The clouds are beginning to lift a little on Wichita’s largely stagnant commercial real estate market, with retail growth leading the way.
But the city’s brokers are clear about this: We’re a long way from the skies clearing, thanks to flat job growth and consumers who are still jittery about the city’s aviation future.
“Yes, we are optimistic,” said Tom Johnson, president of Grubb & Ellis/Martens Commercial Group. “One of the things we look at is the underlying economy. Where is that going? We just don’t have the rise in any real positive signs that we’re going to get a big bump in job growth. Given that, there’s some niche opportunities out there, primarily for retail.”
“More of the same,” said Rod Stewart, a veteran commercial broker with Keller Williams Signature Partners. “Nothing a lot better, nothing a lot worse. I’m not anticipating big changes in the marketplace.”
The commercial market isn’t a lot different nationally, said George Ratiu, the commercial real estate specialist for the National Association of Realtors. There’s broad improvement, with vacancy rates on the decline and rents perking up.
“Consumer spending is still positive,” Ratiu said. “There are indicators that confidence and demand are slowly rising, but we recognize that’s fairly volatile because the news out of the business sector, the international sector and the political environment is buffering public confidence and opinion.
“But when you look at business trends, employment, spending, you get a clear sense people aren’t at the same level of retrenchment.”
Wichita’s vacancy rates remain a little higher than the national average, according to the NAR: 19.8 percent in office, with national rates at 16.6; retail at 14 percent, higher than the 12.5 percent national rate; and multi-family housing, 4.9 percent in Wichita, compared to 4.5 percent nationally.
And while credit has eased somewhat for larger projects, loans remain tight for small businesses.
Here’s a look at the various Wichita commercial sectors:
“My feeling about retail is similar to office,” said Brad Saville, president and CEO of Landmark Commercial Real Estate. “There’s a glut of Class C space, a little bit of leftover A space in B locations. A lot of the big box and junior big box has filled up. That’s one reason why you’re starting to see all this new construction again. There’s not a lot of junior and big box stuff left.”
Office and retail spaces are rated A, B or C based on cost, accommodations and quality.
The retail market is “big enough to be competitive,” Stewart said. “If I were shopping for a space, I’d have people to bid off of to get the best deal possible, but even the best deal is going to be expensive in this market.”
Saville and Johnson cited four big potential growth areas: the K-96 and Greenwich area near Cabela’s in Regency, the Waterfront at 13th and Webb, downtown Wichita and the Maize Road corridor.
“We’ve got quite a litany of people interested in and continuing to watch the progress on the STAR bonds out there at 96 and Greenwich, anxious to see if that’s approved,” Saville said. “There’s quite a bit of land out there, between the stuff we’re doing and the Slawson land behind Sonic and Arby’s. There’s lots of viable commercial land out there.”
Johnson said the quick development of projects downtown like the Ambassador Hotel and the Kansas Health Foundation expansion have it on developers’ radar.
Office and industrial
Both sectors are plagued by limited inventories. Most quality Class A space has been absorbed into the market.
“I don’t see a lot of opportunities in office for new development. It’ll continue to churn and we’ll see the same progress we have,” Johnson said. “The industrial market is very good. We could lease a lot of buildings if we had the buildings, but they’re not there.”
There are large space office complexes available, Stewart said.
“For significant money at 3,000 to 10,000 square feet,” he said. “Not a lot available, though, in the 700 to 1,500 square feet range, but there’s a fair amount of 2,500.”
But those leases are going to be costly, Stewart said — $12 to $18 per square foot triple net, or the taxes, insurance, and maintenance expenses plus the lease, roughly about $7 per square foot.
“This is where Wichita is best positioned for the biggest rebound,” Ratiu said.
Local vacancy rates are close to the national average and positioned to shrink, Ratiu said, as home foreclosures continue and new household formation rebounds from historic lows to norms of about 1.2 million.
It’s enough to make a broker wistful about the good old days, Saville said, chuckling.
“How optimistic? Since before I was wrong about the downturn in 2008,” he said, laughing. “Now, our investors, people who buy stuff and people in real estate finally see some optimism.
“The banks locally are out shaking people down trying to loan money again. There’s so much cash on the sideline. It’s finally looking better.”