Citing recent reports by CBRE, Yardi Systems, Inc. and others, Brandon Brensing, vice president of real estate development, Ryan Companies, said Kansas City has been one of the largest year-over-year rent growth communities.
“We’re actually in the top five for rent growth, which is pretty remarkable. I think that we’re starting to realize that we have something special here and we’re thinking big, and I think that’s just good for overall growth in our city,” said Leah Fitzgerald, managing director, CBRE.
Brensing and Fitzgerald were joined by panelists Don Rosemann, president and CEO, Rosemann & Associates, P.C., Kristine Sutherlin, project lead, Burns & McDonnell, and moderator Kate Ross, marketing director, Centric, at last week’s 2023 KC Multifamily Summit hosted by MetroWire Media.
Rosemann said Kansas City’s elevation on the world stage through recent events like the NFL Draft, construction of a new airport terminal, two recent Super Bowl triumphs and being named a host for the 2026 FIFA World Cup provides insight into “what we can be, not where have we been.”
“We’ve been a traditional multifamily, a suburban multifamily development. You’ve noticed that there’s been a resurgence over the last couple of years with One Light, Two Light and some of the other Downtown KC developments that have created other opportunities. And, those are really driven by the general population shift and what’s happening in our communities. Kansas City is a very affordable community to live in… It’s easy to get to any place in the United States from Kansas City. A lot of metropolitan communities don’t have that. I think the input of those kinds of influences are continuing to affect everything that we have going forward,” said Rosemann.
Although the Kansas City market has seen substantial rent growth in recent years, Fitzgerald said CBRE projects an average of 3.2 percent rent growth going forward.
The panelists agreed that the vacancy rate currently is incredibly low.
“The new product coming on board is not funneling the need,” said Brensing.
“I think most reasonable people agree we have a huge affordability problem,” said Fitzgerald.
Fitzgerald said when a community puts all of its resources and incentives into fixing just affordability, that puts a strain on other asset classes.
“Construction prices are so high and now we have issues with the debt markets. So all of this really puts a strain on new development for multifamily. I think that we need to be able to heavily incentivize the affordable projects that come to life. We also need to be incentivizing market rate and more catalytic projects that just really make a healthy eco system across the entire spectrum,” said Fitzgerald.
Rosemann said that when municipalities impose affordability requirements, it places the burden of the unknown on the initial development and on future operations.
“I think one of the issues that we face and it’s all across the country is how do we stabilize costs such that the affordable rents can allow for people to live in areas that have close proximity to where the demand is for the services. It’s a never-ending battle, and it’s something that we’re going to continue to face,” he said.
Sutherlin said historic tax credits provide developers with an opportunity to create new housing inventory by converting existing buildings into apartments. She noted that mid-century modern buildings now qualify for designation as historic buildings.
According to Fitzgerald, it’s much more expensive to renovate existing properties than it is to build new. The Kansas City market averages only one or two conversions to multifamily per year.
“So these aren’t big drivers in terms of solving any sort of affordability or vacancy issue,” Fitzgerald said.
Rosemann said the increase of the number of employees working from home has raised demand for bigger apartment spaces.
“But it’s a matter of what is that apartment going to cost them, and they don’t want to spend the money necessarily there,” said Rosemann.
As a result, multifamily communities are creating larger amenity spaces like a café area where residents can go to work among others but still have their privacy.
Brensing said high touch and feel components are driving his company’s projects as well as wellness components like saunas and open space. He said that amenity space can be interior and exterior to allow residents to get outside and decompress. Also, providing smart tech units and community-wide WiFi makes working from home a bit easier and helps with tenant retention.
Sutherlin said many of her clients are capitalizing on using a project’s amenities for public spaces, like having a rooftop public bar or renting space to a public gym.
With respect to future trends in multifamily communities, Brensing said his company is grappling with issues related to electric vehicle (EV) charging.
“Everybody knows it’s going to be the next big trend when it comes to vehicles and over the next 10 years in the life cycle of a project, it’s going to be something that has to be adapted for. We’re trying to figure out how to handle this,” Brensing said.
Rosemann said there is increasing demand for making projects solar ready and installing infrastructure now for future access to electronics.
The panelists agreed that it is important for developers to engage with community members and policy makers prior to starting a new project.
“Communities are demanding that engagement… I think the most successful developers start with a blank slate and go to the community and hear their pain points so there’s constantly engagement,” said Sutherlin.
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