Special Reports

February 24, 2012

Commercial real estate: Time is ripe for a turnaround

The past four years haven’t been the best of times for commercial real estate in Wichita, with even veteran brokers scrambling for deals as traffic slowed to a crawl.

The past four years haven’t been the best of times for commercial real estate in Wichita, with even veteran brokers scrambling for deals as traffic slowed to a crawl.

The struggling aviation sector has shed jobs, including the loss of more than 2,000 jobs as Boeing prepares to leave town next year.

But with downtown Wichita primed to grow and demand still strong at NewMarket Square, Bradley Fair and the Waterfront, officials, analysts and brokers think the time is ripe for a turnaround.

Wichita Mayor Carl Brewer says he’s optimistic about the city’s industrial and retail prospects, especially downtown.

“There’s interest out there,” Brewer said. “We’re fielding more inquiries than we were.”

Wichita broker Rod Stewart, who said he went 16 months without making a deal after 41 years as a commercial broker, said he agrees with Brewer.

“I have more things in the pipeline than I used to,” he said.

The state of Wichita’s commercial market depends on the sector, said Stan Longhofer, who directs Wichita State University’s Center for Real Estate.

“My perception is that industrial is in a state of flux,” he said. “The announcement about Boeing means a wholly contained campus on one location, but lots of uncertainty for suppliers and so forth. It’s not obvious what will happen with the market coming out of that situation.”

There are other industrial projects in the works, like Wichita developer Johnny Stevens’ retrofit of the Kansas Coliseum for the National Institute for Aviation Research.

“But I think this is a part of the market that’s very much in a holding pattern,” Longhofer said.

The office sector of the commercial market is one of the strongest, he said.

“Employment in the office sector has been growing, and we’ve seen some speculative building in the last few years to talk about,” Longhofer said. “From that standpoint, office is good.

“It’s always true in any type of real estate that location matters. The good locations, the desirable locations, grow and expand, and some of the less so are deteriorating more. Even in down times, good locations hold their own, so office has been on a nice upswing.”

The most challenging sector of the Wichita market has been retail, Longhofer said.

“Retail employment has continued to fall through the winter, even seasonally adjusted,” he said. “Through Christmas, it held flat when you’d expect it to grow. And so basically, a lot of people are holding back, and I think you’ve got a number of vacancies around town.”

It’s a great time to invest in multi-family residential properties, Longhofer said.

“It’s one of the sectors where financing is easy to get, rents are rising, occupancy rates are low,” he said.

Stewart thinks the market will recover quickly, once investors and buyers lose the fear they felt during the recession and once bank regulators loosen their grip on the credit supply.

“We have been told this is the worst financial crisis since the Great Depression, and that scares people even though it really didn’t sink to that level in Wichita,” he said. “Then, airplane companies started laying folks off a year later and that scared people even more.

“Add to that the tremendous regulatory problems caused by overzealous bank examiners, who treated our extremely conservative Kansas banking community like they were the ones who caused the economic problem. The result was a credit crunch like nothing we’ve ever experienced, and we didn’t deserve that here in Kansas.”

Despite the Boeing departure, Stewart thinks investors are growing more optimistic about Wichita.

“The good news from Bombardier with their expansion begat an uptick in activity,” he said. “There’s just enough happening that I don’t think people are as afraid of the future.”

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