HEARTLAND SNAPSHOT, DECEMBER 2006

Kansas City, Missouri, Office Market

The new office development in Kansas City is almost exclusively of the build-to-suit variety, with recent activity including development for Pharmaceutical Research, Quintiles, Capital One, Applebee’s, Grundfos and Farmer’s Insurance. Positive absorption has decreased the glut of office product in the market, allowing rates to climb approximately $1.50 per square foot compared to last year. Since rates are not at a level to sustain new development, very little speculative development has taken place in the past few years. Medical office buildings are still a strong sector, commanding the highest rents in the market at $26 to $30 per square foot, while the construction of new banks has slowed down dramatically.

Briarcliff Development will break ground on a Class A, 210,000-square-foot office building located at Broadway and Highway 9 this winter for an early 2008 delivery. The planned Park Place, a 7-story tower in Leawood, Kansas, will offer 235,000 rentable square feet and an additional 118,000 square feet over the retail shops.

Johnson County, which is the largest submarket in the metro area, seems to be the hot spot for new development in office product, with plenty of undeveloped land at reasonable prices.

Although no single tenant is currently absorbing a majority of vacant space, Sprint and Embarq may be the growth tenants of the future, as both are showing a growing appetite for expansion. The average vacancy rate is 14 percent, with a high of 21 percent in the south Kansas City submarket and a low of 9 percent in south Johnson County submarket.

The Class A office rental rates average approximately $20 per square foot, with a high of $30 per rentable square foot in the Country Club Plaza submarket and a low of $17 in the central business district.

Even though the Kansas City market has not attracted new developers this year, development is continuing throughout the area, especially north of the Missouri River.  The construction of executive housing is leading the new office developments, such as Briarcliff and the Tuilleries, as well as redevelopments including the 11500 Building and the Ambassador Building.

— Brent Roberts is first vice president of office properties at CB Richard Ellis in Kansas City.

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