For better or for worse, Kansas City has a unique position in the United States’ rocky road to recovery. “It’s a very middle of the road city in a lot of good ways,” Chris Kuehl, managing director of Armada Corporate Intelligence said in his mid-year economic update for Kansas City Commercial Real Estate Women (KC CREW) on Tuesday. “It never really feels the high, and never really feels the lows. We don’t experience the big surges that the rest of the country goes through.”
But the United States business community is beginning to learn that what happens in other parts of the world has a reciprocal local effect. That was evident during the first quarter of the year when – as Kuehl put it – mother nature took her revenge. Winter hit transportation hardest, cancelling 12 percent of all commercial airline fights – a feat that will take the industry a year to recover. Other areas suffered as well: retail, housing, construction, and exports overall. But as economists began to dig deeper, they revealed that the issue was more than winter, Kuehl said, but rather the effects of other countries’ economic suffering.
“As we go forward we need to pay attention to the fact that what happens around the world matters to us,” he said. “Europe is a huge market for the U.S.; It used to be almost 25 percent of our imports and exports – but it’s half that now. Europe has been in dire straits now for close to 10 years and without that market, it affects us.”
So how exactly does that impact real estate? Interest rates have been low for years now and their inevitable rise is on the horizon. But Stanley Fisher, new vice chair of the Federal Reserve Bank, is paying close attention to hardships in international markets: He believes those struggling economies contributed to a 3 percent reduction in the U.S. economy in the first quarter – its biggest contraction in 5 years. (More from Bloomberg on that here.) “Fisher is saying, ‘Your economy is starting to recover, but the rest of the world really hasn’t,’” Kuehl said.
Other industries – particularly construction, manufacturing and transportation – are currently struggling thanks to another issue that Kuehl calls an endemic. While these sectors used to share workers who could easily transfer from one area to another during hard times, those industries are becoming more sophisticated and as a result, aren’t seeing the mobility they used to. Small businesses in particular are having a tough time training workers who are then poached by larger, higher-paying employers looking for skilled workers.
“Within manufacturing, the estimate is there’s almost 100,000 jobs going unfilled right now – good paying, $70,000 to $90,000-a-year jobs going unfilled because no one has the right skills,” he said.
But there is some hope. Bankers are beginning to find their way out from under the “monstrosity” of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and are working with regulators to begin lending again. As the economist for the National Association of Credit Management, he’s beginning to see trade credit begin to opening up.
“We’re also beginning to see a lot of activity with manufacturers and service companies, pretty much across the board,” Kuehl said. “Part of this is that small banks are getting engaged again. The other part is that companies are feeling a little more comfortable giving each other credit, which had not been the case for several years. This is really good news for a lot of projects that are stuck.”
One area that Kansas City is excelling tremendously in is transportation, Kuehl said, particularly as manufacturing makes its way back to the United States. On top of its advantageous position in the middle of the United States, sitting on both north-south routes and east-west routes, Kansas City has a concentration of companies like YRC Freight, TransSystems and Kansas City Southern that are facilitating the explosion of intermodals across the metro.
“The intermodal is something really growing in rail, as it is very expensive now to do cross-country trucking with new rules that have made it very difficult,” he said. “But the next thing that happens is a lot of warehouse space begins to follow that intermodal… You’re seeing a complete change in terms of the manufacturing mindset where we have got to start warehousing parts.”
So what would Keuhl like to see happen in Kansas City in the near future? “Kansas City could use investment,” he said. “We have airport modernization to discuss; It would be nice if more of that bill was being picked up by the government instead of locally.”
Did you miss this month’s KC CREW luncheon? Make sure to mark your calendar for the next presentation on August 19. For more information and to register for the event, click here.
CBRE’S Deal of the Week
Brent Roberts of CBRE takes home this week’s Deal of the Week with the renewal of a lease in Overland Park. Roberts renewed the 14,233-square-foot lease at the Financial Plaza building for Partners Inc., DBA Keller Williams Realty.
Roberts represented the tenant, while Matt Spachman of Block & Company Inc. represented the landlord, Colony Realty Partners.
Did you recently help sign a significant lease or close a significant sale? Let us know and we may feature it as our Deal of the Week! Contact our managing editor for more information.