Business

Commercial market showing signs of life

No one is claiming that a corner has been turned in Wichita's moribund commercial real estate market.

But after 18 months that brokers describe as dead on arrival, there are some signs of life in sectors of the city's business market.

High-traffic, high-potential areas of Wichita, such as North Maize Road and East 21st Street, are home to a handful of new commercial projects.

Office and retail leasing has perked up, too, with tenants aggressively shopping for the best lease terms and amenities.

"I'm not sure that financing is as big an issue for companies right now as is the general uncertainty of the environment," said Stan Longhofer, director of Wichita State's Center for Real Estate.

"If you're able to make some moves, people want to be very certain that things are stable going forward. Personally, I'm not convinced there are as many threats as people in the business world perceive. It's more about general fear, I think, than any specific problems that might happen."

There have been a handful of issues depressing the Wichita commercial real estate market, Longhofer said: the November elections, the uncertainty about the future of the U.S. tax code and a painfully slow economic recovery, made more acute in Wichita by the uncertainty surrounding aviation stalwarts Hawker Beechcraft and Cessna.

"What we need to really get the market going is some sense that the underlying economy is moving forward," Longhofer said.

But with the uncertainty surrounding Wichita aviation, there aren't many positive economic signals. So what's driving some of the new builds and relocations?

Call it "inactivity fatigue."

"Our belief is that there was so little going on in the past 18-plus months that we are feeling some pent-up demand," said Steve Martens, president of Grubb & Ellis/Martens Commercial Group.

"Some are at a point where business decisions need to be made and people are realizing that they've made the decision to be in business. Part of that process is being in the proper facility."

There's also retail opportunity in Maize where a major Maize Road expansion in 2012 has lured businesses.

"The thing you need to do specifically in a city like Maize is compete," said Richard LaMunyon, the city's administrator.

"Yes, we're in competition with Wichita, but we're also in a position to literally sit down with people and see what we can work out. It's long-range planning, and it's our job."

The activity

There is new building, remodeling and leasing activity in Wichita. But there's a common denominator, said one of the city's biggest commercial lenders.

"The activity you're seeing right now has been brewing for a long time," said Intrust Bank's Gary Schmitt. "These builders are large, stable people with equity, companies that have long histories and big pocketbooks."

The main example is Menards, which is building new home improvement stores at 37th and Maize Road and at K-96 and Webb Road.

Wichita developer Paul Jackson, whose Stonebridge development on Maize Road is home to the west Menards, thinks the private company is expanding while their publicly held competition, Lowe's and Home Depot, is paralyzed by the economy.

"They're the first ones to go down when the housing crisis hit, so I'm wondering if Menards isn't trying to take advantage of a period when their competition can't expand," Jackson said.

"They've got cash in the bank, and I'm wondering if they're not saying, 'Let's go out and buy some market share.' "

There are numerous other commercial projects under way, according to Grubb & Ellis' Curtis Gibson:

Dillons is building a new store on East Harry and renovating other stores. The new strip center in front of the Lowe's on Maize Road is home to Five Guys, Long John Silver's and Cinnamon's Deli, among others. Freddy's Frozen Custard and Panera have stores in development on South Ridge Road.

"Where there is activity, there are strong drivers and demographics for it," Martens said.

"Maize Road is going to continue to grow, as is 21st Street East. The Derby market continues to do well. Rue 21 has announced in, and that's a major retail win for the Derby Marketplace down there."

Competing for office space

And then there's the Wichita office leasing market, which may be the most active commercial sector.

It's a tenant's market, as landlords move quickly to lock down current tenants and sign new ones at the best prices possible.

According to Grubb & Ellis, there was 130,000 square feet of "churn" — commercial tenant relocation — in Wichita in the second quarter of 2010.

"On the office side, Wichita continues to be one of the best deals in the country," Martens said.

Combine that with the momentum of downtown revitalization and the "office tenant pipeline is pretty full," said Dave Lundberg, a partner in Real Development.

But landlords had better be prepared to deal, Lundberg said.

"The people looking for space are shopping a little harder at this point," he said.

The prospects represent "all kinds of the market," Lundberg said — companies wanting to return downtown, in-town companies, out-of-towners, present tenants wanting more space.

"I think everyone's looking for an upgrade," he said. "And we see more people looking for ground-floor retail space, too."

Competition among landlords in the leasing market continues to ratchet up, Jackson said.

"You have to live in the market you're in," said Jackson, president of Vantage Point Properties.

"You can decide as a landlord to be patient and not do deals right now. But a lot depends on how invested you are. If you're halfway into a project and you've got carrying costs, then we look at that and make a decision about whether it's smarter to take a little hit and get a deal done or wait.

"A lot depends on where you are with your development. If you're on the front end, it might be better to sit tight. If you're halfway, it's better to turn the screws and be more competitive."

Outlook

Don't expect a lot of movement in the commercial market from publicly held firms until the economy stabilizes, experts say.

And it will be hard to tell when that happens, Longhofer said.

"We didn't have a single trigger that put the market where it is today," he said. "I think that our attempts to find the magic bullet to fix the economy are a little misguided, frankly.

"We talk about needing to do things to create jobs. No, we don't. People need to just go out and work. Creating jobs is a passive expectation of people waiting for a job when the economy truly functions best off of me seeing work that needs doing and I go do it."

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