Real Estate News

Tighter commercial real estate market could spark construction

Apartment construction is part of the overall strong commercial real estate market in Wichita in 2017.
Apartment construction is part of the overall strong commercial real estate market in Wichita in 2017. File photo

The Wichita commercial real estate market is approaching liftoff.

In its recent 2017 commercial real estate forecast, J.P. Weigand & Sons is calling for most sectors to see increasing demand this year, putting more pressure on the available supply and sparking more new construction.

Some new space has been built, but lease rates are still generally low enough and construction costs high enough to slow the market response. What construction there has been, particularly in the multifamily sector, has made it appear that vacancy rates aren’t moving.

But Bradley Tidemann of Weigand said the market remains strong and will continue to push against the available supply.

“A lot of stuff is starting to come on, and that does tend to skew the vacancy rates, but the sentiment of the market is pretty optimistic right now,” Tidemann said.

“Activity breeds activity from west to east to downtown. From retail to office to multifamily to industrial, there is a lot going on.”

Here are some specifics from Weigand’s forecast.

▪ Office: Overall vacancy rate, 16 percent; lease rate, $12.86 per square foot. The lack of newer space is becoming an issue. Downtown is becoming more attractive. The new political climate might encourage more expansion.

▪ Retail: Overall vacancy rate, 16 percent; lease rate, $10.59 per square foot. More demand from retailers for space and from consumers for goods and food. Weigand sees more fast casual restaurants and discount retailers.

▪ Industrial: Overall vacancy rate, 16 percent; lease rate, $4.38 per square foot. The market will remain busy, but potential buyers are starting to see a lack of quality buildings, which will push trends upward.

▪ Investment: Continued strong demand for investment property, which is pushing prices higher and cap rates lower. In Wichita, there are relatively few properties coming on the market.

▪ Multifamily: Overall vacancy rate of 7.8 percent; rents virtually unchanged since 2016. While demand from renters remains strong, a burst of apartment construction over the past three years has actually put downward pressure on prices, for now.

▪ Farm and ranch land: This is the one category that is much different than the others. Burdened with low crop and livestock prices, farmers – the main buyers of ag land – are in difficult financial shape. Land prices are coming down, and more long-term investors will be looking to buy.

Dan Voorhis: 316-268-6577, @danvoorhis

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