Kansas City: Stable Growth in a Hot Market
Many locals boast that Kansas City, Missouri, is experiencing a modern-day Renaissance. They aren’t alone in their assessment. The metro has been racking up numerous national accolades the last few years. National Geographic even named it one of the Best Trips in 2019.
It checks all the boxes for a great place to call home. The downtown’s urban core has been revitalized and is enjoying an economic expansion. The metro’s thriving arts scene, growing reputation for restaurants that attract “foodies” and professional sports teams whose passionate fans fill stadiums are no longer just a local secret.
The jobs are plentiful, the cost of living is low, the people are friendly and the population is growing steadily. It’s no wonder real estate investors want in on the action.
Understanding the boundaries of “Kansas City” can be a little confusing for those who don’t live there. This bi-state metropolitan region straddles the Missouri-Kansas border and covers 14 counties in both states. The region also includes two cities named Kansas City. The anchor city is Kansas City, Missouri. Across the state line is Kansas City, Kansas.
With a population of over 2.1 million, Kansas City is the second largest metropolitan area in the region, after St. Louis. Besides the two namesake cities, some of its largest cities and suburbs include Overland Park, Kansas; Olathe, Kansas; Independence, Missouri; Lee’s Summit, Missouri; Shawnee, Kansas; Blue Springs, Missouri; and Lenexa, Kansas.
Opportunity Snapshot
Kim Tucker, the executive director of the Mid-America Association of Real Estate Investors, summed up the investment opportunity in Kansas City:
“First, we have a diverse employment landscape that does not rely solely on one industry.
“Second, our housing values in the bread-and-butter price ranges from about $80,000 to $250,000 don’t vary widely. Even during the Great Recession, house values in these ranges did not see massive losses. … And, while we don’t see huge appreciations in the short-term, we do have long-term equity growth historically.
“Third, our houses are affordable. There is still an opportunity to earn profits no matter how you invest, as long as you do so wisely.”
Charles Fitzgerald of USREEB, a turn-key real estate investment company based in Kansas City, said investors put their money into Kansas City real estate when they want stability in their portfolios.
Because Kansas City doesn’t rely too much on any one employer or industry, its economy is protected from the highs and lows that other markets experience. Overall, its economy is growing, with no sign of a recession ahead.
An Investor-Friendly Residential Market
According to the Kansas City Regional Association of Realtors, the average price of existing homes was $208,000 and the median price was $180,000 in February 2019. But, Fitzgerald said he can still find nice homes around the $50,000 price point to rehab and rent out. The average home price has risen 30.5 percent since 2015 and, according to Zillow, 10.5 percent from January 2018 to February 2019. Zillow predicts home prices will rise 5.2 percent in 2019. Rents range from about $800-$1,000 for a three-bedroom home, with 46 percent of the population renting and 54 percent owning their homes.
Rental rates are expected to keep pace with appreciation and maintain a favorable 1 percent rent-to-value ratio. In fact, since 2012, rents have increased more than the national average. Between January 2012 and January 2018, they have increased 17 percent nationally and 23 percent in Kansas City.
Fitzgerald predicts the market is starting to shift and will slow down a little over the next 12-24 months. He thinks many sellers are currently overvaluing their properties by as much as 30-40 percent because they are holding onto prices from the past few years. Even at these inflated prices, however, the numbers still work and investors from more expensive markets will be happy with the deals they find in Kansas City.
If you find a deal, it’s best to act quickly. Although in February homes stayed on the market an average of 52 days, many homes in the $50,000-$150,000 price range receive multiple offers their first day on the market. Fitzgerald said the homes he is interested in for rehab and rent projects are on the market an average of 10 days. There are many local investors in this region, and competition can be fierce. Although sellers may have the advantage, there are still plenty of great deals to be found, he said.
Strong Local Economy
Kansas City’s historically moderate but steady growth, low taxes and low cost of living attract a mix of entrepreneurial ventures and large corporations and keep unemployment rates at a low 3.8 percent, as of January 2019. They also attract new residents, with population growing at a steady 1.37 percent in 2018. Large corporations that attract and nurture talent in Kansas City include Sprint, Google, H&R Block, Hallmark, AMC, Freightquote.com, Andrews McMeel Universal, Russell Stovers Candies, Seaboard, Kansas City Southern, Waddell & Reed, YRC Worldwide, Cerner, Garmin, DST Systems, Burns & McDonnell, JE Dunn and Black & Veatch.
The construction industry is strong here. High demand and low supply have fueled the new construction market, with nearby counties slated to add 75,000 homes in the next 10 years, but for now they are struggling to keep up. Demand has caused construction costs to rise, although they have stabilized.
Because of its business-friendly environment and central location in the U.S., Kansas City is a major distribution center. As the retail industry adjusts to the effects of e-commerce, savvy retailers are building more distribution centers than retail stores. Many are making their home here, including O’Reilly Auto Parts, Duvel Moortgat USA/Boulevard Brewing Co, True Value and Staples Fulfillment Center.
The median age in Kansas City is 35. There are also several colleges and universities in the area that attract a younger population, including the University of Missouri-Kansas City, Avila University, Rockhurst University, Calvary University, Baker University, William Jewell College, Kansas City University of Medicine and Biosciences, Missouri Western State University and Park University.
Projects in the Works
Kansas City’s robust economy is favorable to the commercial real estate industry. CBRE, the world’s largest commercial real estate investment firm, said in its “2018 Kansas City Market Outlook” report that “Kansas City’s consistent population growth, developing transportation system, and stable economic base have made it a prime target for multifamily investment by national capital.” The region’s multifamily, industrial and office sectors are booming, and there are some big upcoming projects shaping the region’s commercial landscape. These include a $50 million mixed-use retail, multifamily and office project that begins construction in mid-2019 at 115th and Nall in the suburb of Overland Park, Kansas, and a $65 million mixed-use project on 4.3 acres in Kansas City’s East Crossroads District that is expected to begin construction this year. Developer CityPlace is planning to add 240,000 square feet of office and multifamily space to the area. Sprint plans on redeveloping about 1 million square feet of their Kansas City campus and turning it into a mixed-use facility. Kansas City experienced its highest net absorption rate to date in 2017 for industrial real estate at over 7.7 million square feet. Asking-lease rates for office space in the metro area increased almost 8 percent from the previous year, and retail vacancy rates fell 180 points. On the municipal side, the Kansas City Streetcar’s Main Street extension should be built in the next two to three years if the project receives the $227 million in federal funds that local officials expect it will. The free-to-ride streetcar currently has a 2.2-mile route along Main Street with 16 stops between the River Market and Union Station/Crown Center. The construction of a new $1.5 billion single-terminal airport could be the most important economic development project the city has taken on in the last 50 years, according to Mayor Sly James, and is expected to boost the commercial real estate market. The project broke ground in March, and completion is anticipated by 2023.
Local Culture
Kansas City’s metropolitan area is thriving. City and business leaders have adopted an entrepreneur-friendly attitude that has encouraged the growth of small business. Kansas City is the home of the renowned Kauffman Foundation, one of the largest foundations in the United States, that has the sole purpose of advancing entrepreneurship. LaunchKC, an initiative designed to attract and develop entrepreneurs, awards $50,000 annually in grants to the top 10 tech entrepreneurs and is one of numerous initiatives and business development organizations available. Google Fiber, Google’s ultra high-speed broadband network, credits the local government and business-friendly atmosphere when selecting KC out of 1,100 other applicants for its pilot program.
The area’s rich history of jazz music, baseball, and barbecue sets a captivating backdrop for residents and visitors alike.
In the 1920s and 30s, Kansas City speakeasies were run and frequented by the likes of Tom Pendergast and Al Capone. Almost a hundred years later, with the law back on their side, the speakeasy has returned in a big way. Underground jazz clubs dot the landscape, adding a Prohibition-era vibe to the city streets. Many of these spots also double as craft distilleries and offer up quality local spirits while patrons enjoy live music in lush surroundings. Spirits aren’t the only things to sip on. The plethora of craft breweries that have appeared on the scene are quickly turning Kansas City into one of the hottest craft beer destinations in the country.
Spirits and beer pair perfectly with Kansas City’s world-renowned barbecue, a rich tradition in the city. You’ll be hard-pressed to resist its smoky aroma from more than 100 different barbecue restaurants. The eclectic barbecue culture and its acclaimed cuisine draw foodies from all corners of the globe.
What’s a night of food and drink without music? Jazz has deep roots here and was home to the likes of Count Basie and Charlie Parker back in the 1930s. The region was the cradle of jazz music, changing the way musicians played for decades to come. As Lonnie McFadden, one of Kansas City’s premier entertainers, so eloquently puts it, “Jazz may have been born in New Orleans, but it grew up in Kansas City.” The area boasts over 40 jazz and fine-dining venues that host live music most nights of the week.
Sports fans have no shortage of sporting events to attend. Kansas City is the proud home of Arrowhead Stadium and Kauffman Stadium, which host the Chiefs football and the Royals baseball teams, respectively. The Kansas City Mavericks ice hockey team plays at the Silverstein Eye Centers Arena in Independence, Missouri.
Wyandotte County on the Kansas side of the metro boasts its share of professional teams as well. Kansas City’s pro soccer team, Sporting KC, plays at Children’s Mercy Park, and has won the MLS cup twice in recent years. In 2013 the park even hosted the MLS All-Star Game, the U.S. men’s national soccer team and the MLS Cup.
One of the premier racing facilities in the country, the Kansas Speedway, is in Wyandotte County. And just down the road from the Speedway, the Kansas City T-Bones, an independent baseball team, makes their home at T-Bones Ballpark. All of these parks are in close proximity to the Village West retail and entertainment district, a major development that revitalized the area and includes Nebraska Furniture Mart, Cabela’s and other major retail brands.
If you’re looking for a market to invest in, the combination of a growing economy, stable real estate market and rich culture makes the Kansas City region an ideal environment where you can build your portfolio and expect solid returns for years to come.
