WICHITA’S REAL ESTATE MARKET IS FLYING HIGH
The ‘Air Capital of the World’ soars on strong fundamentals, continued innovation, new business.
By Brian A. Lee
It only takes a visit to the new $200 million Eisenhower National Airport in Wichita to realize you’re not in old Kansas anymore. Things are looking up across the “Air Capital of the World,” from the state-of-the-art airport to the ongoing $54 million Union Station renovation and the more than 200,000-square-foot first phase of Wichita State University’s soon-to-be Innovation Campus. Kansas’ biggest city is generating big real estate headlines.
Home to Bombardier Learjet, Textron Aviation, and Koch Industries, a global company with over 100,000 employees, Wichita boasts quite a strong manufacturing history and an active market.
The Brookings Institute ranked Wichita No. 1 nationally in manufacturing jobs as a percentage of total employment, at 17.7 percent, last year. The city also earned a No. 3 ranking by Brookings for percentage of manufacturing jobs classified as “very high-tech.”
“The outlook for Wichita is very good,” says Ted Branson, director of Landmark Commercial Real Estate’s industrial division. “It continues to produce strong activity from its diverse and deep industrial base of large and small companies, its well-known entrepreneurial spirit supported by world-class education and job training programs, and from a 10-county public/private effort across all industry sectors to market the area’s strengths to the nation and overseas.” He describes both the city’s industrial investment sales and leasing sectors as robust.
Nothing but results
More than 50 percent of the country’s general aviation aircraft are produced in Kansas. Located less than six miles from Wichita’s central business district, the new 3,300-acre Eisenhower National Airport campus accommodates more than 70 businesses, including air cargo, aircraft manufacturing, and aircraft service and repairs.
Textron Aviation operates large manufacturing plants for both Beechcraft and Cessna in Wichita. This fall, Airbus is expected to unveil a new 90,000-square-foot engineering center at Wichita State’s Innovation Campus.
“New manufacturing and distribution technology continues to reduce the square footage requirements in select industries,” says Tom Johnson, president of NAI Martens in Wichita. “The market will accept higher-priced product as the availability of existing space is absorbed. Users will gradually expand to new facilities as the inventory of lower-priced alternatives diminishes. As the market tightens, some owners who have held rents artificially low will capitalize on increasing demand.”
Overall vacancy for the Wichita industrial sector is 11 percent, and asking rental rates average $4.25 per square foot, according to NAI Martens. The most active Wichita industrial submarkets are the West Street corridor to the southwest; in Comotara and along Kansas Highway 96 to the northeast; and the new development occurring along Interstate 135 from 29th Street north to Park City, Kan.
The 30-acre Southfork industrial development boasts a prime location at the confluence of interstates 135 and 235 and the Kansas Turnpike (I-35) on the south side of Wichita. To the north, the Park City area offers greater availability of industrial revenue bonds and an aggressive, business-friendly city hall while the northeast suburb of Bel Aire is attracting major interest with its several large acreage sites.
Industrial demand is strong and availability limited for product ranging for 5,000 square feet to more than 75,000 square feet.
“The supply of mid-sized, high-ceiling buildings with larger storage yards and efficient dock configurations is limited and the need for additional inventory continues to grow,” says Johnson. “In response, construction activity is increasing and more is on the drawing board. However, the relationship between construction costs and rents has limited new development.”
More industrial supply is needed, especially in the smaller range from 2,000 to 50,000 square feet, according to Branson. “Due to the lack of product, it is a build-to-suit market until more warehouses are built speculatively,” says the Landmark director.
Johnson adds, “The market is seeing some owner-occupied construction but new speculative projects are limited. As an incentive for developers, property tax abatements have been made available resulting in a couple of new projects. While these are positive signs, rental rates remain below those required to support non-subsidized development.”
NAI Martens notes the following highlights from the city’s industrial sector:
- the $9.9 million sale of the 57,000-square-foot FedEx facility in Park City;
- the $5.7 million sale of the 57,000-square-foot K42 & West Business Park to a local investor;
- the recent lease commitment by Emerald Aerospace for 200,000 square feet at the 1.9 million-square-foot former Boeing property on the south side of Wichita;
- the soon-to-be completed 293,000-square-foot speculative warehouse, located at 77th St. N and I-135 in the north metro area, by developer and Air Capitol Delivery & Warehouse CEO Lou Robelli;
- and Great Plains Ventures’ $1.3 million refurbishment of a 1930s vintage warehouse on East 37th Street.
“The industrial market remains steady as quality properties are quickly absorbed,” says Johnson. “2016 should be a solid year.”
Retail remains vibrant
With consumer confidence growing, retail development in Wichita continues to accelerate for a wide variety of properties, reports NAI Martens.
“There have been a lot of value-added retail and office properties that experienced developers have taken on,” says Bradley Saville, president of Landmark Commercial Real Estate. “The use of CID (community improvement districts) and STAR (Sales Tax Revenue) Bonds have certainly allowed developers to be more competitive and also find ways to pay for needed infrastructure.”
Occidental Management’s $54 million renovation of Wichita’s Union Station will offer consumers and companies a vibrant sense of place while connecting Old Town, Intrust Bank Arena and other key parts of the downtown. The approximately 9.4-acre campus, which consists of 110,100 square feet across four buildings, is already home to State Farm Insurance, Wells Fargo, Regus and three restaurants.
“Union Station’s prominent location along Douglas Avenue, our postcard street, makes it a key destination for the public and also a critical connector between districts,” says Jeff Fluhr, president of the Wichita Downtown Development Corp. “The investment in this iconic, landmark property has been catalytic for nearby development projects, and the activation of the plaza in front of the main terminal building will bring tremendous energy to the corridor.”
Chad Stafford, Occidental Management’s president, says, “The retail sector has had a strong trend…with a revitalized downtown core retail ramp-up driven by new apartment growth and renovated product entering the market at sites like Union Station, which opened its first phase with 98 percent occupancy.”
Wichita’s overall retail vacancy rate hovers around 15 percent, according to NAI Martens, and the average asking rental rate ranges from $10 to $15 per square foot. Stafford expects a stable retail sector with solid rent growth in the 2 to 3 percent range.
“Development and leasing activity among power and lifestyle centers is the strongest it has been in years,” say Troy Farha, a commercial advisor with NAI Martens. “Class A rental rates in the low to mid-$20 per-square-foot range on a triple-net basis have held their own for well-located properties. A few ‘main and main’ properties are achieving rents in excess of $35 per square foot.”
Quality retail investment properties in Wichita are difficult to find, especially ones with long-term, high-credit leases, according to Saville.
Retail cap rates range from 8.75 to 9.25 percent and “there are quite a few 1031 exchange transactions also contributing to the market demand for yield,” adds Stafford.
The new northeast Wichita retail submarket is anchored by the 106-acre Greenwich Place, which includes Bed Bath & Beyond, Buy Buy Baby and Cost Plus World Market. The development will soon welcome DSW, Ulta Beauty, Mardel, Home Goods, Cavender’s and Ross Dress for Less, as well as a Hotel La Quinta Del Sol.
To the south, Derby has emerged as a strong suburban submarket given its housing growth and increasing trade area. Hobby Lobby, Aldi, T.J. Maxx and many other retailers have opened there in the last year.
“Wichita is a stable market in that it never gets too frothy at the highs or too lows in downturns,” says Stafford. The head of Occidental Management maintains that with a lower cost of living – 10.3 percent below the national urban area average – and unemployment near 5 percent, the market’s retail sector has been resilient during the past six years. The influx of new specialty grocers to the market include Whole Foods Market, Green Acres, Fresh Market and Sprouts Farmers Market.