Vacancy rates decline in area office market

The Kansas City area office market finished strong in 2014, as vacancies declined, leasing rates increased and construction progressed on several high-profile projects, a new report said.

The overall office vacancy rate was 18.1 percent in the fourth quarter compared with 19 percent in the final quarter of 2013, according to a report from DTZ, a commercial real estate services firm. Vacancies in the area office market peaked at 21.5 percent in early 2011, and have declined fairly steadily since then, DTZ said in its analysis.

The office market received a boost late last year when the federal General Services Administration began moving into 140,000 square feet in the Two Pershing Square building at 2300 Main St. near Union Station. That move accounted for more than half of the net office space absorbed during the quarter, the report said.

DTZ noted that some private companies are also growing and in need of more office space.

“We are seeing significant growth in the private sector, which is a boon for the overall office market,” said Michael Mayer, managing principal in the Kansas City office of Cassidy Turley, which was acquired by DTZ last fall. “Companies such as Burns & McDonnell and Cerner Corp., are expanding their facilities, and both are expected to complete the first phases of construction in 2016.”

Other highlights from DTZ’s report:

▪ The overall vacancy rate — for Class A and Class B properties — in the south Johnson County office market was 11.8 percent in the fourth quarter.

In the Country Club Plaza area, the rate was 18.1 percent, although it is expected to fall to single digits by summer when the Leawood-based accounting services firm Cbiz Inc. moves into new office space in the Plaza Steppes building.

Downtown’s overall vacancy rate was 28.6 percent, while the Northland’s was 32.7 percent, which was the highest in the area.

▪ Class A vacancies have fallen “farther and faster” than for Class B properties. In south Johnson County, for example, Class A vacancies stood at 5.7 percent for prime properties.

▪ The average asking price on rents increased by 3 percent overall, to $20.66 a square foot on Class A office space, and $17.72 on Class B space. Over the next year, DTZ noted, further tightening in space should lead to higher leasing rates.

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