KCADC highlights impressive 2020 scorecard at annual meeting

The Kansas City Area Development Council (KCADC) shined light on some impressive numbers this week during its annual meeting; including attracting 13 manufacturing, eCommerce and professional services companies in the last 12 months that will invest more than $1 billion and create 3,789 jobs in the Kansas City region.

The event was streamed digitally and broadcast on TV with over 2,000 business leaders, civic partners, national site location consultants, corporate executives and individuals across the country who have an affinity to KC.

“KC placed a strategic investment several years ago in our market’s inherent strengths for manufacturing, logistics and e-commerce. This investment led to the creation of KC SmartPort, which elevates KC’s competitive advantage through consistent messaging to companies in these industries, and is paying dividends today,” said Tim Cowden, president and CEO of KCADC.

“With more than 231 million square feet of existing industrial space, ample land for new buildings, a skilled logistics workforce and robust power and fiber infrastructure, Kansas City is primed for additional growth in the industrial sector,” Cowden said.

In 2020, KCADC helped attract prominent companies, including an 880,000-square-foot distribution center for Urban Outfitters, Inc., a 1,200-person e-commerce center for Chewy, Inc., and manufacturing facilities for Dot’s Pretzels and Tuthill Corporation, among others.

“Our priorities in identifying the home for our new omni-channel distribution center focused on people, and it was the quality of the local workforce that convinced us this is the right place to be,” said Dave Ziel, chief development officer of Urban Outfitters, which plans to open its $350 million facility in 2022.

The Kansas City region ranks No. 3 in the U.S. for industrial construction activity in cities with populations between one and four million, outpacing larger markets including Denver and Seattle. KC has seen 14.8 million square feet of industrial construction in 2020.

With a stronghold for financial, shared services and tech operations, KCADC also celebrated national recognition for Kansas City for professionals and future investment, including its ranking by Business Insider as the nation’s best “work from home” city, and its status as a Top Mid-Size City for Future Projects by the Site Selectors Guild.

“With a lower cost of living, free Wi-Fi downtown, access to diverse housing options and an abundance of lifestyle amenities, Kansas City is an ideal spot for remote workers leaving larger urban areas due to the pandemic,” said Jill McCarthy, senior executive of corporate attraction, KCADC.

“And there are plenty of new jobs for skilled professionals that relocate here, McCarthy said.

There are currently 49,000 open jobs in KC, and more than 15,000 jobs are created each year. Tech and highly-skilled jobs are growing faster in KC than in Seattle, Austin, Chicago and NYC, according to the Bureau of Labor Statistics.

“During such an uncertain time, KCADC’s success this year speaks to the highest level of professionalism, customer service and emphasis on regional collaboration that continues to move KC forward,” said Lisa Ginter, CEO of CommunityAmerica Credit Union and senior co-chair of the 2021 KCADC Board of Directors.

“This community has tremendous heart, and I look forward to continuing to make a positive impact on the KC region by supporting and amplifying the ongoing efforts of KCADC,” Ginter said.

In 2021, Lisa Ginter succeeds Dave Hall, executive vice chairman at Hallmark Cards, Inc., as senior-co chair of the KCADC Board of Directors. Brett Gordon, chairman of the board at McCownGordon Construction, will join KCADC’s volunteer leadership team serving as incoming co-chair, and Brian Roberts, chief diversity officer at Lockton Companies, will serve as treasurer.

“I’m looking forward to working alongside Lisa Ginter and Brett Gordon as KCADC actively positions the KC region as a top destination for business and talent in the year ahead,” said Roberts. “I can’t wait to see what 2021 brings for KCADC and the KC region.”

Amazon, Zoom, robot megatrends set new pace for CRE

The Kansas City chapter of CoreNet Global hosted futurist Nikki Greenberg for a virtual presentation on Thursday, November 5.

Greenberg, an architect by trade, worked in real estate development in Sydney, Australia before relocating to New York four years ago where she founded Real Estate of the Future, American PropTech and Women in PropTech.

According to Greenberg, the pandemic accelerated technological changes that were already underway and created opportunities for the commercial real estate industry to embrace these changes.

“We have a construction site without a blueprint. The world has fundamentally changed. The industry’s been blowing up, and there’s rubble everywhere. As real estate professionals, it’s up to us to decide now that we know that things have been dismantled, what do we want to build . What do we want the future to look like for our industry, our assets, for our buildings and for the people who occupy them,” Greenberg said.

Although technology is changing at an exponential rate, Greenberg said we tend to think about the here and now; however, there are several megatrends that are going to cause fundamental shifts within the commercial real estate industry.

The pandemic increased the prevalence of checking in with our devices, using QR codes and other methods of touch-free entry into buildings. Greenberg said these types of technology are here to stay.

“So you do want to be thinking about your touch-free access and how you’re using technology for your building and your spaces to make it a more pleasurable experience,” Greenberg said.

Greenberg said that because of the uncertainty of when people will return to the office and what future space requirements will be, flex space operators are the future because they are flexible and nimble. Flex space is designed to respond to current conditions and absorb risk.

“They have desks that anyone can jump in on, depending on the provider. So, you give that uncertainty over to a third party. Then it becomes a shared space and you’re not having to have redundant space that’s not being used,” said Greenberg.

Greenberg said that Amazon represents a megatrend, and the real estate industry needs to watch what Amazon is doing.

“Amazon is very much making a new market. They are big consumers of real estate and of course all of the technological changes that they’re bringing--drones, robots, and so forth--and that’s going to start impacting our assets and sales,” said Greenberg.

Greenberg said that nine out of the top ten purchases on Amazon this year have been electronics, including laptops, iPads, ear buds and AirPods - devices that users can move around their space.

“So people aren’t wanting to have a fixed workspace; they’re not buying desktop computers. They’re wanting to choose where they work. So we should be thinking about that in terms of workplace design. People want to choose where they work,” she said.

Greenberg said using robots represents another megatrend.

“I think within our industry, robots provide a huge opportunity and will be hugely disruptive, but we just aren’t speaking about them enough,” said Greenberg.

Greenberg noted that in warehouse spaces, robots can move parcels; in office spaces, they can deliver parcels to desks; and on college campuses, robots deliver food. And, she said, all the delivery companies have been experimenting with drones and are working to obtain clearance to make drone deliveries.

“In the future, how are packages being delivered? Are they coming through the front door or through a loading dock or are they coming through the roof or a window,” said Greenberg.

Another megatrend is the emergence of Zoom, which, Greenberg said, fundamentally has shifted the way we work.

“So you have to think about how you design for Zoom to connect people that are working from home or working from a third place with those that are in the office working there physically or in a Board room,” said Greenberg.

Greenberg said it’s up to us to choose how much we want to embrace the new technologies and new ways of working.

“The reality is that as the way we live changes, the way we provide our spaces to facilitate the activities happening inside needs to change alongside with it,” she said.

Jobs key to economic recovery, commercial real estate demand

Last week KCRAR Commercial hosted its annual commercial real estate forecast to discuss the local and national state of the commercial real estate market as well as projections for what lies ahead.

Dr. Ted Jones, senior vice president/chief economist at Stewart Title Guaranty Company; Abby Corbett, managing director/senior economist at CoStar Group; and Danielle Grimelli, market analyst at CoStar; joined moderator Max Wasserstrom, CFA, senior vice president at Block Real Estate Services for the virtual presentation.

Looking at the big picture, as challenging as 2020 has been, the news is not all unfavorable. Jones began by pointing out that Goldman Sachs predicts 2020 will see a total drop in GDP of 4.6%, but that GDP will be up by 6.2% in 2021.

“Folks, that is a recovery that most of us would have only dreamed of when we shut down the country last March and April,” Jones said.

“Do you want to know where the economy and the demand for commercial real estate is going? It’s all about jobs,” said Jones.

In 2020, the country on average lost every job that was created since 2010 when the country started to pull out of the last recession. However, Jones said jobs are coming back at a much faster pace than anticipated.

As we know, job losses have hit the leisure/hospitality segment of commercial real estate the hardest, losing one-half of all their industry-related jobs in March and April. Although some of these jobs have been recovered, Jones said we will not get all leisure and hospitality jobs back for probably 3 or 4 more years. Citing Business Travel News, he said hotels won’t get back to pre-pandemic occupancies until 2024 and room rates until 2025.

On a local level, Missouri lost 11.9% and Kansas lost 10% of jobs in the early months of the pandemic, but Missouri since has recovered 58.6% of those lost jobs and Kansas 52%. Jones said it will be a few years until all the jobs are recovered.

Jones said one of the major factors helping economic recovery is cheap energy. The oil industry has increased production by nearly 40%, but it has cut jobs by 20%, which is why the oil industry continues to survive.

“I guarantee you every business in America right now is doing this exact same thing. And that’s why I think it’s going to be a year or two or three before we get all these jobs back,” said Jones.

Jones said the pandemic has accelerated trends that were already underway.

“We were already buying e-commerce. We were already mitigating and minimizing the demand for Main Street retail store front properties. But look what we’ve done. We’ve fast forwarded this thing. We actually zoomed it up,” said Jones.

“We’re selling more stuff than any time in history. But, what we’re buying is different, and where we buy it is different,” he said.

In May, the CEO of OpenTable predicted that 25% of all restaurants would permanently close due to the pandemic, but the American Restaurant Association’s Independent Restaurant Coalition forecast in June said that 85% of independent restaurants (which comprise 70% of all restaurants) may permanently close by the end of 2020, which would constitute a loss of 59.5% of all restaurants.

Turning to commercial real estate sales, Jones noted that the decline in U.S. sales in the third quarter of 2020 was 67%, almost the same decline experienced in the third quarter of 2008 (66.6%). Kansas City, however, has fared better. In the third quarter of 2008, Kansas City saw a 68% drop in sales; whereas, in the third quarter of 2020, the drop was only 50%.

“Kansas City is doing quite well holding onto sales,” Jones said.

Jones noted that, in our lifetimes, borrowing has never been cheaper, but commercial real estate has never been more risky.

“We don’t know what it’s worth because we don’t know who is going to pay rents. We know that we need less office space, and we know we need less retail space,” said Jones.

Jones predicted that the country will be out of its recession by the third quarter of 2021.

“The good news is that we entered this downturn with the best wage growth in ten years.  What’s helping us out are low interest rates and cheap energy unless you are in an oil and gas producing area,” Jones said. 

“I think office and retail demand are forever reduced.  It’s a track we were already on.  I think industrial is forever up.  We’re going to build a lot more stuff.  I think we’re going to build a lot more stuff in Mexico, Canada and the U.S.,” he said. 

Corbett said that as a result of pandemic job losses, personal consumption spending plummeted by 19% before rebounding in the second quarter.  Even so, she said, consumers are spending approximately 3.4% less than pre-pandemic.  In addition, spending on services, the larger component of total expenditures, is still more than 7% below February levels. 

Total retail sales may have bounced back, said Corbett, but not all categories have fared well.  E-commerce has grown 21.6% since February, while electronics and appliance stores, clothing and accessories stores, gas stations and food services and drinking establishments have seen negative growth.

Corbett said CoStar predicts that the country will get back to the end of 2019 GDP output level by about the end of 2021.

“But, we’ll remain smaller than we would have without the pandemic for quite some time,” Corbett said.

With respect to the employment outlook, Corbett said jobs will come back over the next couple of years and will recover to end of 2019 levels by the end of 2022 and then flatten out.

“And also never getting back on a pre-pandemic growth path,” she said.

Corbett said that CoStar’s forecasts assume no new virus outbreaks and shutdowns in the fall and winter and a fiscal relief package of approximately $1.5 trillion for this year. 

“Both those assumptions as of right now, do not appear very likely so the forecast is then sort of tilted to the downside,” Corbett said.

She added that the third risk to the economic outlook is the high level of corporate debt. 

“There are still millions of highly indebted firms who are increasingly seeking to avoid defaults either by undercutting cost cutting or reducing head count and capital expenditures. . . . We’re seeing that in retail obviously with retailers reducing their footprints, closing stores.  We’re seeing it on the office side,”    Corbett said.

Grimelli, a market analyst for the Kansas City market, discussed the state of Kansas City’s economy and employment.  She said job losses were so extreme that it ate away at the area’s five year growth. 

With respect to the metro’s multifamily market, Grimelli noted that there is still quite a bit of supply underway which has been absorbed well, depending on where it’s located. Multifamily properties located in downtown Kansas City, the Plaza area and midtown are suffering.

“We’ve brought on the majority of inventory there in recent years so that’s contributing to higher vacancy rates along with the fact that the live-work-play [tenants] are confined to their homes.  So now we’ve seen this exodus from the urban core areas out to more spacious areas in the suburbs like Johnson County,” she said. 

Grimelli said the multifamily daily asking rents saw an almost immediate dip when the pandemic hit, but they’ve recovered pretty well across Kansas City. 

She predicts that there will be slow rent growth through the end of 2020, with rent losses pushed off into 2021. 

However, that rent growth recovery is dependent on “how we handle this pandemic, how we’re able to socially distance, whether we get a vaccine, how we get stimulus deployed,” Grimelli said.

Grimelli said that the metro area has seen a reduced demand for office space, but that trend was already under way when the pandemic hit.  And, sublet space on the market for the office sector has increased dramatically, Grimelli said.

“We already have seen rent losses in the office sector.  We expect those to continue going forward before we would start any sort of recovery,” she said.

Grimelli predicts that the Kansas City area will experience a severe downside going forward in the retail sector, including in retail rent growth.   There is very little retail space under construction, and Kansas City retail investment was already slowing when the pandemic hit. 

Kansas City’s industrial market has the strongest outlook, and Grimelli predicts a moderate upside.  Vacancies are rising slightly because there is some significant inventory underway.  

Grimelli also expects a slight decline in industrial rent growth heading into the end of 2020 and early 2021 before a strong turn around. 

Fear is no deterrent to seizing new opportunities for this CREW

Jennifer Hart, president and owner of Hartline Construction, LLC, and Suzie Aron, president of Aron Real Estate, joined moderator Asia Campbell, business development manager at Kansas City Area Development Council (KCADC), last week for a virtual discussion about showing up at work and in life, part of the Women’s Leadership Institute (WLI) and CREW KC “Fearless Series.”

Hart worked as an architect for several years until she was furloughed during the ‘08-’09 recession. She went to work in construction because contractors’ work had not dried up. 

In 2011, Hart founded Hartline Construction. According to Hart, education, perseverance and networking made her fearless in allowing her to move on from her job loss and not give up. 

“I cannot tell you how many times I’ve been told by a male, maybe someone above me, that I can’t do it. So right then that told me why not me?  I can.  You’ve got to turn what you might be able to do into action and make it happen,” Hart said.

When Hart opened her company she did not want any special favors because she was female and had always succeeded at her job before. Consequently, she resisted getting WBE and SLBE certified by the City of Kansas City, Mo.

Her company since has been awarded SLBE (Small Local Business Enterprise), WBE (Women Business Enterprise) and DBE (Disadvantaged Business Enterprise) certifications. She admits that the certifications hove opened a lot of doors for her, for Hartline and for her team, including a contract to work on the Kansas City International Airport construction project.

“So don’t be afraid to go ahead and utilize that tool - because we, as females, as much as we don’t want to admit it, sometimes we’re underestimated and we want to show them how powerful we can be,” said Hart.

Hart encouraged the audience members to network.

“I cannot tell you how much has come my direction by networking out in the community and giving back to the community because they call me and say ‘hey, I heard about this project you might want to take a look at,’” Hart said.

Aron, who started out as a community volunteer, said the key to being fearless is figuring out who you are.

“I’m an extroverted person, and I also think outside the box. One way is to look as to what’s out there and where the opportunity is. For somebody like me, it’s looking around and deciding what kind of community do I want?” said Aron.

Several years ago, Aron, who had worked as a real estate broker for many years, took interest in the Crossroads District, then a neighborhood of empty buildings. She saw opportunity to build a community. 

“All of our buildings were abandoned. Eighty percent of our neighborhood was blighted, and because of that, there were opportunities in terms of cheap rents, for putting in sweat equity, for how you might consider doing something that you wouldn’t have been able to do if it was a terrific, only healthy bunch of options out there,” said Aron.

Seizing on the opportunity, Aron was instrumental in developing the Crossroads arts, business and entertainment district.             

Aron said the pandemic has created opportunities to make changes to our community, and she encouraged the audience, while everyone is on pause, to consider what kind of community they want going forward.

“I really think we have an extraordinary opportunity to build and come back and save and create the kind of community we want because we’ve all seen that we’re starting to look at things that we took for granted and say do we want to do things the same way. And, I would encourage us not to,” Aron said.