OVERLAND PARK, KAN.
Photo: City of Overland Park
The news out of Overland Park, Kan. — the state’s second-largest city, less
than 10 miles from Kansas City, Mo. — has been dire in recent months.
Job cuts at the city’s largest employer, Sprint Nextel Corp., as well as at other major employers in the city
appear to be far from over. a recent iHS Global insight report forecasts about 20,000 total job losses for the
Kansas City, Mo., metropolitan area from the fourth quarter of 2008 to the fourth quarter of this year.
area companies’ downsizing likely
will affect Overland Park’s commercial real estate market throughout the year. For instance, research
firm Colliers Turley Martin Tucker
expects much fewer construction
starts in Overland Park’s office sector in 2009 than in previous years,
in part because of the office space
opening up after layoffs. already, the
largest building added to the Sprint campus in 2008 is being offered for lease.
What the Locals Say
“as a city, we’ve gotten used to the highs and lows
that Sprint [nextel Corp.] created in the market. from
a commercial standpoint, there probably won’t be
much direct impact [from its layoffs]. but for the first
time, Sprint is trying to sublease some of its space.”
— Chad LaSala, broker, LaSala-Sonnenberg Commercial Realty Co.
retailers, however, are still moving to the area, Colliers reports. Big-box stores such as Wal-Mart and Lowe’s
expanded there in the past year, and newcomer stores continue to be attracted by Overland Park’s suburban
Population in 2000: 149,080
Rank (U.S.): 139th-largest
Metropolitan-area population: 1.98 million
■■ Metropolitan-area rank (U.S.): 29th-largest
average commute: 19. 8 minutes
Average commute in 2000: 19. 5 minutes
U.S: 25 minutes
Median household income: $70,513
Median household income in 2000: $62,116
Median age: 37. 4 years
Median age in 2000: 36. 3 years
U.S.: 36. 4 years
inflation (Consumer Price index, 2nd half 2008, MSa):
Inflation (2nd half 2007): 2.2 percent
U.S. (December): -0.1 percent
unemployment: 4. 9 percent
Unemployment in December 2007: 3. 8 percent
U.S. (December): 7.2 percent
office: 16.2 percent
retail: 11. 8 percent
apartment: 7. 5 percent
industrial: 8.1 percent
net office: 33,000 square feet
net retail: -174,000 square feet
apartment: -260 units
net industrial: 220,208 square feet
office: 294,000 square feet
retail: 0 square feet
apartment: 257 units
industrial: 80,000 square feet
office asking rent: $18.69 per square foot
office effective rent: $15.22 per square foot
retail asking rent: $14.07 per square foot
retail effective rent: $12.02 per square foot
Asking: $701 per unit
Effective: $656 per unit
industrial: $4.71 per square foot
Demographics: 89.7 percent white, 4. 4 percent Asian,
3. 5 percent black, 2.4 percent other; 4. 9 percent identify as
Hispanic or Latino
Largest employers: Sprint Nextel Corp., Shawnee Mission
School District, Embarq, Black & Veatch Corp., Blue Valley
9th-best U.S. city in which to live ( CNNMoney.com)
Johnson County rated 3rd-best U.S. place to raise a family
12-field Overland Park Soccer Complex to open in September
Sources: CB Richard Ellis; City of Overland Park, Kan.; CNNMoney.com; Colliers Turley Martin Tucker; Forbes ; IHS Global Insight; Kansas City
Business Journal ; Overland Park Chamber of Commerce Economic Development Council; Reis Inc.; U.S. Census Bureau; U.S. Department of Labor
ivanna C. Sukkar is senior associate editor at Scotsman Guide. Reach her at (800) 297-6061 or firstname.lastname@example.org.
Slowdown stymies office properties
By Victor Calanog,
director of research, Reis Inc.
in December’s Property TypeCast (scotsmanguide.
com/3322), we surmised that the office sector could re-cover quickly from the economic crisis, given the relatively
constrained supply growth from 2004 to ’08. Continued
credit-market difficulties and job losses this year imply a
longer recovery period, however.
This past Dec. 1, the National Bureau of economic research announced that the U.S. economy has been in a
recession since December 2007. This was a foregone conclusion for broad swaths of the labor force, given 2008’s
job-loss rate — which only accelerated in the fourth quarter. The U.S. Department of Labor has reported that the
country lost 2.6 million jobs in ’08, the highest level in
more than six decades.
The decline in office-sector fundamentals in the fourth
quarter of ’08 mirrored the acceleration in job losses and
the steep plunge in credit availability from October to December. Sublet availabilities continued to surge, particularly in metropolitan areas with a large financial-services
sector. Negative net absorption spiked to 22 million square
feet, pushing the national vacancy rate to 14. 5 percent.
net absorption and vacancy rates: office Sector
absorption (millions of sq. ft.)
vacancy rate (%)
- 20 12. 5
- 25 12
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
2005 2006 2007 2008
Source: reis inc.
This increase of 80 basis points is the largest single-quarter
jump since the second quarter of ’01. in all, office vacancies
have gained 190 basis points since fourth-quarter ’07.
Scattered large underperformers are not driving the office
sector’s deterioration, however. Occupancy improved in
only 10 of the 79 largest U.S. metro areas.
Further, more markets reported a decline in effective rents
in each quarter in ’08. Only 21 markets showed negative
effective-rent growth in the first quarter, but that number
grew to 29 in the second quarter, 54 in the third and 67
in the fourth.
Considering previous cyclical downturns in the U.S. office
market, the current slump appears similar to the 2001 to
’04 downturn, when lessening demand resulted in negative absorption and rent growth, as opposed to previous
troughs caused by overbuilding.
What could make this market unique, though, are the worrisome debt-service-obligation levels that properties with
declining incomes somehow must support. Loans underwritten from ’05 to ’08 often are characterized by debt-service-coverage ratios sensitive to even slight declines in
net operating income. We already are seeing the start of a
spike in defaults and delinquencies, and we expect to see
more distressed office buildings through at least 2010 —
unless credit conditions drastically improve.
Victor Calanog, director of research at Reis Inc.,
writes a monthly column on property types for
Scotsman Guide. As head of Reis’ core economics
team, he is responsible for data models, forecasting,
valuation and portfolio services for clients in commercial real estate. Reach him at victor.calanog@
reis.com. Dan Quan, director of quality control at
Reis, contributed to this article.