17 Aug Slow growth, spotty activity continue, but action evident in some areas

Slow growth, spotty activity continue, but action evident in some areas

Wichita Business Journal by John Stearns, Reporter

Go northeast, young man.

If Horace Greeley were a commercial real estate broker in Wichita today, that’s what he’d probably tell clients, particularly national retailers.

He’d point to the latest “pioneers” like Cabela’s, The Fresh Market and now Whole Foods Market, among others, who have settled on spots primarily north of 13th Street and on or east of Rock Road. Could Costco be next? An Apple Store? A Cheesecake Factory?

The northeast area also has three Class A office projects planned totaling 90,000 square feet — two along Webb Road at The Waterfront and another, The Offices at Cranbrook, on 21st Street just east of Webb. And it continues to see medical projects and could see significant development in the K-96/Greenwich Road area related to the proposed GoodSports project that includes a sports complex and hotel.

But Greeley also would encourage a scouting mission to the northwest, where NewMarket Square at 21st and Maize radiates energy for at least a mile in all directions, includes most of the big names in food and shopping and, like the northeast, has plenty of land left to colonize, particularly to the north along Maize Road. Near 29th Street, Academy Sports & Outdoors is building a 73,000-square-foot store that will open later this year.

And for others, Greeley would encourage a scouting mission downtown, where energy is rising on the residential front and where big-name developers are considering building new apartments to complement the many renovations that have turned dead buildings into sought-after living spaces — all of which catch the attention of commercial interests. He’d also cite theAmbassador Hotel and other projects creating a buzz in and around a newly branded area called “Block 1,” bounded by Douglas, Broadway, William and Topeka streets. More than $40 million is being poured into that block.

But opportunities, as in the West that Greeley pointed to, run throughout the metro area, both in established markets like the industrial southwest and new areas like the Bel Aire Industrial Park, the former Echo Hills golf course in Park City and to the south around 47th and Broadway.

Patience for deal-making is key, though. Transactions are taking longer and tenants are driving hard bargains in a still uncertain economy that some say will stay that way until at least after the November election. Among 10 experts the WBJ spoke with, most see subtle improvement in the commercial sector but still an overabundance of caution on the part of many companies. Others say calls pour in, then taper off. At least one other, who deals primarily in offices, doesn’t see improvement.

Slow growth will be the mantra for a while yet, says Gary Oborny, CEO of Occidental Management Inc., which owns 15 retail centers in the area and also has office and industrial properties.

“Whether retail or office, this is going to be a slow march and slightly to the positive side, but it’s going to be slow,” he says, predicting another one to three years at this pace.

On the industrial side, there’s a little tighter supply, especially for newer buildings, but there’s still a fair amount of inventory among older buildings, he says.

Across all three categories, “it’s going to be a buyer’s market for quite a while,” he says.

Brad Saville, who specializes in retail at Landmark Commercial Real Estate, says that it continues to be a tenant’s market and that developers are being stretched thin to make build-to-suit deals for national retailers.

Retailers are expecting turn-key finishes and low base rents, and sometimes incentives from the city or state, he says.

All that can make the return on investment for retail developers “almost unbearable” to stomach considering the risk involved, Saville says. That being said, several national tenants not yet in Wichita are circling, looking for the best site and terms they can find.

Retail generally improving; big names stoke interest

Retail seems to gradually keep improving, says Jerry Gray, vice president and general manager for J.P. Weigand & Sons Inc.’s commercial division.

New national retailers have started to enter the market in the last year, some of them big names, including Cabela’s, Whole Foods Market, The Fresh Market, Sephora and Chick-fil-A. Some are asking for help with multiple sites, “which is new — we haven’t seen that for a while,” Gray says.

But it’s not easy. National site selectors are under pressure “to make almost perfect decisions,” he says. “They’re very, very particular right now. If it doesn’t meet their criteria, there typically isn’t a Plan B.”

Still, once big-name retailers do settle in, it helps get the attention of other national names.

A national retailer new to Wichita is expected to be announced by year’s end for a 7,000-square-foot space at Bradley Fair next to The Fresh Market, according to George Laham, president of Laham Development, which owns Bradley Fair.

Stephen Clark II, projects manager at The Waterfront, is optimistic he’ll have one or two more big announcements this year, following on July’s blockbuster announcement that Whole Foods Market will open there in November 2013. Waterfront developers over the next year will build 30,000 square feet for Whole Foods, plus another 20,400 adjoining it for tenants yet to be announced.

Laham says talks are under way with two retailers for pads of 25,000 square feet each at Regency Lakes between Cabela’s and World Market, and something could be announced in 2013. Laham also is talking to smaller retailers and restaurants for a planned 15,000-square-foot retail center planned at 21st and Greenwich in front of SuperTarget, another project that could come together next year.

Slawson Cos. has office and retail property southwest and southeast of the intersection and is getting “a lot more interest” in that area, driven by Cabela’s and the GoodSports project, says Jerry Jones, vice president/commercial development for Slawson, which also has NewMarket Square. Nothing is inked yet, but the activity is encouraging, he says.

A mile south, on the southwest corner of 13th and Greenwich, work is under way on the new Scholfield Buick-GMC dealership, expected to open next summer, and a new Scholfield luxury dealership is planned just beyond the northwest corner.

Both will have as big an impact on that intersection in terms of traffic volume as Warren Theatres has had, Laham says.

“Those will be two huge retail additions to that intersection,” he says, and development opportunities remain there.

Laham says he is talking with a couple of hotel groups about the site next to the new LongHorn Steakhouse southwest of Towne East Square. He also has room for another restaurant or retailer there. With the BJ’s Brewhouse and Old Chicago restaurants just to the east of Longhorn, “there’s going to be kind of renewed activity in that corridor,” he says.

Across Kellogg nearby, Landmark’s Saville notes the turnaround of Eastgate Shopping Center, which benefits from Kellogg exposure and a good tenant mix.

There’s retail redevelopment opportunity farther east along Kellogg, but the timing of the freeway extension to Andover is going to play a role in companies’ decision-making there since they’ll have to deal with a multiyear construction project, Saville says.

In the northwest, NewMarket Square will fill a big hole in the former Borders Books location when Marshalls opens, expected later this year.

The center, with 830,000 square feet under roof, is 98 percent occupied, counting Marshalls.

“We feel real good about it,” Jones says of business at NewMarket. “We’ve had a lot of activity. It still seems like deals take longer to consummate.”

Elsewhere around the metro area, developer Mike Loveland plans a retail/commercial development at the site of the former Echo Hills Golf Course in Park City, a Walmart Supercenter is planned for west Augusta that could jump-start development along U.S. 54 there, and Southfork Investment LLC, led by developer Jay Russell, has plans for more than 1 million square feet of retail, hotel, restaurant and office space in a 50-acre area at the intersection of Interstate 135 and 47th Street South.

Industrial sector active

Ted Branson, industrial division director for Landmark Commercial Real Estate, says the industrial market has revived in the last year, a lot of it driven by the aircraft industry.

“We’ve got national companies looking for land, looking for larger buildings, as well as locals,” he says, rattling off prospects that include a pair of international and national companies looking for 15 to 20 acres of heavy industrial ground for a project, and another company national in scope that’s expanding operations here and looking for a building approaching 100,000 square feet to be built and leased long-term. Another prospect is looking for a 30,000-square-foot building.

Branson just brokered a deal for meat processing equipment and supply company Walton’s Inc., which bought a former Wichita Area Technical College building, 32,000 square feet at 3639 N. Comotara, near 37th Street North and Rock Road. Walton’s plans to expand the building by 15,000 square feet, and the site is large enough for future additions if necessary. The building had been vacant two years.

The northeast area has a lot of industrial activity, he says, and the city’s most established area, in the southwest, continues to have steady activity.

Jeff Lange, of Jeff Lange Real Estate, says there’s a contract for purchase of a 72,000-square-foot warehouse on 47th Street South just west of Broadway that was a former Boeing building for surplus supplies. He’s hopeful the sale will close in late August. The site has been vacant about four years.

Inland Truck Parts and Service is consolidating sales and services operations from two buildings it now leases to go under one roof at a 44,000-square-foot facility it’s building on the south side of K-42 at the Tyler Road intersection.

Carl Hebert of InSite Real Estate Group, also sees strong demand in the industrial sector but a limited inventory of quality buildings to purchase. That tightness in the market has led to some property owners and developers breaking ground on buildings.

“High-quality, well-located properties with all the fundamentals in place are highly desirable,” Hebert says.

The city of Bel Aire has agreed to sell 3 acres in its new Sunflower Commerce Park toCentury Manufacturing Inc. Century Manufacturing is the first tenant for the 804-acre business park along 53rd Street North between Webb and Greenwich roads. Bel Aire hopes Century’s project leads to more development in the park.

Weigand’s Gray says there’s concern about the lack of inventory with newer, well-located industrial properties, particularly 20,000 square feet and up. He expects development to stay in the northeast and southwest industrial hubs.

“These industrial people aren’t going to go too far away from major highways,” Gray says.

Office market strong for good properties

The office sector is still active, particularly Class A space in good locations.

“The vacancy’s concentrated in older buildings, the B buildings, not well-located buildings,” Gray says.

Offices in the northeast and the central business district are doing well, holding their occupancies and their rents, but they haven’t been able to raise rents much, Gray says.

Patrick Ahern of Grubb & Ellis | Martens Commercial Group LLC says Class A space is tight, particularly in the northeast and downtown.

“I think Class A is improving. Class B is struggling. I don’t know who would be interested in Class C,” he says.

It remains a buyer’s market for tenants, with the exception of Class A in the northeast, Ahern says.

“Every landlord out there is motivated,” he says. “Nobody knows what’s going on with the economy. No one’s really sure if we’re in a recovery or not.”

That has a lot of tenants who might typically renew for three years opting for one, or those who might typically renew for five opting for two or three, Ahern says.

Deals continue for some spaces, with landlords offering a month or two of free rent, for example, to offset tenants’ moving costs.

Curt Robertson of InSite Real Estate Group says the office market in off and on.

“It’s not down as much as it was a couple years ago,” he says. “There’s a lot of lookers in the market. They seem to take a long time to make decisions.”

He calls the office market “fair to average,” with a lot of companies holding off on expansion plans until after the election.

Occidental’s Oborny says there’s positive demand for Class A office space in the northeast, where he’s getting ready to do the Cranbrook project.

“Again, you’re going to have to bring good value — that’s the word of the day, also,” he says. “People are really looking at budgets hard.”

Clark Investment Group is hoping to satisfy the northeast office demand with a 24,000-square-foot building it plans to build at The Waterfront behind Chester’s Chophouse & Wine Bar. It’s also building a new office for itself, 5,500 square feet, just north of that, behindAndover State Bank.

And medical office space continues to do well all over town, Ahern says.

New projects include conversion and expansion of the former Ted’s Montana Grill into medical offices at K-96 and Webb Road; construction of Surgicare of Wichita, a 29,000-square-foot outpatient surgery center on Greenwich Road north of K-96; and miscellaneous projects throughout the region.