‘19

Q4 ‘18

Q1 ‘18

Q2 ‘18

Q3 ‘18

Q1 ‘18

Q3 ‘18 Q4 ‘18

Q2 ‘18

(65,695)

263,704

255,207

6.80%

6.6%

$5.06

Q1 ‘19

149,469

6.40%

$5.00

Q4 ‘18

$4.92

Q3 ‘18

5.87%

11,139 Q1 ‘19

$4.88

Q2 ‘18

5.70% Q3 ‘18 Q4 ‘18

Q1 ‘18

Q2 ‘18

$4.78

Q1 ‘18

Inventory remains tight even with the addition of some spec warehouse space. We expect continued steady activity and contued positive absorption through the rest of the year.

Q1 ‘19

Q4 ‘18

Q1 ‘18

Q2 ‘18

Q3 ‘18

(65,695)

263,704

255,207

$5.06

Q1 ‘19

Grant Glasgow, SIOR Senior Vice President

$5.00

Q4 ‘18

149,469

$4.92

Q3 ‘18

In February, Cocoa Dolce announced the move of its headquarters and production to the 21,000 SF former Coleman Co. facility at the southwest corner of Second & St. Francis. Cocoa Dolce was previously in 7,000 SF in the Comotara Business Park in northeast Wichita. Honeywell Aerospace announced they are closing opera- tions and consolidating to Olathe by the end of the year. Honeywell is currently operating in approximately 58,000 SF at 7227 W Harry St near the Wichita Eisenhower Airport. Taylor Communication is ceasing operations in Wichita and has plans to sell the 50,000 SF plant at 9909 W York St. The company will close the Wichita loca- tion in June. Notable industrial sales in the first quarter include the four ware- house/retail buildings totaling 40,438 SF at 333-9 N West St, and 2888 N Mead, a large fenced storage yard office/warehouse space located close to I-135 & 29th. A package of industrial buildings was sold in the first quarter located at: 1632 S West, 1652 S West, 3830 W Bounous, 3810 W Bounous, 3909 W Bounous and 3845 W Har- ry. The sale also included the Valero located at 1622 S West St on the corner of West & Harry.

$4.88

Q2 ‘18

11,139 Q1 ‘19

$4.78

Q1 ‘18

Q1 ‘18

Q3 ‘18 Q4 ‘18

Q2 ‘18

(65,695)

NOTABLE LEASES

$5.06

Q1 ‘19

Tenant

Address

Size

$5.00

Q4 ‘18

N/A

2526 E 36th Cir N 57,875 SF

$4.92

Q3 ‘18

Daltile

2050 E Edwards

28,104 SF

$4.88

Q2 ‘18

Air Capital Packaging 1935 Midfield Rd

7,150 SF

$4.78

Q1 ‘18

(316) 262-0000

INVESTMENT

MULTIFAMILY Notable multifamily sales for the first quarter 2019 include the 110-unit Conquistador Apartments at 920 S Rock, the 41-unit Chateau Village Apartments located on 1030 N Market St, and the 94-unit Garden Pines Apartments at Rock & Harry. The 348-unit Cottages at Crestview Apartments, located at Douglas & 127th, are nearing completion and expected to open soon. Copper Creek Apartments, located near 37th & Maize, currently has two buildings under construction with plans for seven additional buildings in the next two to three years. Twenty-two new luxury duplexes are planned for the Riverside neighborhood where Booth Memorial Hospital used to be at 11th & Amidon by Arthur B. Sim Golf Course. The Riverside Park Villas development is hoping to start construction this spring. The newly renovated Spaghetti Works Apartments at 619 E William near Intrust Bank Arena began leasing in February. HOSPITALITY While there was no noteworthy news in the hospitality market for the first quarter, construction continues on the 131-room downtown Hilton Garden Inn – Commerce Plaza located at Douglas & Topeka. The Wichita City Council voted to approve a deadline extension that runs through September 1st. This will allow for the completion of the rooftop pool and other finishing touches before possibly opening in July. The Home2 Suites at 21st & K-96 features 115 suites and is expected to be completed in 2019. Notable sales in the hospitality market include the 50-room Quality Inn & Suites located at 658 S Westdale.

MANUFACTURED HOUSING COMMUNITIES Notable sales in the manufactured housing community mar- ket for the first quarter 2019 include the 89-site Sleepy Hol- low MHC in southwest Wichita and the 199-space Lakeside Landing MHC on S West St. SELF-STORAGE Construction is underway on the Wichita Self Storage devel- opment at the former Johnson’s Garden Center site at 802 N Ridge. There will be more than 300 units with an average

Following an extremely active year in 2018, sales activity continued in the Wichita manufactured housing space, with the sale of two sizable communities, Lakeside Landing and Sleepy Hollow. The MHC market is still met with a barrage of buyer demand, and some Wichita area properties have fetched cap rates in the 6%’s. Kris Wessel Senior Vice President

unit size of 1,500 SF. Work has also begun on a U-Haul rental and self-storage facility located at 600 S Holland just west of Kellogg & Ridge. The three-story facility will have more than 700 climate-controlled storage units and 110 outdoor drive-up storage units. Cen- tennial American Properties, based out of Greenville, South Carolina, is planning three new 105,000 SF buildings that will resemble retail buildings, but will actually be climate-controlled storage units. Two of the locations have been decided, with the first at 13th & Maize behind CVS and the other at Kellogg & Webb. Each building will be three stories with 750 units, garage doors on two sides, and a 30-foot drive that goes through the building.

NOTABLE NAI MARTENS TRANSACTIONS

For more details view our full Q1 2019 Transactions Report

SOLD

SOLD

SOLD

LEASED

LEASED

SOLD

naimartens.com

Q1 2019

naimartens.com

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