NAI Martens Market Outlook 2020

2020

COMMERCIAL REAL ESTATE MARKET UPDATE

W I C H I T A K A N S A S MARKET OUTLOOK

435 S Broadway St | Wichita, KS 67202 | 316.262.0000 | www.NAIMartens.com

AFTER A STEADY 2019, WHAT’S IN STORE FOR COMMERCIAL REAL ESTATE IN 2020? R eal estate fundamentals will remain generally positive through 2021. While some key metrics may moderate, we expect no major disruptions. The strides made in public and private development in the core area and the myriad of projects under construction or in planning throughout the community have been impressive. The current economic development initiatives and a more positive outlook bode well for the future. For Wichita to continue its momentum, it will need to see job growth acceleration and a diversification of its economic base. In addition to market summaries presented herein, there are a few trends of note that are expected through the end of the year and into 2020. eal estate fundamentals will remain generally positive through 2021. While some key metrics may moderate, we expect no major disruptions. The strides made in public and private development in the core area and the myriad of projects under construction or in planning throughout the community have been impressive. The current economic development initiatives and a more positive outlook bode well for the future. For Wichita to continue its momentum, it will need to see job growth acceleration and a diversification of its economic base. In addition to the market summaries presented herein, there are a few trends of note that are expected through the end of the year and into 2020.

• Transaction Volume to Remain Steady - The market may have peaked but activity and pricing has remained firm through mid- year. While all core sectors have performed well; apartments remain the perennial investor favorite with increased interest among mobile home investors. • Opportunity Zones Craze Will Persist – Many investors are on the sidelines awaiting finalized guidance regarding the program. The hunt continues for assets and investment opportunities in designated areas that present the strongest upside potential. • Industrial Demand to Continue – Wichita is a manufacturing market and as such is not characterized by a large inventory of warehouse and or distribution facilities. Demand may increase from non-traditional uses such as e-commerce and the CBD industry. • Transaction Volume to Remain Steady – The market may have peaked but activity and pricing has remained firm through mid-year. While ll cor sectors h ve performed well, apartmen s remain the perennial investor favorite with increased interest among mobile home investors. • Oppor unity Zo es Craze Will Persis – Many investors are on the sidelin s awaiting finalized guidance regarding the program. The hunt continues for assets and investment opportunities in designated areas that present the strongest upside potential. • IndustrialDemandtoContinue –Wichita is amanufacturing market and as such is not characterized by a large inventory of warehouse and or distribution facilities. Demand may increase fro non-traditional uses such s e-commerce and the CBD industry. • Online Retailers to Open Brick-and-Mortar Stores – Physical retail is far from dead despite the number of

• Investment in Value-Add Assets - Demand for available and affordable workforce housing options will remain a topic of interest in the multifamily sector, as expensive land and development costs make it increasingly difficult to build affordable housing from the ground up. • Millennials and Empty Nesters Continue to Influence - Aging millennials now hitting their early 30s, the first phase of millennials are looking at larger, more affordable homes and access to schools. Empty nesters are gravitating to low- maintenance lifestyle communities. As a result, innovative single-family and multifamily housing alternatives will emerge. • Investors to Continue to Look at Secondary and Tertiary Markets – Commercial real estate investors will continue to look at burgeoning secondary and tertiary markets for solid risk-adjusted returns and the trend is likely to continue. store closings. Retailers are reinvesting to achieve the perfect omnichannel shopping experience for consumers. In additio , e-commerce retailers will increasingly shift to open physical stores to grow their business and retain more customers. • Millennials and Empty Nes ers Continue to Influence - Aging mil nnials now hit ing their early 30s, the first phase of millennials are looking at larger, more affordable homes and access to schools. Empty nesters are gravitating to low- maintenance lifestyle communities. As a result, innovative single-family and multifamily housing alternatives will emerge. • Investors to Continue to Look at Secondary and Tertiary Markets – Commercial real estate investors will continue to look a burgeoning secondary and tertiary m kets for solid risk-adju ted returns and the trend is likely to continue.

COMMERCIAL REAL ESTATE MARKET UPDATE | 19

NAI MARTENS

Office

CHARTS

STATISTICS

• Six buildings totaling 45,525 SF have been completed thus far in 2019, including Hayes Co. new 9,400 SF office in Delano, Kice Industries expansion in Park City, Icon Structures’ 13,825 SF office building near K-96 & 13th, Holmes Garci Advertising’s 5,000 SF building on 37th west of Ridge, Open Mortgage’s 3,300 SF building in the Estancia development near 37th & Ridge, and the 5,000 SF Mid American Credit Union at Kellogg & Oliver. • There have been 48 general office sales in 2019 with a total value of $39,734,764. • Net absorption in Wichita’s office market is positive so far in 2019 with a total of 214,544 SF absorbed. Notable lease transactions have been IMA Financial Group’s lease for the to-be built TGC Development building at Douglas & Emporia, and the lease of 89,800 SF in the Corporate Hills Office Building. • Office market vacancy rate 2019 YTD:

VACANCY RATE

13.0% 14.0% 15.0% 16.0% 17.0% 18.0% 19.0%

2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2

NET ABSORPTION

2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2

• Overall: 14.6% • Class A: 12.2% • Class B: 15.9% • Weighted average asking rents in 2019 YTD: • Overall: $13.89/SF

-

50,000 100,000 150,000 200,000

• Class A: $18.90/SF • Class B: $11.85/SF

RENTAL RATES (FULL SERVICE)

• Class A

$30.00

• CBD: $16.96/SF • Suburban: $21.20/SF

$20.00

• Class B

$10.00

• CBD: $12.02/SF • Suburban: $13.36/SF

$-

2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2

Medical Office

Class A Weighted Average Rent/Sq. Ft. Class B Weighted Average Rent/Sq. Ft.

• Two office buildings are currently under construction. The 60,000 SF Spaghetti Works office/retail building with Martin Pringle as the lead tenant is under construction downtown and the Village Tours & Charters new 48,000 SF headquarters at K-96 & Ridge, which is a mixture of office, vehicle storage and repair space. ACTIVITY • Current weighted average asking rate for medical office space is $17.18/SF (full service) with an overall vacancy rate of 9.08%. • Eight medical office buildings have sold for a total of $8,339,814. • Five medical office buildings totaling 109,989 SF have been completed in 2019 including the 70,000 SF Waterfront Rehab Center at 13th & Webb, the 20,170 SF Webb at 96 Plaza medical building, SF Mid-Kansas Ear, , 9,500 SF Nose & Throat Hearing Aid & Allergy Center in the Estancia development at 37th & Ridge, Eye Care Associates’ 6,000 SF building near 37th & Maize, and the 4,319 SF Montoya Family Practice near Pawnee & Rock Rd.

*Source: NAI Martens Research. Charts do not include medical office data. All 2019 figures are reflective of YTD 2019 numbers as of 8-23-19. **Full Service Leases

TRENDS WHAT TO EXPECT IN 2020

VACANCY RATE =

NET ABSORPTION CONSTRUCTION =

SALES ACTIVITY = ASKING RENT

LEASE ACTIVITY

2020 OUTLOOK The office market will see a slight improvement in rents and vacancies during 2020. While new construction is slow for the general office market, smaller projects as well as mixed-use projects still continue to be announced. Medical office will continue to see increased activity in a number of areas including the northeast and northwest quadrants, as well as Derby.

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NAI MARTENS

Retail • Net absorption in Wichita’s retail market is positive so far in 2019 with 7,835 SF absorbed. Notable leases have been Trader Joe’s in Bradley Fair’s 14,000 SF space formerly occupied by Fresh Market and Floor & Décor in the 90,000 SF building at 9609 E Kellogg. • Retail vacancy rates for 2019 YTD: • Overall: 11.9% • Power Center: 1.7% • Hybrid (Lifestyle/Power): 8.3% • Lifestyle: 11.9% • Community: 19.0% • Neighborhood: 16.4% • Regional: 13.0% • Strip Centers: 13.9% • Urban Retail/Row Buildings: 8.2% • Four retail buildings totaling 100,450 SF have been completed in 2019 including Gander Outdoor and Gander RV near I-235 & Seneca, Twin Lakes – Huddle House strip center at 21st & Amidon, and the Duluth Trading Co. at Greenwich Place. • Thus far in 2019 there have been, 53 transactions totaling $42,969,296 have been completed. STATISTICS • On the restaurant side a few projects have been announced. A Panera is planned to open in 4,200 SF at the Greenwich Place development. Meddys will build a new location near Kellogg & Ridge behind the recently opened Cracker Barrel and Cheddar’s. Chipotle is adding their sixth Wichita store at New Leaf Plaza - 21st & Amidon on the site of the recently demolished Payless ShoeSource building. Restaurants • Eleven retail buildings totaling 143,531 SF are currently under construction. Construction is nearing completion on the Delano Gate development near Kellogg & Seneca, as well as the Hilton Garden Inn Hotel commercial space at 401 E Douglas. Other retail buildings under construction include Michaels, Five Below, Famous Footwear, Saltgrass Steakhouse, and Dave & Busters all at Greenwich Place. REI, a major outdoor national retailer, plans to construct a new 20,000 SF building, also at Greenwich Place, and is expected to open in spring 2020. Other notable construction includes Kwik Shop’s 7,500 SF development at Kellogg & West which will include a Taco John’s and one other restaurant, and Hobby Lobby at Cadillac Lake – 37th & Maize. • The former Kmart at the Saddle Creek Crossing retail center near 47th & Broadway is being redeveloped. Construction is planned for Accent Lighting’s new 20,200 SF building at the Waterfront, which will offer 4,800 SF for lease. ACTIVITY

CHARTS

VACANCY RATE

9.50% 10.00% 10.50% 11.00% 11.50% 12.00% 12.50%

2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2

NET ABSORPTION

2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2

2019 Q1 2018 Q4

(100,000) (50,000)

-

50,000 100,000

RENTAL RATES (NNN)

$11.60 $11.80 $12.00 $12.20 $12.40 $12.60

2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2

*Source: NAI Martens Research. Charts do not include restaurant data. All 2019 figures are reflective of YTD 2019 numbers as of 8-23-19. **NNN Leases

TRENDS WHAT TO EXPECT IN 2020

ASKING RENT = VACANCY RATE =

NET ABSORPTION

CONSTRUCTION LEASE ACTIVITY =

SALES ACTIVITY

2020 OUTLOOK The retail market is not likely to see any major changes in 2020. Construction activity will remain slower, with the exception of a few growing areas around Wichita including Greenwich Place, Kellogg & Ridge and continued expansion of retail along North Maize Road. Lease activity, asking rent and vacancy rates are expected to remain steady.

COMMERCIAL REAL ESTATE MARKET UPDATE | 21

NAI MARTENS

Industrial

CHARTS

STATISTICS

• There have been 68 industrial sales in 2019 with a value of $50,873,292. • Industrial vacancy rates for 2019 YTD: • Overall: 5.54% • General Industrial: 5.4% • R&D/Flex: 10.9% • Weighted average asking rents 2019 YTD: • General Industrial: $4.62/SF (Industrial Gross) • R&D/Flex: $9.26/SF (NNN) • Net absorption in Wichita’s industrial market is positive 136,011 SF so far in 2019. Notable lease transactions include the building at 2526 E 36th Cir N to Standard Beverage and Daltile at 2050 E Edwards. • Four buildings totaling 381,336 SF have been completed in 2019 including the 102,336 SF Michaelis Industrial Spec Building on north Webb Road, the 253,000 SF WinField United Solutions off of I-135 in Park City, Shuttle Aerospace in the Maize Industrial Park, and a 5,000 SF free-standing warehouse at 1207 S Washington. • Four industrial buildings are currently under construction totaling 196,310 SF, including the 48,000 SF Metal Pros building at 3900 S Norman, Roberts Concrete’s 13,000 SF building at 4151 S West, and a 35,000 SF spec warehouse in the Maize Industrial Park. • Two more projects utilizing the City of Wichita’s spec industrial building program have begun. Another 100,000 SF building is under construction at the Ironhorse Manufacturing Park, located near MacArthur & Seneca. In the northeast quadrant, work started on a 136,580 SF spec building located near 39th & Webb. Under the industrial spec building program, construction must begin within 120 days of approval and be completed within 15 months of the same date. If those timelines are met the property is eligible for a 95 percent ad valorem tax abatement for the first five years. • Also at Ironhorse Manufacturing Park, Cosmic Pet (formerly known as Hyper Pet) is planning an additional 100,000 SF building. The company already occupies a 103,000 SF building at the park. ACTIVITY

VACANCY RATE

7.00%

6.50%

6.00%

5.50%

5.00%

2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2

NET ABSORPTION

2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2

2018 Q2

(100,000)

-

100,000 200,000 300,000

RENTAL RATES (IG)

$4.50 $4.58 $4.65 $4.73 $4.80 $4.88 $4.95 $5.03 $5.10

2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2

*Source: NAI Martens Research. All 2019 figures are reflective of YTD 2019 numbers as of 8-23-18. **Industrial Gross Leases

TRENDS WHAT TO EXPECT IN 2020

VACANCY RATE =

NET ABSORPTION

CONSTRUCTION

ASKING RENT SALES ACTIVITY =

LEASE ACTIVITY

2020 OUTLOOK The industrial market in 2020 is expected to continue to improve. New spec buildings coming to the market will likely result in increased lease activity. The limited availability of quality space will have a positive effect on asking rents. Sales activity will remain steady, as will vacancy rates.

22 | COMMERCIAL REAL ESTATE MARKET UPDATE

NAI MARTENS

Investment

MARKET TRENDS

• Despite rising occupancy rates in the manufactured housing sector, it is not anticipated that there will be much in the way of new development. The only current activity is an expansion of the Welcome Home community at 47th and Meridian. Notable sales in 2019 included the 199-space Lakeside Landing on S. West St. and Sleepy Hollow, an 89-space community near Southwest Blvd. & West St. There continues to be existing property investment sales opportunities along with the infill of available vacant spaces. Look for continued strong demand from investors with values lingering at or near the highs seen in 2019. • The multifamily market remains strong with steady new development as well as steady sales activity. Construction has been focused on the suburban areas in 2019, a contrast to recent years which saw hundreds of new units added to the CBD. The 348-unit Cottages at Crestview complex began leasing in the northeast quadrant, as did the 41 units in the Spaghetti Works building. Two apartment projects under development near Wichita State will add 234 units to the area. Additionally, construction is beginning on the 204-unit 225 Sycamore Apartments at the Delano Catalyst site. Notable multifamily sales in 2019 include the 253-unit Farmington Place Apartments on Ridge, the 192-unit Somerset Apartments at 2029 N Woodlawn and the 110-unit Conquistador Apartments near Rock & Lincoln. • Construction is getting ready to start on Wichita State’s 106-room Hyatt Place that will be located at Braeburn Square on the Innovation Campus. A 95-room Home2Suites by Hilton has been selected as the hotel flag for the Delano Catalyst site. TGC will break ground on the hotel next month and is looking to open in October 2020. The Wichita City Council voted to allow a 30-day first right of refusal to the DoubleTree by Hilton Wichita Airport for a land lease and use agreement that would last until 2069. The city was originally planning to grant the lease to developer Mitesh Patel, who planned to construct a 90-room hotel before concerns were raised about the first refusal. The hotel would be just north of the existing airport Hampton Inn. Finishing touches are being placed on the 131-room downtown Hilton Garden Inn – Commerce Plaza at Douglas & Topeka. Construction seems to have slowed on the Home2 Suites at 21st & K-96. • The Wichita Self Storage development at the former Johnson’s Garden Center site at 802 N Ridge is getting closer to completion and should be finished in the third quarter. Construction continues on the three- story U-Haul rental and self-storage facility located at 600 S Holland just west of Kellogg & Ridge. The facility will have more than 700 climate- controlled storage units and 110 outdoor drive-up storage units. Dirt work has started on the Centennial American Properties at 13th & Maize and Kellogg & Webb. Each property will be three stories with 750 climate-controlled units with garage doors on both sides and a 30-foot drive through the building.

Q3 2019 MULTIFAMILY MARKET UPDATE

More information on investment can be found in our Q3 2019 Multifamily Market Update. Available now on our website!

2020 OUTLOOK

Construction

Sales Activity

Values

=

= = =

Multifamily

MHC

Hospitality Self-Storage

=

COMMERCIAL REAL ESTATE MARKET UPDATE | 23

NAI MARTENS

COMPREHENSIVE RESEARCH ON MARKETS AND SUBMARKETS THROUGHOUT THE WICHITA MSA T h e M a r t e n s C o m p a n i e s p r o v i d e t r e n d s a n d f o r e c a s t s o f r e n t , vacancy and inventory for Apartment, Office, Medical Office, Retail, WarehouseͬDistribution, FlexͬRΘD, 'eneral Industrial, and the major AircraŌ Campuses. Because overall metro averages oŌen 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 ϳ0th year, the Martens Companies have been working in commercial real estate in Wichita since 1ϵϰϴ and have been keeping real-time databases of the Wichita market since the early 1ϵϵ0s. We have published an annual forecast since 2001, but there is no Ƌuicker way to get a detailed picture of current and projected Wichita market conditions than C PREHENSIVE 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 anal sts, advisors and appraisers during telepho e intervi ws 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 AND 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, the 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 th re is no quicker way to get a detailed pic ure of current and proje ted Wichita mark t condi ions than reviewi g our quarterly market r ports. 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 c mpleted, and sales and lease activity. Metrics analyzed i clude market composition, submarket distributi asking r nts, vacancy absorption, inventory levels a d ew construction. reviewing our Ƌuarterly market reports. 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.

NAI Martens is the largest full-service commercial real estate firm in

Sources͗ Bisnow, hLI, Real Capital Analytics, CCIM, CBRE 'lobal Research, :P Morgan Chase, :LL PropTech Sources: Bisnow, ULI, Real Capital Analytics, CCIM, CBRE Global Research, JP Morgan Chase, JLL PropTech

In-depth trends and statistics can be found in our quarterly reports.

435 S Broadway St | Wichita, KS 67202 | 316.262.0000 | www.NAIMartens.com

© Copyright 2019 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. © Copyright 2019 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 omplet ness or accuracy thereof.

24 | COMMERCIAL REAL ESTATE MARKET UPDATE

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