Kansas City Market Reports

Kansas City Office Market

Market vacancy in Kansas City increased to 15.1%, up 70 basis points from the prior quarter and 170 basis points higher compared with the prior year. Oracle Cerner announced during the quarter its intention to exit its World Headquarters Campus in North Kansas City, along with its Realization Campus in South Kansas City. The announcement will have a significant impact on local vacancy rates in 2023, especially once the space converts from being categorized as owner-user to third-party product. A combined total of approximately 3 million gross square feet, with most space being classified as office product, is projected to hit the market unless interested users backfill a portion or creatively repurpose the space for a different use.

Kansas City Industrial Market

The Kansas City industrial sector ended the fourth quarter of 2022 with record-level leasing activity. Although the market displayed the first signs of a reduction in the pace of total net absorption during the second quarter of 2022, the market readjusted upwards to 3.3 million square feet of net absorption in the third quarter of 2022 and an additional 7.3 million square feet in the fourth quarter of 2022. Net absorption during 2022 totaled a record high of 16.7 million square feet, with projections indicating 15.3 million square feet of total net absorption could occur during the next six quarters. Increases in land pricing, construction pricing and general demand have pressed effective rental rates upward in the Metro. Asking rental rates for modern industrial buildings have increased by 10.6% in 2022 and are forecasted to rise at a similar pace in 2023. Rental rates increased $0.19/SF during the past quarter, up $0.54/SF during the past year. Projects under construction have slightly decreased by 6.2%, compared with 12 months ago; however, during the past two years, under-construction activity increased 41.0% to a total of 9.0 million square feet. The market realized 14.3 million square feet of deliveries during the past four quarters, an increase of 108.4% when compared to the average prior three-year time period. Vacancy has trended downward since the third quarter of 2020 as record levels of net absorption, totaling 26.7 million square feet during the past two years, counterbalanced historical levels of deliveries. Expect developer’s difficulty in obtaining appropriately priced construction financing to slow the pace of speculative development even though the pace of demand is projected to be robust in 2023.