This year has been a challenging one for the Kansas City commercial real estate market. That doesn’t make Kansas City an outlier: 2024 has been a tough year for every major city’s CRE market.
But the future? That again looks bright, as the prospect of lower interest rates should result in more investment sales activity and new development in the Kansas City market in 2025.
We asked Mark McConahay, vice president with Kansas City, Missouri-based Block & Company, Inc., Realtors, for his thoughts on the state of the local CRE market. Here is what he had to say:
How would you describe leasing demand for the major commercial sectors in the Kansas City market today? Is the market still a resilient one?
Mark McConahay: Overall, the Kansas City commercial sectors have remained resilient. Leasing demand is strongest in the industrial markets, specifically warehouses, distribution and last-mile facilities, driven by e-commerce growth and Kansas City’s central location.
Retail leasing demand has been mixed depending on the submarket, with demand high in properties that are well-positioned with strong demographics and near customer draws.
The office market continues to lag but has shown signs of some recovery, especially in Class-A properties. But older product will likely continue to struggle.
What about investment sales? Have those picked up at all in any sector during the last, say, three or four months?
McConahay: Investment sales have remained steady with a recent uptick based on ongoing interest rate drops and the conclusion of the election. The industrial, single-tenant net-lease retail and multifamily sectors continue to see the most deal velocity and compressed cap rates.
Kansas City is seeing significantly less 1031 money from out-of-town investors compared to the last several years.
Which commercial sectors are still seeing strong leasing activity in the Kansas City market?
McConahay: Demand remains strong for all sizes of industrial space with overall vacancy at less than 5%. In the retail sector, well-positioned sites with strong retail fundamentals continue to be in demand. Vacancy rates are currently at 9% across the market.
Class-A office space has seen some recent leasing activity but other older office space continues to be very challenging.
I know new development activity has slowed throughout the United States. But how about in Kansas City? Are commercial developments still being built or at least planned? Has development activity picked up at all during the last three months?
McConahay: Yes, new commercial developments continue to make progress throughout the Kansas City area in all commercial sectors. We’ve seen substantial development and redevelopment plans for both the CBD and suburban markets. High construction costs and longer entitlement periods continue to challenge the developers.
Can you identify any significant commercial developments that are having a positive impact on the Kansas City market?
McConahay: Kansas City continues to ready itself for hosting the FIFA World Cup matches in the summer of 2026. An important project that has already been completed is the new terman at the Kansas City International Airport. Work is underway on the expansion of the streetcar lines. Developers are also adding additional hotel rooms.
Plans have been made to begin construction of the South Link Loop, which will cover Interstate-670 in the CBD, creating four city blocks of parks and green space, allowing for pedestrian connections from the Crossroads Arts District.
Kansas City continues to seek replacement sites for both the Chiefs and Royals. These decisions will impact the overall market for decades to come.
Also of note, Panasonic is nearing completion of a $4 billion, 4.7-million-square-foot facility in DeSoto, Kansas, which will employ 4,000. The ancillary development spurred by the project is flourishing.
What are some of the factors that make Kansas City such a strong market for companies looking to expand, relocate or open new locations?
McConahay: Kansas City’s combination of location, affordability, business-friendly policies, skilled workforce and high quality of life make it an ideal market for companies seeking to expand, relocate or open new locations.
The city’s strategic position at the crossroads of the U.S., low operational costs, growing innovation ecosystem and investment in infrastructure make it a highly attractive destination for both established companies and startups.
