Report: Commercial real estate outlook for 2016 solid
Recent numbers predict slow job growth for the Wichita area, but that hasn’t stopped NAI Martens from anticipating an uptick in the commercial real estate market next year.
In its annual forecast for 2016 released this week, the real estate firm referred to the general tone of the market as “optimistic,” adding that “virtually all economic indicators are positive” for next year.
That’s despite the prediction by Wichita State University economist Jeremy Hill at Thursday’s Wichita Economic Outlook Conference that the city would gain just 3,360 jobs in 2016, a number that would represent a 1.1 percent increase for its workforce.
“Commercial real estate and deal flow is outpacing the economy,” Tom Johnson, NAI Martens president, said during the conference at Century II. “Industrial has really kind of turned around. The manufacturers are more confident. Commercial aviation and their supply chain have done well.”
The industrial real estate market in Wichita is expected to be “solid” in 2016 with “gradual expansion,” according to the report. NAI Martens’ most-recent numbers show that the most expensive properties on average can be found on the southwest side of town ($4.63 per square foot) and the northeast side of town ($4.61). By far, the highest vacancy rate in the city is in southeast Wichita (20.6 percent).
Overall, NAI Martens is more bullish on the 2016 industrial outlook than it has been in years.
“The whole environment is much more positive,” Johnson said. “It’s nothing dynamic, just really solid going forward. In retail, we’re in good shape, there’s no downside. The concern is about how we diversify the economy.”
Partly due to growing consumer confidence as a result of low gasoline prices, the firm expects retail growth to carry over to 2016. While Johnson said some businesses could suffer because of more retail coming online, he noted the general forecast for the sector is positive.
“We have a lot of new development coming online,” Johnson said. “In northeast, the new parts at NewMarket Square, the Cadillac Lake area; the Greenwich Road corridor is very strong.
“We will have some winners and losers because we don’t have disposable income growth to support increased sales. You add new product, somebody’s going to have to suffer, but there’s going to be some interesting concepts, some things that are new to the market.”
Overall, NAI Martens is predicting higher occupancy rates for 2016 and “marginally” increased retail rents. The report notes that urban locations could prove fertile for growth, stating that “urban locations can emerge as the darlings of retail as millennials continue to migrate to the central business district.”
Johnson hinted that millennials — generally thought of as current adults between the ages of 18 and 34 — might also play a more important role in the further development of the Wichita economy.
“The challenge is to look at opportunities that we maybe haven’t uncovered yet,” Johnson said. “Where are the emerging technologies and industries that I think we have the opportunity to capitalize on?
“Who are going to be the emerging leaders now that make that happen? I think the big opportunity is to capitalize on this new millennial generation that is coming through and to identify some emerging leaders.”
The biggest challenge in commercial real estate in Wichita in 2016, according to the report, is in the office sector, where limited growth in financial, professional, technical and information services is expected to carry over.
“We have some excess inventory downtown,” Johnson said. “The accounting firms and law firms aren’t expanding, they’re just moving from one place to another. There’s good deal flow, but not much absorption.
“Our biggest problem is Class B downtown and it will continue to be. We have an aging inventory and it’s traditional office space — what we’ve had for 40 years. The demands of office tenants are changing — they want higher ceilings, more light, more open space.”
Overall, the firm thinks that Wichita is “well-positioned for growth through 2016 and 2017.”
To view the full report, visit www.naimartens.com and click the “news & research” menu bar.
Reach Bryan Horwath at 316-269-6708 or bhorwath@wichitaeagle.com. Follow him on Twitter: @bryan_horwath.
NAI Martens 2016 commercial real estate forecast for Wichita
Industrial: “Next year should be solid. We are more optimistic than we have been in years.”
Retail: “We anticipate higher occupancy rates through 2016. Rents will increase marginally as landlords wait until the economy is on better footing.”
Office: “Inconsistent office fundamentals will result in only moderate decreases in the office vacancy rate and restricted asking rent growth.”
Investment: “Real estate continues to have advantages over other investment options due to stable income produced by quality assets.”
Apartments: “This area will continue to outperform the market. With over 1,800 units proposed, supply could surpass demand in the short-term, but the market will catch up quickly.”
Source: NAI Martens 2016 forecast
This story was originally published October 2, 2015 at 7:48 AM with the headline "Report: Commercial real estate outlook for 2016 solid."