KANSAS CITYRETAIL REPORT

RESEARCH 1Q 2020

© Newmark Grubb Zimmer 2020 KANSAS CITY RETAIL MARKET REPORT XQ20

EXECUTIVE SUMMARYNewmark Grubb Zimmer (NGZ) is constantly monitoring market indicators, tracking and analyzing supply and demand drivers, cyclical patterns and industry trends. The following quarterly research report examines the multifaceted Kansas City retail market.

NGZ research and analytics has established a system of data flow unique in our industry. Rather than rely on third party data sources, our data acquisition efforts involve inputs from advisors in the field, analysts and brokers executing transactions. NGZ research converts market data and analysis into knowledge that creates value for our clients.

Our clients include market-leading landlords and distinguished institutions in and around the Kansas City area and the Midwest. Our market knowledge continues to expand as the market progresses and evolves.

SELECT MARKETTRANSACTIONS

60,000 SF GLA – SOLD FOR $9,250,000 ($154/SF)East Jackson County | 1191 N.E. Mcquerry Road

55,080 SF GLA – SOLD FOR $7,125,000 ($129/SF)South Johnson County | 14475 W. 135th Street

14,820 SF GLA – SOLD FOR $5,791,000 ($391/SF)North Johnson County | 11830 W. 75th Street

4,055 SF GLA – SOLD FOR $2,675,000 ($660/SF)East Jackson County | 800 N.E. Coronado Drive

2,000 SF GLA – SOLD FOR $2,575,000 ($1,288/SF)Southeast Jackson County | 3225 S.W. 3rd Street

COSENTINO’S PRICE CHOPPER | GRAIN VALLEY

HOBBY LOBBY | OLATHE

WALGREENS | SHAWNEE

KNEADERS BAKERY & CAFE | BLUE SPRINGS

TACO BELL | LEE’S SUMMIT

KANSAS CITY RETAIL MARKET REPORT 1Q20

RETAIL KANSAS CITY MARKET OVERVIEW

The overall Kansas City retail market loosened year-over-year in the first quarter of 2020, realizing a 20-basis-point increase in vacancy to 5.4%. Net absorption totaled 115,921 square feet for the past four quarters and 972,430 square feet for the past two years, indicating a sound but slowing market. The average quoted rental rate measured $13.03/SF, up $0.24/SF from one year ago.

In the local retail market:• Price Chopper will invest $52.0 million in the metro by remodeling select locations and opening two new stores in Gardner, Kansas, and Smithville,

Missouri.

• Simon Property Group, the largest shopping mall operator in the United States, will purchase an 80% ownership interest in Taubman Centers, Inc. for $3.6 billion. Taubman is the current co-owner of the Country Club Plaza.

• First Heritage Bank acquired a half-acre plot at Lenexa City Center, where it will construct a 5,500-square-foot location that is expected to open by the end of the year.

Unfortunately, major disruptions to U.S. economic activity will immediately impact the retail sector. The COVID-19 pandemic has forced the public to practice social isolation and follow federal, state and local mandates intended to protect those most vulnerable to the disease. Nevertheless, as a global concern, the pandemic will test the ability of the public and every type of commercial real estate to withstand such a strain.

For the retail sector, CoStar predicts shopping malls, outlet and power centers will be the most exposed to the coronavirus, as they contain, on average, less necessity-based space than standalone retail, strip centers, neighborhood centers and community centers. In early March, Coresight Research re-ported that 75% of consumers would avoid shopping centers and malls. With many retailers, including Macy’s, Sears, Forever 21 and Gap, already strug-gling in mall settings before the coronavirus outbreak, new experiential retail experiences, which used to attract shoppers to brick-and-mortar stores, will be nearly non-existent, as malls will temporarily shut down.

The retail industry will continue to evolve toward post-COVID-19, as consumers are left with fewer options for daily food consumption, household items and medical devices and pharmaceuticals. To fill the void left by brick-and-mortar retail closures, online shopping orders, mobile app and delivery requests will increase significantly. According to Adobe Analytics, ecommerce sales in many product categories have spiked, including an 817% increase in online sales in the virus category. In addition, in mid-March, Amazon an-nounced an immediate need for 100,000 new workers to keep up with the surge in online orders. Expect this short-term shift in consumption to transform into a widespread and long-term retail shift of consumer shopping behavior in the U.S.

MALLS, OUTLETS, & POWER CENTERS MOST EXPOSED TO CORONAVIRUS THREAT

Share of Occupancy By Shopping Center Type

Source: CoStar

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Necessity-BasedOtherExperientialTraditional Retailers

SUNSET HILLBUENA VISTAHEIGHTS

PRAIRIEVILLAGE

WESTPORT

COLEMAN HIGHLANDS

ARMOURFIELDS

WORNALL HOMESTEAD

WESTSIDE

SHAWNEEHEIGHTS

BLUE HILLS

BROOKSIDE

WARD PARKWAY

PLAZA

MIDTOWN

WEST BOTTOMS

CROWN CENTER

FREIGHT HOUSE DISTRICT

CBD

SUBMARKET MAPSDOWNTOWN & SUBURBS

KANSAS CITY

Lee’s Summit

Independence

Olathe

Weston

Tonganoxie

Edgerton

Lenexa

De Soto

BonnerSprings

Shawnee

Leawood

Raytown

Greenwood

Holden

Harrisonville

Drexel

Wellsville

Paola

Louisburg

Spring Hill

Belton

Peculiar

Oak Grove

Gladstone Liberty

KearneySmithville

Leavenworth

Lansing

PlattsburgAtchison

PLATTECOUNTY

EAST JACKSONCOUNTY

NORTH JOHNSONCOUNTY

CLAYCOUNTY

SOUTHKC

SOUTHEAST JACKSONCOUNTY

CASSCOUNTY

URBANCORE

SOUTH JOHNSONCOUNTY

WYANDOTTECOUNTY

© Newmark Grubb Zimmer 2020

This map was produced using reliable private and government sources. This information is provided without representation or warranty.

1Q20 KANSAS CITY

KANSAS CITY RETAIL MARKET REPORT 1Q20

Type# of

Buildings

TotalInventory

(SF)

TotalVacancy

Rate

QtrAbsorption

(SF)YTD Absorption

(SF)

Total Asking Rent

(NNN)

All 520 5,598,258 5.20% -5,270 -5,270 $11.05CASS COUNTY Small Shop 374 1,308,782 4.10% -2,695 -2,695 $20.37

Big Box 146 4,289,476 5.60% -2,575 -2,575 $9.86

All 959 12,687,860 4.90% 56,013 56,013 $14.96CLAY COUNTY Small Shop 616 2,175,766 2.50% 9,079 9,079 $17.93

Big Box 343 10,512,094 5.40% 46,934 46,934 $14.19

All 2,300 23,472,433 5.30% -119,196 -119,196 $9.51EAST JACKSON

COUNTY Small Shop 1,690 5,435,920 2.70% 1,205 1,205 $14.49

Big Box 610 18,036,513 6.10% -120,401 -120,401 $9.06

All 987 9,128,442 4.10% -38,917 -38,917 $15.98KC URBAN CORE Small Shop 658 2,249,165 4.20% -19,110 -19,110 $19.88

Big Box 329 6,879,277 4.10% -19,807 -19,807 $14.85

All 1,139 18,997,327 5.80% 622 622 $14.98NORTH JOHNSON

COUNTY Small Shop 709 2,512,655 3.80% -1,432 -1,432 $21.82

Big Box 430 16,484,672 6.10% 2,054 2,054 $13.90

All 370 6,221,776 6.50% 5,159 5,159 $13.56PLATTE COUNTY Small Shop 215 841,905 1.00% 0 0 $16.01

Big Box 155 5,379,871 7.30% 5,159 5,159 $13.43

All 1,177 20,307,232 5.70% -55,559 -55,559 $15.33SOUTH JOHNSON

COUNTY Small Shop 650 2,419,647 5.30% -17,175 -17,175 $20.93

Big Box 527 17,887,585 5.80% -38,384 -38,384 $14.82

All 561 6,489,251 11.40% -25,052 -25,052 $12.17SOUTH KC Small Shop 387 1,150,341 4.00% -2,830 -2,830 $16.90

Big Box 174 5,338,910 13.00% -22,222 -22,222 $11.86

All 487 6,350,699 2.90% 127 127 $15.66SOUTHEAST

JACKSON COUNTYSmall Shop 336 1,242,402 3.00% -1,121 -1,121 $19.23

Big Box 151 5,108,297 2.80% 1,248 1,248 $14.71

All 996 9,560,681 3.00% 1,776 1,776 $10.95WYANDOTTE

COUNTYSmall Shop 775 2,443,113 1.70% 5,700 5,700 $16.57

Big Box 221 7,117,568 3.50% -3,924 -3,924 $8.81

TOTALS All 9,496 118,813,959 5.40% -180,297 -180,297 $13.03Small Shop 6,410 21,779,696 3.20% -28,379 -28,379 $18.58

Big Box 3,086 97,034,263 7.50% -151,918 -151,918 $12.27

RETAIL MARKET STATISTICS TABLE

© Newmark Grubb Zimmer 2020

MARKET INDICATORSVACANCY RATE, ASKING RENT & NET ABSORPTIONMARKET INDICATORSVACANCY RATE, ASKING RENT & NET ABSORPTION

Small Shop: Retail buildings in which GLA is 7,500 square feet or less. Big Box: Retail buildings in which GLA is 7,501 square feet or more.Examination and calculation of supply and demand determinants by building size uncovered statistically significant inflection points consistently at the 7,500-square-foot building size. For this reason, the division between small-shop and big-box occurs at 7,500 square feet.

5.4%

5.2%

5.3%

5.3%

5.2%

4.1%

3.7%

3.2%

3.3%

2.9%

1Q20

4Q19

3Q19

2Q19

1Q19METRO MARKETVACANCY RATEThe metro market vacancy rate has displayed an upward trend increasing 20 basis points over the past year.

KC URBAN COREVACANCY RATEThe KC Urban Core vacancy rate has displayed an upward trend increasing 120 basis points over the past year. At 4.1%, the KC Urban Core posts the third lowest vacancy rate in the metro.

4.00%

4.75%

5.50%

6.25%

7.00%

7.75%

$11.00

$11.50

$12.00

$12.50

$13.00

$13.50

$14.00

1Q15 1Q16 1Q17 1Q18 1Q19 1Q20Average Asking Rent (Price/SF) Vacancy (%)

ASKING RENT AND VACANCY

NET ABSORPTION

-0.3

0.0

0.3

0.5

0.8

1.0

1Q15 1Q16 1Q17 1Q18 1Q19 1Q20

SQUARE FEET, MILLIONS

1Q20 KANSAS CITY

KANSAS CITY RETAIL MARKET REPORT 1Q20

SUBMARKET VACANCY RATESUBMARKET VACANCY RATE

NORTH JOHNSON COUNTY VACANCY RATE

Improved by 40 basis points over

the past year.

Small shop space is hard to find in North Johnson County as vacancy for this niche sits at 3.8%. Big box space posts a 6.1% vacancy rate.

5.8%

6.2%

1Q20

1Q19

PLATTE COUNTYVACANCY RATE

Worsened by 180 basis points over

the past year.

Platte County displays the second highest net absorption during the quarter in the metro with 5,159 square feet.

6.5%

4.7%

1Q20

1Q19

SOUTH JOHNSON COUNTYVACANCY RATE

Worsened by 110 basis points over

the past year.

The South Johnson County submarket remains one of the most stable submarkets in the metro with only eight quarters of negative absorption in the past ten years.

5.7%

4.6%

1Q20

1Q19

SOUTHEAST JACKSON COUNTYVACANCY RATE

Improved by 100 basis points over

the past year.

Southeast Jackson County displays the lowest vacancy rate in the metro.

2.9%

3.9%

1Q20

1Q19

Mark C. Long, CRE, SIOR, CCIM, LEED APPresident and Chief Executive Officer

Justin BealManaging Director – Retail Brokerage

Victor CascioManaging Director

Wendy BrandDirector

Andrew GartenDirector, Research

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Retail Terms and DefinitionsGross Leasable Area (GLA) – Expressed in square feet. It is the total floor area designed for the occupancy and exclusive use of tenants, including basements and mezzanines. It is the standard measure for determining the size of retail spaces, specifically shopping centers, where rent is calculated based on GLA occupied. There is no real difference between RBA (Rentable Building Area) and GLA except that GLA is used when referring to retail properties while RBA is used for other commercial properties.

Vacancy Rate – The vacancy rate is the amount of physically vacant space divided by the inventory and includes direct and sublease vacant.

Net Absorption – The net change in physically occupied space over a period of time.

Average Asking Rent – The dollar amount asked by landlords for available space expressed in dollars per square foot per year. Retail rents are expressed as triple net where all costs including, but not limited to, real estate taxes, insurance and common area maintenance are borne by the tenant on a prorata basis. The asking rent for each building in the market is weighed by the amount of available space in the building.

Reproduction in whole or part is permitted only with the written consent of Newmark Grubb Zimmer. Some of the data in this report has been gathered from third-party sources and has not been independently verified by Newmark Grubb Zimmer. Newmark Grubb Zimmer makes no warranties or representations as to the completeness or accuracy thereof.

KANSAS CITY, MO1220 Washington Street, Suite 300Kansas City, MO 64105816.474.2000 ST. LOUIS, MO8235 Forsyth Boulevard, Suite 200Clayton, MO 63105314.254.4600

EASTERN JACKSON COUNTY1485 SW Market StreetLee’s Summit, MO 64081816.474.2000

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