Kansas City

MARKETBEAT

Kansas City

Office Q2 2017

KANSAS CITY OFFICE Economic Indicators

Kansas City Employment Kansas City Unemployment U.S. Unemployment

Q2 16 1,062.3K

4.3% 4.9%

Q2 17 1,086.7K

3.7% 4.4%

12-Month Forecast

Market Indicators (Overall, All Classes)

Q2 16

Q2 17

Vacancy Net Absorption (sf) Under Construction (sf) Average Asking Rent

17.3% 307K 284K $19.04

16.8% 356K 249K $19.79

12-Month Forecast

Overall Net Absorption/Overall Asking Rent

4-QTR TRAILING AVERAGE

300

$19.50

200

$19.00

100

$18.50

0

$18.00

-100

$17.50

-200 2011

2012

2013

2014

Net Absorption, 000's

2015

2016

Asking Rent, $ PSF

$17.00 Q2 17

Overall Vacancy

24% 22% 20% 18% Historical Average = 17.1% 16% 14% 12%

2010 2011 2012 2013 2014 2015 2016

Q2 17

Economy

Halfway through 2017 there is no denying uncertainty and apprehension hang over significant portions of the economy. However the Kansas City commercial real estate market has remained healthy in the face of these concerns and challenges. It is possible the US economy is continuing to improve even if there are no dramatic jumps. One reference point for this theory is the Gross Domestic Product (GDP). The advance estimate for annualized GDP growth in the first quarter came on April 28th and was a worrisome 0.7%, but the first revision on May 26th was 1.2% while the third revision on June 29th had first quarter GDP growth at 1.4%.

These revisions don't retroactively make the first quarter better and GDP growth below 2.0% isn't going to generate much excitement, but they do show things aren't as bad as first thought. One encouraging sign for the economy is the decision by the Federal Open Market Committee (FOMC) on June 15 to raise the target range for federal funds by another 25 basis points to the current level of 1.00%-1.25%. The FOMC also indicated they plan to continue a steady schedule of rate increases with a potential target of 3.00% in 2019. The current trend of rate hikes coupled with the forecast for more in the near future indicates the Federal Reserve is confident the domestic economy is healthy and moving in the right direction.

Market Overview

In the first quarter of 2017 the Kansas City office market was essentially unchanged as substantial gains in occupancy in the Central Business District (CBD) were offset by large move-outs in the suburban markets. However none of the moves were tenants relocating to the CBD so there was optimism the suburbs would bounce back quickly. The suburbs did rebound with 229,000 square feet (SF) of absorption in the second quarter while the CBD added an additional 127,000 SF. The strong second quarter throughout the city means year-to-date absorption now stands at 356,000 SF and the vacancy rate has dropped to 16.8%, its lowest level since 2008.

Delivery of new space was a major driver in the suburbs, as work was completed on the new 111,000 SF build-tosuit headquarters for Dairy Farmer's of America near the Legends development in western Wyandotte County while the 144,000 SF Class A Nall Corporate Center II was also delivered. With Mariner Wealth Advisors taking 90,000 SF of space and Worldwide Express taking 17,000 SF, Nall Corporate Center II is already almost two-thirds full.

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MARKETBEAT

Kansas City

Office Q2 2017

The largest single chunk of absorption came from Mark One Electric moving into the 147,000 SF building at 1414 Genessee in the West Bottoms. The building is part of the Downtown submarket and that move combined with Crestwood Partners taking 30,000 SF at 2400 Pershing in Crown Center and Virgin Mobile occupying 27,000 SF at

THE STRONG SECOND QUARTER IN ALL PARTS OF THE CITY MEANS YEAR-TO-DATE ABSORPTION NOW STANDS AT 356,000 SF AND THE VACANCY RATE HAS DROPPED TO 16.8%, ITS LOWEST LEVEL SINCE 2008

Vacancy Trend

THE OVERALL VACANCY RATE CONTINUES TO DECLINE

24% 22% 20% 18% 16% 14% 12% 10%

2010 2011 2012 2013 2014 2015 2016

Q2 17

Class A

Class B

A&B Combined

One Kansas City Place means the CBD has now reported 376,000 SF of absorption in 2017 and the vacancy rate has fallen to 20.1%. At the end of 2016 the CBD vacancy rate was 23.4% but with the area attracting new tenants while existing companies look to expand it is likely the rate will continue to fall throughout the second half of 2017.

One area where the Kansas City office market has not shown much momentum has been speculative construction of new space. The delivery of Nall Corporate II was a solid addition to the market although the majority of space was preleased to Mariner Wealth Management before work was started. Following the recent demolition of the former CenturyLink building at 110th and Nall construction has now started on a 125,000 SF class A building scheduled for delivery in mid-2018, but the building has already been 100% leased to Creative Planning. Plans still exist for the 46 Penn project in the Plaza submarket but it appears that at least one tenant will have to be secured before work will begin on the proposed 220,000 SF tower.

Outlook

? The College Boulevard corridor led a significant rebound for South Johnson County in the second quarter, with the largest single deal taking place at OPx where SelectQuote took occupancy of 77,000 SF.

? Asking rates for space in the CBD continue to rise, having jumped from $18.77 per-square-foot (PSF) at the midway point of 2016 to $19.60 PSF at the end of the second quarter of 2017.

? Some smaller construction projects will be completed in the second half of 2017 but no significant new space is expected to deliver until at least mid-2018.

Asking Rate Trend

THE OVERALL AVERAGE ASKING RATE CONTINUES TO CLIMB

$24 $23 $22 $21 $20 $19 $18 $17

2010 2011 2012 2013 2014 2015 2016

Class A Class B A&B Combined

Q2 17

Occupied Office Space vs. Office-Using Employment

OFFICE-USING EMPLOYMENT HAS CONTINUED TO INCREASE

Occupied Space, MSF

Employment, 000's

42.5 42.0 41.5 41.0 40.5 40.0 39.5 39.0 38.5 38.0 37.5 37.0

2011

2012

2013

Occupied Space

Source: Cushman & Wakefield, BLS

305

295

285

275

265

255

245

2014 2015 2016

235 Q2 17

Office-using Employment

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MARKETBEAT

Kansas City

Office Q2 2017

SUBMARKET

Downtown Crown Center/Crossroads Plaza South Kansas City Northland East / SE Jackson County North Johnson County South Johnson County Other Suburban Markets KANSAS CITY TOTALS

INVENTORY (SF)

SUBLET VACANT

(SF)

DIRECT VACANT

(SF)

6,930,000

3,000 1,431,000

4,562,000

86,000 793,000

3,129,000

10,000 317,000

3,349,000

71,000 386,000

3,830,000

15,000 1,123,000

3,037,000

98,000 434,000

6,927,000 133,000 773,000

16,766,000 288,000 2,056,000

1,766,000

18,000 394,000

50,296,000 723,000 7,707,000

OVERALL VACANCY

RATE

CURRENT QTR OVERALL NET ABSORPTION

(SF)

YTD OVERALL

NET ABSORPTION

(SF)

20.7%

163,000 310,000

YTD LEASING ACTIVITY (SF)

131,000

UNDER CNSTR

(SF)

OVERALL AVERAGE ASKING RENT (ALL CLASSES)*

OVERALL AVERAGE ASKING RENT (CLASS A)*

0

$19.44

$21.48

19.3%

-36,000

66,000

147,000

0

$19.88

$20.09

10.4%

-3,000

4,000

114,000

0

$23.63

$26.29

13.6%

4,000

19,000

58,000

0

$18.99

N/A

29.7%

17,000

69,000

82,000

0

$16.65

$19.37

17.5%

-8,000

22,000

85,000 30,000

$16.73

$22.50

13.1%

-17,000 -94,000

208,000 29,000

$19.91

$24.73

14.0%

133,000 -202,000

792,000 190,000

$22.20

$26.44

23.4%

103,000 142,000

154,000

0

$16.35

N/A

16.8% 356,000 336,000 1,951,000 249,000

$19.79

$23.45

Class A Class B

INVENTORY (SF)

13,433,000 36,296,000

SUBLET VACANT

(SF)

DIRECT VACANT

(SF)

153,000 1,718,000 570,000 5,989,000

OVERALL VACANCY

RATE

13.9%

CURRENT QTR OVERALL NET ABSORPTION

(SF)

YTD OVERALL

NET ABSORPTION

(SF)

235,000 310,000

YTD LEASING ACTIVITY

(SF)

416,000

17.8%

120,000

26,000 1,535,000

UNDER

DIRECT

CNSTR

AVERAGE

(SF) ASKING RENT*

125,000 124,000

$23.85 $18.66

OVERALL AVERAGE

ASKING RENT*

$23.45

$18.66

Key Lease Transactions Q2 2017

PROPERTY 1414 Genessee 1405 N. 98th Street OPx Nall Corporate Centre II 6330 Sprint Parkway 2400 Pershing One Kansas City Place Nall Corporate Centre II

SF 147,000 111,000

77,000 73,000 31,000 30,000 27,000 17,000

TENANT Mark One Electric Dairy Farmer's of America

SelectQuote Mariner Wealth Advisors

All-State Crestwood Partners

Virgin Mobile Worldwide Express

TRANSACTION TYPE Lease

BTS Completion Lease Lease Lease Lease Lease Lease

Key Sales Transactions Q2 2017

PROPERTY Valencia Place Holmes Corporate Center Portfolio 1414 Genessee Jensen Salsbery Building

SF

SELLER/BUYER

251,000 Taubmam Centers & Macerich/Price Brothers

197,000

NCWP Holmes/Woodbury Capital

147,000 BO Properties/Privitera Realty Holdings

45,000 Henessy Research/Superior Bowen

PRICE / $PSF $298/PSF $85/PSF n/a n/a

SUBMARKET Downtown

Wyandotte County College Boulevard College Boulevard College Boulevard

Crown Center Downtown

College Boulevard

SUBMARKET Plaza

South Kansas City Downtown Crossroads

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MARKETBEAT

Kansas City

Office Q2 2017

OFFICE SUBMARKETS

KANSAS CITY

92

69

NORTHLAND 35

435

169

152

210

73

29

40

70

32

10

WYANDOTTE 635 COUNTY

291 24

435

NORTH

7

JOHNSON COUNTY

CBD

435

CROWN CENTER

MIDTOWN PLAZA

71 350

EASTERN JACKSON COUNTY 70

40

7 470

59

SOUTH

35

KC

SOUTH

JOHNSON

69

COUNTY

169

150

49

50

SOUTHEASTERN JACKSON COUNTY

291

56

Cushman & Wakefield 2600 Grand Boulevard Suite 1000 Kansas City, MO 64108

For more information, contact: Matt Nevinger Research Manager Tel: +1 816 221 2200 matt.nevinger@

About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 43,000 employees in more than 60 countries help investors and occupiers optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit or follow @CushWake on Twitter.

Copyright ? 2017 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

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