The retail and investment sectors are the bright spots for commercial real estate in Wichita next year, while the office and industrial sectors will continue to lag, according to a new forecast.
The NAI Martens 2015 Forecast said increasing consumer confidence, retail sales and demand will make that sector the busiest next year.
The forecast produced by the local commercial real estate firm predicts that retail real estate activity will be strongest at the intersections of 29th and Maize in northwest Wichita and 21st and Greenwich in northeast Wichita – “the epicenter of activity through 2015.”
Tom Johnson, NAI Martens president, said those intersections are expected to grow because of the continued build out of large retail developments NewMarket Square at 21st and Maize and Regency Lakes at 21st and Greenwich.
He said new construction activity in the sector will likely be limited to single retailers that are on the scale of operators such as Hobby Lobby. There also could be some small retail center developments emerge, but only if they are anchored by a regional or national retailer, such as Whole Foods at Waterfront Plaza at 13th and Webb, he said.
East Kellogg could also see some activity next year around Webb once the Costco project is underway and plans for the turnpike interchange are firmed up, he said.
“That’s going to have some impact on that (Kellogg) frontage,” Johnson said.
Just like increasing consumer confidence and higher sales will drive retail real estate activity, low interest rates and lots of cash will continue to fuel investment in commercial real estate properties next year, the forecast said.
Investment will be strongest in apartment and single-tenant retail properties. That’s primarily because capitalization rates – or return on investment – are expected to remain strong in those properties.
“The environment we’re in we continue to see a lot of deal activity,” said Steve Martens, CEO of Martens Cos. “That’s a very positive thing.”
The office and industrial sectors are expected to be less robust next year because they don’t have the underlying factors that retail and investment properties do, the forecast said.
The office sector is not growing because there’s little if any growth expected by users in the financial, professional, technical and information services, the forecast said.
“We don’t see somebody moving from 20,000 square feet to 40,000 square feet,” Johnson said. “…We haven’t had any of that in the last three to four years.”
Johnson also said that the trend is office users need less space for each worker. “The average size is declining,” he said.
There are pockets where Class A office space is limited and in high demand, but those areas are largely outside of downtown, the forecast said.
The industrial sector has shown improvement, the forecast said, but slowly. Speculative warehouse projects completed in the past few years are finally reaching capacity, Johnson said.
“The wild card remains the future of the aircraft manufacturers and the strength of the overall economy,” the forecast said.
Development and construction activity in the industrial sector next year will be primarily among owner-occupied buildings, largely the suppliers who provide parts to aircraft manufacturers and also are seeing growth by expanding their parts work to manufacturers outside of aviation, Johnson said.
There could also be some additional speculative flex projects – buildings that can be easily adapted to warehousing, distribution or manufacturing – in the works in 2015, Johnson said, but “you aren’t going to see any tidal wave” of new industrial buildings or developments.
With “the current rental rates being well below what it takes to get a decent return … the market is going to be hesitant to step up” with new projects, Johnson said.