The Real Estate Report - Block Real Estate Services

Logistics management tools ▾ 6301 coldwater canyon. The Real Estate Report. For Metropolitan Kansas City. Block Real Estate Services, LLC (BRES) Highlights of 2014 Transactions. Table of Contents POSITIONED FOR MORE GROWTH IN 2015 __________ 1. BRES completed the year with total sales and leasing transactions in excess of $832 million. GLOBAL, U.S., KANSAS CITY OVERVIEW _____________ 7. OFFICE MARKET _______________________________22. BRES commercial management portfolio reached 33.75 million square feet by year-end. INDUSTRIAL MARKET ___________________________31. DOWNTOWN DEVELOPMENT ____________________20. RETAIL MARKET _______________________________43. Block Construction Services (BCS) completed renovation and development projects exceeding $174 million in Kansas City. Additionally, BCS managed projects in the St. Louis and Atlanta offices, expanding to a regional services company. INVESTMENT MARKET __________________________49. BLOCK CONSTRUCTION SERVICES _________________63. BRES completed over $225 million in investment sales and raised over $74 million in equity funds for syndication of new acquisitions and development projects. INVESTORS CHART AND SALES RECORDS ___________57 MULTIFAMILY MARKET __________________________58 BLOCK INCOME FUNDS _________________________62. BLOCK HEALTHCARE DEVELOPMENT ______________65 BLOCK MULTIFAMILY GROUP ____________________67 ECONOMIC INDICATORS ________________________68. Block Hawley Commercial Real Estate, LLC ranks as the most active industrial brokerage firm in St. Louis, with over 10.75 million square feet of listed property and nearly 6.75 million square feet under management. BRES Atlanta manages nearly 1.85 million square feet of commercial office and industrial space in the Atlanta market. Block Multifamily Group, (BMG) now manages more than 3,606 units, an increase of over 27% in one year. Projections point toward 5,000 units by year-end 2015. Real Estate. Real Strategies. Real Success.® The excitement created by the Kansas City Royals this past season was a real boost for all Kansas Citians and our economy. And just as the Royals were knocking it out of the park … our local real estate industry was experiencing a banner year of growth and expansion. For the fifteenth consecutive year, we bring to you what has become known as the most comprehensive report on the status and activity of the commercial real estate market in the Kansas City Metropolitan Area. With the pace of activity continuing to accelerate in the Kansas City area, our exceptionally talented teams of knowledgeable real estate investment, sales, marketing, operations, and construction professionals are excited to again share how we have leveraged our development and investment activity into enhanced financial outcomes for our clients. Come join me for a peek into what has been an exciting year for Block Real Estate Services (BRES) and the real estate industry in Kansas City. As BRES continued to expand its local and national reach in 2014, we consistently ranked at the top of the following listings: Kansas City Business Journal: • #1 Commercial real estate property manager— managing the largest portfolio of industrial, office. and retail space in the Kansas City Metropolitan area • #1 Most active commercial real estate firm with 715 transactions • #2 Commercial real estate company with 64 real estate agents • #19 Top area general contractors with $7.3 million in local billings (Block Construction Services) • #18 Top area construction project: Teva Pharmaceuticals ($29,505,810) St. Louis Business Journal: • #16 Largest commercial real estate firm, based on number of local active licensed agents (Block Hawley) National Real Estate Investor: • Ranked 23rd for total office space developed or under construction of 600,000 square feet. PO SI T I O NED FO R MO RE G RO WTH IN 2 0 1 5. BRES Principal Michael R. Block, CPM (left) and BRES Managing Principal Kenneth G. Block, SIOR, CCIM (right), are shown with Brian Sandy, the 2014 Allen J. Block Scholarship Award recipient. Commercial Property Executive: • Ranked 34th nationally for top property manager • Ranked 27th in the most powerful owners listing Midwest Real Estate News: • Ranked 8th in top owners in the midwest • Ranked 13th in top property management in the midwest • Ranked 17th in top brokers in the midwest. Ingram’s: • #1 Top area commercial real estate company with $748 million gross sales • #1 Top area commercial real estate company for square footage managed/sold/leased In addition, we are proud of our agents and employees who continue to enhance their education and qualifications through professional designations such as the Society of Industrial and Office Realtors (SIOR) and Certified Commercial Investment Members (CCIM). Our relationships with these professional organizations allow us to leverage a wealth of knowledge and professional experience which, in turn, enhances our business relationships and the service we provide to our clients. We currently have five CCIM members on staff, three SIOR members and three Certified Property Manager (CPM) members, with several more associates working toward these professional designations. We have many employees and agents who serve as board members and committee members in association with the following organizations: • Lenexa Chamber of Commerce • Leawood Chamber of Commerce • Urban Land Institute • Kansas City Regional Association of Realtors • Broadway Westport Council • Northeast Johnson County Chamber of Commerce • International Council of Shopping Centers • Wyandotte Economic Development Council • Main Street Corridor Development Corporation • Kansas City Area Development Council • Greater Kansas City Chamber of Commerce • KC SmartPort • Heartland MLS • Kansas City Direct Marketing Association • Northeast Industrial Association • Corporate Volunteer Council. REAL ESTATE SERVICES TEAM. The BRES Property Management and Maintenance Departments continued to experience portfolio growth with a total of approximately 25.3 million square feet of office, retail and industrial real estate under management locally in the Kansas City Metropolitan area and nearly 34 million square feet nationally. During the past year, the Property Management Department, along with Block Maintenance Solutions, reorganized by creating a tiered leadership structure with a newly appointed vice president of property management and a director of maintenance. Solid, experienced staff has allowed these individuals to delegate leadership responsibilities into teams, each led by senior staff members who work closely to train, supervise and ensure quality control for their individual teams. This reorganization helped enhance the one-on-one tenant experience with management, while ensuring the department functioned cohesively and the. properties operated efficiently and sustainably. Leadership has continually prepared their teams to take on expanded responsibilities by focusing on developing well-rounded managers with solid tenant relations, accounting, finance and business skills. This team is passionate about the industry and not afraid to engage in new strategies to be successful. The year ahead will bring continued efforts to integrate energy-efficient, energy-saving projects at the properties, such as: LED light installations, HVAC upgrades, high speed fiber installations and elevator efficiency modifications. This process has been enhanced through the use of Missouri’s Clean Energy Funding Program, which enables property owners to leverage bond funding for energy efficient projects. With several exciting new properties being developed in 2015, this team looks forward to more challenges, growth and successes in the year to come. Many of our property managers hold Real Property Administrator (RPA) and Certified Property Manager (CPM) designations as well as Kansas and Missouri real estate licenses. BRES is an Accredited Management Organization through the Institute of Real Estate Management with an experienced team of qualified managers, brokers, operating engineers and utility staff. These individuals possess industry qualifications, such as: • Class A Operating Engineers License – State of Missouri • Building Operator Certified – KCP&L • Systems Maintenance Administrator (SMA), Systems Maintenance Technician (SMT) – BOMI • Master Electrician • Certified welder • Certified bridge crane, straddle crane and forklift operator. Also certified in industrial rigging • EPA Certification • Certified locksmith – Associated Locksmiths of America • Certified enterprise based access control systems The uptick in activity has significantly impacted our brokerage business. Not only has the volume of activity increased, but the significance of the value of the transactions we are experiencing has also increased. In 2014, we added five new brokers to our team and with the level of activity continuing to accelerate, we anticipate additional brokerage staff expansion in 2015. BLOCK CONSTRUCTION SERVICES. After another year of record revenues, Block Construction Services (BCS) is celebrating its twelfth anniversary. BCS is becoming well known for its expertise as a construction management and owners representation firm. In 2014 our construction and development team managed over $174 million in total projects which equated to over $65 million in construction contracts in all areas of real estate development and construction. With the return of office development, BCS is currently leading the construction of Pinnacle Corporate Centre V, a 71,327 sq. foot Class A. office building in Leawood, Kansas scheduled for completion in September 2015. A few of the more notable projects BCS is working on for 2015 include: Nall Corporate Centre II, a five-story, 150,000 sq. foot office building adjacent to the Teva Pharmaceuticals building which BCS completed last year; CityPlace, a 90-acre mixed-use development that will feature over 600,000 square feet of office space in Overland Park, Kansas and Corporate Medical Plaza IV and V, located at 110th Street and Roe Avenue in Overland Park, Kansas. In addition, with incentives now in place, BCS anticipates groundbreaking in 2015 on 46 Penn Centre, a 195,000 sq. foot office building with 6,500 square feet of restaurant space along with 725 parking spaces on six levels, to be located in the heart of the Country Club Plaza. With the industrial market as hot as ever, BCS is active in several submarkets in the Kansas City Metropolitan area. Notable projects in Lenexa, Kansas include: three light industrial buildings totaling over 290,000 square feet at College Crossing Business Park; the completion of the first building at Lenexa Logistics Centre south, a 260,700 sq. foot cross-dock distribution facility which is fully occupied by Amazon; and construction has begun on Lenexa Logistics Centre building 5, a 354,055 sq. foot cross-dock distribution facility scheduled for completion in spring of 2015. BCS was also involved in the acquisition of an additional 82.59 acres of ground located on the north side of College Boulevard, just west of Renner Boulevard, which will be called Lenexa Logistics Centre North. BCS has four buildings planned at this location which total approximately 1,362,836 square feet with work scheduled to commence. in 2015. We also received our final development plan for our first building at 175th Street Commerce Centre located at 175th Street and Hedge Lane in Olathe, Kansas. The first building will be a 499,735 sq. foot, cross-dock, Class-A distribution facility with work scheduled to commence in 2015. Rounding out the other more notable multifamily/ mixed-use activity, BCS delivered the first phase of the $38 million WaterCrest at City Center, a 306-unit, Class A multifamily luxury apartment community in Lenexa, Kansas. BCS has also broken ground on its $350 million CityPlace project and started all infrastructure work. We anticipate construction of the first multifamily project, along with a senior housing project, in early 2015. This project will also see the development of retail components and perhaps the first office building all starting in 2015. PO SI T I O NED FO R MO RE G RO WTH IN 2 0 1 5. BRES continued its charitable support of local organizations such as The Children’s TLC, The University of Kansas Cancer Center, and the Multiple Sclerosis Society, to name a few. BLOCK MULTIFAMILY GROUP. When we launched Block Multifamily Group (BMG) two years ago, we had a goal of growing the management portfolio at the pace of about 750 to 1,000 units annually. As we close out 2014, we find ourselves exceeding our goal with 3,600 units currently under management. With another 375 units coming on line in early 2015, we are confident that we will again eclipse our goal in the coming year and reach our five-year goal of 10,000 multifamily units. We also expect additional growth in the BMG portfolio will come through our first joint venture project with Balfour Beatty, a 392-unit project which should close on or around January 31, 2015. In addition, BMG and Balfour continue to work closely on a teaming arrangement where BMG will provide “back house” service supporting Balfour with HUD. This year, BRES employees sponsored Chiefs Red Friday benefiting the Ronald McDonald House Charities of Kansas City. Since the inception of Red Friday, Chiefs flags, newspaper and magazine sales have raised hundreds of thousands of dollars for local charities, with an emphasis on assisting youth in need. and LIHTC compliance reporting on large housing authority portfolios. Another new third-party relationship, which will contribute to our success in 2015, is the Roaster’s Block Apartments in downtown Kansas City, Missouri. This property, located at 8th Street and Broadway, was the former Folgers Coffee building. Sticking to our strategy of growing the management portfolio through syndicated acquisitions of multifamily investments, developing new multifamily projects, and actively pursuing third-party business, we expect to continue to exceed our growth expectations in the years ahead. connectivity is in place and has greatly improved the speed and performance of data retrieval. Our disaster recovery solution will be rolled out in early 2015 and that will allow us to physically be connected anywhere at any time and allow the main functions of the BRES corporate office to continue business as usual under any circumstances. In 2015, BTS will continue to provide low cost data/ voice solutions to new and existing clients as well as offer our services to pre-qualify a location for potential client data and voice connectivity capacity. BLOCK TECHNOLOGY SOLUTIONS. BLOCK HAWLEY COMMERCIAL REAL ESTATE. Block Technology Solutions (BTS) has taken the one-stop solution to a new level in 2014. With close coordination with ownership, tenants, and contracting entities, BTS has doubled its volume for 2014 and will see many opportunities to assist current and future tenants’ voice/ data infrastructure needs at a reasonable cost with quick turnaround times. BTS is working closely with Google Fiber to bring even faster, less expensive, high speed fiber internet connections to a majority of the 25.3 million square feet of BRES owned and managed properties in the Kansas City Metropolitan area in 2015. This option will allow small- and mid-sized businesses to have gigabit speeds for their day-to-day IT operations; once again setting BRES apart from its competition. From a corporate standpoint, BTS has upgraded BRES’ email servers to increase capacity and overall ease of use which enables our personnel to be connected to our clients, customers and investors “anywhere, anytime.” Additionally, our new fiber backbone for high speed remote office. With the continued stabilization of the commercial real estate market in 2014, Block Hawley Commercial Real Estate Services completed its most productive year since its inception in 2008. Completing nearly 50 sales and lease transactions, consisting of approximately 1,843,233 square feet, transactions totaled approximately $102 million. Block Hawley continued to prove itself to be one of the most active and productive commercial real estate firms in St. Louis; with growth from syndicated investment and additional thirdparty relationships, their management portfolio reached seven million square feet. In 2014, the asset management team at BRES Atlanta achieved a 12% increase in office building occupancy across its portfolio. This superior performance has been highlighted by achieving 100% occupancy in our Two Sun Court building, a 98,040 sq. foot multi-story office building located in the. BLOCK HEALTHCARE DEVELOPMENT. Block Healthcare Development (BHD) saw a growth of approximately 23% in volume in 2014. Key goals were to focus on acquisition and development opportunities that yield steadily increasing cash flows, accelerated amortization, and targeted dispositions of existing assets where we can take advantage of capital appreciation. With striking success, BHD uncovered many opportunities to meet these goals. Now in our fourth year of operation, we have established a reputation with national brokerage firms as active, aggressive buyers of net-leased medical office properties. Our track record of quick closings on deals has allowed BHD to be on the short list of preferred buyers with these firms, enhancing our ability to bring strong medical syndications to our investors. In addition, our development expertise has afforded BHD preferred developer status with several national healthcare providers. These development relationships have yielded multiple projects, two of which are currently in construction, and have allowed us the opportunity to bring new construction syndications with long-term leases to our investors. A few success stories included a seven-building portfolio acquisition of medical properties in three geographic markets. In association with O’Reilly Development, BHD assisted in an equity raise to kick off a 150-bed senior living center in Blue Springs, Missouri and will be developing a 10,000 sq. foot medical office building adjacent to the senior living development. With medical office opportunities fetching low cap rates, BHD facilitated a trade of a recently developed medical office building owned by BRES investors in Kansas City, Kansas to take advantage of significant appreciation, thereby delivering its clients a significantly enhanced cash flow through an exchange property in the Cincinnati Metropolitan market. With little change in the underlying fundamentals of the medical office market, 2015 should prove to be another record year for BHD. THE BLOCK REAL ESTATE INVESTMENT TEAM. The BRES team of investment specialists was spot on with their 2014 assessment of the investment market and the opportunities it would avail. Our investment team raised in excess of $74 million for equity syndication in 2014. The team syndicated a large number of transactions locally and regionally, including seven investment transactions in multiple states throughout the Midwest and southern regions. Assets included medical office, multifamily and industrial properties, which were well positioned to leverage fundamentals specific to each property in their unique markets. The more notable disposition transactions for our investors in 2014 included sales of: • 4400 Corporate Centre in Overland Park, Kansas; an $11 million, 106,768 sq. foot office building transaction • 2020 West 89th Street in Leawood, Kansas; a $5.8 million, 87,080 sq. foot office building transaction • Building 22 in Pine Ridge Business Park in Lenexa, Kansas; a $3.1 million, 31,776 sq. foot industrial building transaction • University Place Shopping Center in Lincoln, Nebraska; a $7.6 million, transaction consisting of 120,132 square feet As the market and product fundamentals continue to evolve in 2015, the investment team at BRES is well positioned to leverage enhanced brokerage relationships in the mid-central and southern states and uncover additional opportunities that meet or exceed the return parameters our investors demand, as well as dispose of assets positioned for a profitable sale. THE BRES MARKETING SERVICES GROUP. The BRES marketing team continues to work tirelessly to enhance the team spirit and culture within our organization. By continuing to showcase all department and division activity within our bi-monthly company newsletter filled with exciting news from all areas of the company, the BRES associates have come to realize and appreciate how interconnected our service delivery really is. Some of the projects completed in 2014 include the Pine Ridge Business Park monthly newsletter, a revamped electronic communication available on the Pine Ridge website. This newsletter highlights new tenants, park enhancements, and shares with tenants the discounts available from local businesses. Additionally, the marketing team has incorporated updated Search Engine Optimization (SEO) campaigns for our ColonyRealty Partners industrial portfolio, which has led to a variety of qualified. PO SI T I O NED FO R MO RE G RO WTH IN 2 0 1 5. Peachtree Corners submarket. With the continued push by decision-makers to locate their businesses closer to their homes in Roswell and Alpharetta, we expect 2015 to bring a flourish of activity that will push occupancies in managed properties in these areas to over 93%. With consistently high marks in tenant satisfaction, BRES Atlanta has been a key asset in assisting its clients in achieving a tenant retention rate across its managed portfolio of over 80%. Our industrial holdings located in the Atlanta Metro area continue to maintain steady occupancy. Our Eastview Parkway property in Conyers, Georgia and our Westview property in Lithia Springs, Georgia have maintained 100% occupancy through the recent recession. We have also achieved 100% occupancy at the Wilson Way multitenant, industrial building in Smyrna, Georgia. Our office/ showroom/industrial property located in Roswell, Georgia achieved 90% occupancy in 2014. With the commercial real estate recovery taking hold in most all Atlanta Metropolitan markets, we believe 2015 should begin to provide opportunity for strategic management portfolio growth driven by internal acquisition as well as allow our group to pursue new third-party relationship assets. BRES employees joined in the holiday spirit of giving this year by adopting five families from The Children’s Place. The Children’s Place identifies child clients and families who need holiday assistance. leads and elevated click-through rates. In 2014 the marketing team hired two new talents, bringing our social media, blogging, and Google analytics execution and reporting in-house – making our communications and content more robust and knowledgeable with execution to market much quicker. CityPlace, our newest mixed-use 90-acre development, recently broke ground, which provided our marketing team the opportunity to showcase their expertise by organizing this major project’s groundbreaking ceremony. The event included dignitaries from both state and local governments, Chamber of Commerce representatives, economic development teams from across the metropolitan area, and many local business owners. Philanthropy continues to be a strong pillar of the BRES organization as we sponsored over 25 events in 2014 such as: The Groundhog Run, supporting The Children’s TLC; Make a Wish Foundation; Red Hot Night for Children’s Mercy Hospital; Boys and Girls Hope of KC – Trivia night; March Madness Activities for employees to support the MS Society; Pawtini for the SPCA; Operation Breakthrough; Harvesters food drive; Newhouse Shelter; Hope HouseBirdees Fore Hope charity golf tournament; KC Royals Diamond of Dreams; and many more. We wrapped up the year with our annual holiday adopt-a-family through The Children’s Place in Brookside delivering gifts to five families. We continued our program of supporting employees’ charitable endeavors by matching donations to these worthwhile organizations. We believe it is essential to give back to our community and share our good fortune with those in need. We are excited about the prospects and opportunities that exist in the current economic and market climate as we move into what we believe will be the most productive year of business in our firm’s history. Please refer to the Highlights shown inside the front cover of this report for a summary of our 2014 activity. We hope you find this report valuable and are able to use the information to assist you in making sound strategic decisions. We will continue to work hard to assist each of you and wish our clients and investors a successful year in 2015. Kenneth G. Block, SIOR, CCIM Managing Principal. Global, U.S., Kansas City. In 2014, both the global and U.S. economies showed signs of strengthening with increased trade, higher economic and industrial production, and a slightly improved global job market. However, as in years past, the U.S. had to deal with multiple global and national challenges to the economy. The most recent social and economic challenges included the following: • Islamic State of Iraq and the Levant (ISIL). This Sunni, extremist, jihadist rebel group expanded its control of territory in Iraq, Syria, eastern Libya, and the Sinai Peninsula of Egypt. Their actions continued to be widely criticized around the world by not only Islamic communities, who describe the group as not representative of Islam, but also by the United Nations, Amnesty International, and western nations, led by the United States and Great Britain. ISIL has been designated as a terrorist organization by the United States, the European Union, the United Kingdom, the United Nations, Israel, Canada, and a host of other nations. Its leader, Abu Bakr al-Baghdadi, stated the group’s aim was to establish an Islamic state. On June 29, 2014, the group proclaimed a worldwide caliphate. This caliphate is now claiming religious. authority over all Muslims worldwide and is known for its beheadings and grave human rights abuses. The group’s power continues to grow and is a major threat to the civilized world. And with Defense Secretary Chuck Hagel resigning at year-end, the U.S. needs to quickly fill this post to lead the charge against ISIL. • Under President Vladimir Putin, aggressive, powerhungry Russia expanded its territorial control in the region. With its expansion into Crimea, and its current battles in the Ukraine, Putin has made it clear he does not feel Russia has committed any violations of international law as these territories openly expressed a desire to join Russia. He further stated that while he would like to have normal relations with the United States and Europe, they would not tolerate distant great powers deploying military forces anywhere in the western hemisphere, like the United States is doing in Europe. While the U.S. and other nations have imposed sanctions against Russia which are pushing it to the brink of recession, Putin plans to continue his expansion efforts nevertheless. • The deadline for nuclear talks between the P5+1 powers in Iran had to be extended due to the lack of an agreement. Israel warns it will use military power against Iran if a deal doesn’t meet with its. G L O BAL , U. S . , KANS AS CITY O V ERV IE W. Immigration reform was a politically divisive topic in 2014. President Obama went against House Republicans and signed an Executive Order granting temporary legal status to more than five million undocumented immigrants. approval. The current proposal would restrict Iran’s nuclear program for 10 years, cap its ability to produce weapons grade material, and would require Iran to give its material to Russia to be converted to peaceful use. However, Israel noted that if you do not dismantle Iran’s nuclear infrastructure, you have simply allowed them to restart their nuclear weapons process when inspections cease. Iran is also working on an intercontinental ballistic missile which would have the capacity to hit not only portions of Europe, but also the United States. The Israeli-Palestine conflict continues. While the two parties continued to negotiate a long-term peace proposal that would control building by Israel in the Gaza strip, as well as other serious issues, a recent assault by two Palestinians that killed five Israeli’s worshiping at an Israeli synagogue, caused Benjamin Netanyahu to vow a strong retaliation against the murderers and those behind the horrific attack. Ebola. The epidemic that began in Guinea in 2013 and thereafter spread to Liberia, Syria Leon, Nigeria, and Senegal, has become the largest and most complex outbreak in the history of the disease. Human-tohuman transmission spread the disease throughout West Africa and has caused worldwide panic with the movement of infected persons through various forms of transportation, thereby putting the entire world at risk of an out of control epidemic. However, a new experimental Ebola vaccine has already been through its first human trial, and it is hopeful that mass production of this and other vaccines can keep the Ebola outbreak under control during the latter part of 2015. Racial unrest in the United States. Racial unrest continues to be front and center with the most recent incident in Ferguson, Missouri ripping the nation apart. After months of deliberation, a grand jury voted not to indict Ferguson police officer Darren Wilson in the August 9th shooting death of Michael Brown, stating that Officer Wilson responded in self-defense. Midterm elections. Midterm elections turned the Senate over to Republicans and increased Republican numbers in the House, thereby giving the majority in both houses to Republicans for the next two years. Expect Republicans to move forward quickly in 2015 with bills on Obamacare, immigration, corporate income taxes and many more issues. President Obama continues to sign Executive Orders in order to pass issues important to him but which have not been passed through Congress. Those include one to eliminate wage disparities among federal contract workers, and perhaps the most divisive issue ever taken by Executive Order – his action on granting temporary legal status to more than five million undocumented immigrants. The global economy strengthened in 2014 and it is expected to improve further in 2015. However, the unifying theme is that the global economy will take longer than expected to recuperate from the bursting of the debt bubble during the last decade. While the International Monetary Fund (IMF) projected the world economy would be back on track in 2015 growing at an expected 4.8% rate, the BRIC nations (Brazil, Russia, India, and China) have had substantially lower growth rates. Therefore, the IMF reduced its forecast of 2015 global growth to 3.2%, citing a big concern about China’s growth. China’s 7.1% growth rate, while high compared to other nations, would be the country’s lowest in 15 years. A slow down of this magnitude would cause a major financial crisis in China as indebted investors, such as property developers, could default on a large scale. It is also important to note that the U.S., China, Japan, and the Eurozone all must be growing for the global economy to move forward and if any one country doesn’t meet expectations, it could send the global economy into a tailspin. Approximately 40% of the public companies that make up the S&P 500 derive sales from Europe. A Eurozone economic slowdown could cause the corporate earnings of American companies to suffer and as a result, cause an economic slowdown in the U.S. Again, the linkage of global economies has a direct effect on our U.S. economy. The U.S. is the largest economy by size at $17.5 trillion dollars followed by China at $10 trillion and Japan at $4.8 trillion. However, in November of 2014, China overtook the U.S. as the world’s largest economy according to the International Monetary Fund. The method used by the IMF adjusts for purchasing power parity and now shows that China makes up 16.48% of the world’s purchasing power adjusted gross domestic product (GDP), or $17.63 trillion, followed by the U.S. at just 16.28%, or $17.416 trillion. While the U.S. economy continues to be $6.5 trillion dollars larger than China, when not adjusted for purchasing power, it is clear that China’s global influence will more visibly affect not only the U.S. economy but also the entire global economy going forward. The global economy strengthened in 2014 and it is expected to improve further in 2015. In the Eurozone, the straightjacket of a single currency, while working as the gold standard did in the past, is preventing weaker economies, such as Greece and Portugal, from depreciating their currencies, which is a quick way for a nation with high labor costs to boost its exports and speed up its economy. Japan, which self-imposed a sharp increase in consumption taxes in 2014, is considering a second round in 2015 as it tries to ward off deflation. A global risk is defined as an occurrence that causes significant negative impact for several countries and industries over a time frame of up to ten years. The ten highest risks include the following: 1. Fiscal crises in key economies 2. High unemployment/underemployment. 3. Water crisis 4. Several income disparities 5. Failure of climate change mitigation and adaptation 6. Greater incidence of extreme weather events 7. Global governance failure 8. Food crisis 9. Failure of a major financial mechanism/institution 10. Profound political and social instability Perhaps the most dangerous of all of these in terms of immediate shock to the global financial system, is fiscal crisis. Given that the U.S. official public debt is now 101.53% of the GDP, Japan’s is more than 230%, and China’s is in excess of 176%, investors at some point may conclude that these levels are unsustainable. Once a determination like this has been made, a flight to safety by investors’ dollars could immediately weaken or cause a default among many of the global economies thereby affecting the entire global economic system. China overtook the United States as the world’s largest economy according to the International Monetary Fund. Around the world, the next generation will be most affected by this legacy of a financial crisis and slow growth. In many countries, dramatically high unemployment is. The midterm elections in November turned the Senate over to Republicans and strengthened Republican numbers in the House. This gives the majority in both houses to Republicans for the next two years and could create potential conflicts with Obama’s policies going forward. G L O BAL , U. S . , KANS AS CITY O V ERV IE W. The volume of world trade in goods and services among the top nations is key to the World Trade Organization (WTO), the Transatlantic Trade and Investor Partnership (TTIP) and the Trans Pacific Partnership (TPP) which all noted that it is essential that overall trade exports be increased globally. These international trade agreements have been a successful tool in not only reducing barriers to global commerce, but also as an engine of economic growth, which can lift people from poverty to prosperity. One of the most significant benefits to the global economy in 2014 was the huge decline in the price of oil from a high of near $120 per barrel to the current level of around $83 per barrel. However, the Organization of Petroleum Exporting Countries (OPEC) economies have seen economic declines as global demand weakens for oil. With prices so low, countries like Iran struggle as their cost of production exceeds the market price. Add to this higher production in the United States, which is now a net exporter versus a net importer of oil, as well as stepped-up production in Russia, has made it clear that OPEC has lost some influence in the global economy. frustrating young people’s efforts to earn, generate savings, gain professional experience and build careers. Additionally, higher education has become more expensive than ever and its payoff is more doubtful. Youth unemployment rates have soared and are especially dire in the Middle East and some European countries, such as Spain and Greece. About 300 million young people, over 25% of the world’s youth population, have no productive work according to World Bank estimates. Also, an unprecedented demographic “youth bulge” is bringing more than 120 million new young people into the job market each year where many cannot find viable employment. This is not only a waste of human capital, but it threatens to halt economic progress. It creates a viscious cycle of declining economic activity, further under employment, and the risk of social unrest by creating a disaffected “lost generation” that remains vulnerable to being sucked into criminal or extremist movements. This is exactly why the group ISIL has been successful in recruiting young militants as many see this as their only option. A new risk, which is of grave concern to all major economies, is the risk of cyber attack. The Internet was built for resilience rather than security and since an attacker needs only to find a single way through the defenses at a single point in time, the Internet has become increasingly vulnerable. Anything that is connected to the Internet can be hacked. This increasing hyper-connectivity raises the prospect of disruptions having a systemic impact which could affect national grids, satellites, avionics, signals from Global Navigation Satellite Systems (GNSS), and other critical systems. It has already been acknowledged that the United States has faced nearly daily attacks from China, Russia, and other Middle East nations whose goal is to bring down our systems and systematically affect our economy. A recent attack against Sony concerning an upcoming film about North Koren President, Kim Jong-un, is perhaps the first of many to affect our economy. A new risk, which is of grave concern to all major economies, is the risk of cyber attack. The federal budget deficit has fallen sharply over the last few years and in the fiscal year 2014, will total $506 billion. This was roughly $170 billion lower than the shortfall recorded in 2013 and is slightly below the average of federal deficits during the last 40 years. However, federal debt held by the public will reach 74% of GDP at the end of this fiscal year, which is more than twice what it was at the end of 2007, and higher than any year since 1950. The Congressional Budget Office (CBO) projects that there will be continued deficits through 2024. Annual deficits are expected to remain less than 3% of GDP through 2018, but would grow thereafter, reaching nearly 4% from 2022. to 2024, which is far higher than the 3.1% of GDP average for the last 40 years. However, debt held by the public is expected to rise from 74% to 77% of GDP by 2024. This large and increasing amount of federal debt will have serious negative consequences including: increasing federal spending for interest payments; restraining economic growth in the long-term; giving policy makers less flexibility to respond to unexpected challenges; and eventually increasing the risk of fiscal crisis. The U.S. GDP is expected to end the year at a growth rate of 2.15%, followed by an increase to 2.7% in 2015, and 3.1% in 2016. These levels compare unfavorably with real global GDP which is projected at 3.2% in 2014 and 3.7% in 2015. However, these levels were lowered by the Fed based on more recent data on the slowing global economy. One of the biggest reasons the deficit is increasing is the expansion of federal subsidies, including health insurance, mounting interest costs on federal debt, and other entitlements given to a growing sector of our society. The private sector continues to strengthen due to efficiencies in operations, lower borrowing costs and a reduction in corporate expenses. The total U.S. national debt as of December 2014 stood at just over $18 trillion with the U.S. GDP standing at $17.5 trillion. However, all forms of U.S. debt at the end of year 2014 totaled over $60 trillion dollars, compared that to $2.2 trillion dollars just 40 years ago. Because of this increasing debt, the CBO predicts that the economy will stall again by 2017. Economists have not agreed on how to stave off the impending crisis because Americans are addicted to spending on credit, to borrowing for what they can’t afford, and getting a host of entitlements for which they can’t pay. Eventually, the negative effect of the debt load becomes stronger than the positive effect of the added spending and this triggers a recession. The U.S. Federal Reserve announced at the end of October that it would end its Quantitative Easing (QE) program of mortgage-backed securities and U.S. government bond purchases. This program, which began in 2008, was an attempt to stimulate the economy by lowering long-term interest rates. The low interest rate environment was supposed to encourage banks to lend more money to businesses and people. However, due to many of the provisions of the DoddFrank Act, America’s big banks instead tightened their lending rules, taking the opportunity to strategically invest the money themselves. These big banks, controlled by shareholders, decided higher profits made more sense than making loans to risky, smaller borrowers. So, while the announcement of the end of Quantitative Easing came as no surprise, it remains to be seen what affect it will have on the U.S. economy in 2015. The economy finished 2014 as the best year since 1999 for both total and private sector job growth. At the end of 2015, the federal funds rate could increase to somewhere between 50 and 75 basis points, thereby putting 10-year Treasuries in the neighborhood of 2.9% to 3.1%, up from about 2.5% at year-end 2014. Even so, by historical standards, these rates are quite low. Job gains in 2014 continued to top the critical 200,000 per month benchmark and are expected to increase slightly in 2015. The number of job gains needed to keep incomes and consumption fueling a healthy economic growth is roughly 200,000 per month. Gains are particularly prevalent in retail, health services, professional and business services. The economy finished 2014 as the best year since 1999 for both total and private sector job growth. The unemployment rate dropped to 5.8%, the lowest level since July 2008. The tech and energy sectors, however, will continue to be the primary economic drivers for the foreseeable future job growth. Another reason for slower job growth is the government’s continuing implementation of thousands of new regulations. Many of these new regulations decrease worker productivity and increase costs for about everything we buy. But perhaps the bigger problem is the fact that the U.S. corporate tax rate is the highest among developing nations at 35% at the federal level. Tack on state and local taxes and U.S. corporations are paying between 40% and 42% income tax burden. What’s even worse is that Uncle Sam demands that American companies with offshore operations pay U.S. taxes on all income earned abroad, if those profits are repatriated to the U.S., which makes little or no sense since taxes have already been paid to the countries where the income was actually generated, leading to double taxation on profits. Therefore, U.S. corporations are not likely to return that money to the United States to increase jobs and employment here. It is estimated that $2 trillion in foreign profits are parked outside the U.S. So, a change in the corporate income tax, and repatriation of those profits to the United States tax free would immediately boost U.S. economic growth and improve the job market. Still, a big concern to the economy is the U.S. unemployment rate, which continues to be 13% to 14%. This rate includes those unemployed, and those underemployed and is the true measure of unemployment. And, the civilian labor force participation rate is also down to 62.8%, which is lower than the historical average of 66%. This decline in the labor participation rate is caused by both structural factors (population aging or delayed retirement) as well as the availability of entitlements to those unemployed. The continued rise in the entitlement phenomenon has allowed unemployed people to earn an average of $40,000 in a rising number of states in the U.S., with the highest being Hawaii, providing as much as $60,000 a year in benefits to the unemployed. It is clear that an overhaul to the U.S. entitlement program is necessary in order to cause more people to enter the labor market, thereby increasing the labor participation right. However, with 15% of Americans (50 million) now living below the poverty level, and 47 million Americans on SNAP (Supplemental Nutrition Assistance Program a.k.a food stamps), there are now over 151 million Americans who receive a check from the government rather than an income tax refund. In essence, without more people working, U.S. economic growth will continue below historical norms over the next several years. And by 2018, nearly 66% to 68% of Americans will be receiving some form of government assistance. According to The Brookings Institution, the number of jobs needed to return employment to its pre-recession levels and absorb new entrants in the workforce is approximately 9.9 million. However, the number of temporary jobs has increased 50% since the recession ended nearly four years ago. In fact, the number of part-time jobs rose by three million since 2008 while the number of full-time jobs decreased by a similar amount. Seventy percent of the current workforce has inflation-adjusted hourly wages that are still lower than they were in 2007, at the same time as inflation (CPI has raised over 15%). Americans had the highest median household. G L O BAL , U. S . , KANS AS CITY O V ERV IE W. While it is expected that interest rates will rise in the latter part of 2015, we do expect several factors to mitigate the likelihood of a material increase in interest rates. The most notable factor is the recent weakening of the global economy, particularly in China and in the European Union. QE has been recently implemented in the European Union and there’s an expectation that additional stimulus measures will be likely. China’s deterioration in growth and Germany’s economic slowdown are dampening global expectations, thereby making a flight to safety in the U.S. dollar more likely. Also, the recent rise in the value of the U.S. dollar, together with falling oil prices, will help suppress domestic inflation, thereby allowing the Fed to keep interest rate increases at a slow pace. The Federal Reserve believes that as long as the U.S. economy continues to make progress toward the Fed’s dual mandate goals of maximum sustainable employment and 2% inflation, that it will need to raise its federal funds rate target off of zero during 2015. Expectations are that this will occur at the beginning of the third quarter, but the Federal Reserve is expected to do its best to minimize any potential disruptions to the markets by making any increase slow and predictable. Federal Reserve Chair Janet Yellen’s strong, pro-growth stance, and her desire to see a full recovery in the labor market, also suggests the move will be gradual. However, longer-term rates will continue to move upward, perhaps as much as 50 basis points during 2015 as the short-term rates increase. Different environmental groups, citizens, and politicians have raised concerns about the potential negative impacts of the Keystone XL project. Though the issue appears to have public support, there has yet to be a decision made that will determine the fate of the pipeline. income adjusted for inflation in 1999 and it has declined ever since. According to the UCLA Anderson forecast, the U.S. is not yet in a recovery, and the economy must grow at a 4% growth rate for 15 years or a 5% rate for eight years in order to create enough jobs and overall economic activity to return to the normal trend line. Another issue that could affect the U.S. economy is the increasingly large outstanding student loan debt which topped $1.3 trillion at the end of 2014. Loans that are delinquent 90 days increased to 12.1% according to the Federal Reserve Bank of New York. Since the federal government is the source and backer of most of these loans, this could end up being a substantial deterrent to a strengthening of the U.S. economy until this potential debt crisis is solved. Finally, the housing market needs to continue to grow in order for the economy to expand further. For this to occur, interest rates must remain low and job creation must occur so that consumer spending can improve. Without a strong and resilient housing market, the U.S. economy will continue to sputter along since the housing sector remains one of the most significant influences on the overall health of the U.S. economy. While the housing market continues to improve, it still should be noted that the Standard & Poor’s Case-Shilller Home Price Index, while up 25% since the beginning of 2012, still needs to climb an additional 20% simply to break even with its pre-recession levels. As a result, the number of first-time home buyers accounted for just 28% of all purchases, while the 30-year average is 40%, a number that economists consider necessary for a healthy housing market. IMMIGRATION AND THE 2014 MIDTERM ELECTIONS. In a rare primetime, nationally televised address in late November, President Obama unveiled the most sweeping Executive action on immigration in decades. His plan is to circumvent Congress and extend legal status to 4.1 million undocumented parents and families of U.S. citizens who have been in the country more than five years with no criminal record. Additionally, 300,000 undocumented immigrants who came to the U.S. illegally as children would also get relief, and 400,000 highly-skilled workers will be eligible for Visas. In total, over five million people will receive temporary, legal status and protection from deportation. While President Obama’s plan for immigration was leaked to the press prior to the elections, it was clear from the election outcome that many people did not agree with his plans. The Republicans took control of the Senate with a gain of eight Senators while in the U.S. House of Representatives, the Republicans extended their majority by 11. There was a huge increase in Republican governors with Republicans now leading 31 states. These gains in Republican governors could foreshadow a significant shift in two years as governors frequently have a greater impact on voters’ daily lives. This may give the Republicans the ability to demonstrate a difference in governing to the majority of Americans. The midterm elections also provided an opportunity for voters across the nation to express significant discontent with the government. Over 34% of voters expressed that they voted in opposition of President Obama and 65% said the country was seriously headed down the wrong track. In fiscal year 2014, the first year of the federal Obamacare exchange, the federal government spent nearly $17 billion on subsidies for people who buy their insurance there. By 2023, the tenth year of the federal exchange, the federal government will be spending $134 billion on subsidies for people buying their insurance there. This $134 billion that the federal government will dole out in Obamacare subsidies is 7.9% as much as the $7 billion in the first year. In essence, the combined $707 billion that the federal government will spend on Medicaid and Obamacare subsidies in 2024, will be roughly equal to the $716 billion that CBO estimates the government will spend on national defense. Clearly, the U.S. economy cannot afford this continued increase in entitlements with no comparable increase in revenues. U.S. PROPERTY SECTORS AND MARKETS. For the fifth consecutive year, the Urban Land Institute (ULI) and Price Waterhouse Cooper, LLC in their joint publication Emerging Trends in Real Estate 2015, have indicated U.S. Property Sectors and Markets will improve in the coming year. The substantial availability of capital. from both U.S. and foreign sources is expected to drive cap rates lower in 2015 as real estate investment continues to be a highly desired investment class. However, most of the enhancements in property valuations will be provided through improvement in total returns and expense reductions. While short- and long-term interest rates are projected to increase in the latter part of 2015, this is expected to have a minimal impact on real estate investment. Growth will continue in all property sectors, and while multifamily has led all investment categories in 2014, expect the industrial sector to grow more quickly in 2015. A rare confluence of positive trends favoring industrial properties and developers will align. Capital is expected to flow heavily into the office sector, which currently has higher capitalization rates than the industrial and multifamily sectors. Also, an increase in retail investment will be seen, although it will still be muted compared to previous historical investments. Again, expect the energy, technology, healthcare, and financial services to lead job growth. If a Republican-controlled Congress can pass legislation to reduce U.S. corporate taxes, and to allow for foreign corporation profits to be non-taxed and brought back to the United States, this would have a significant impact on job growth, and could dramatically increase the investments in real estate and, in particular, the office sector. In 2015, real estate assets again will command an attractive spread over fixed income investments and be competitive with the highly erratic equities market. While the equities market continues to provide substantial returns due to the accommodative fiscal policy of the Fed, a projected rise in interest rates in the latter part of 2015, and the elimination of QE as of November 2014, is expected to slow gains in the equities markets while increasing the attractiveness of the bond market. The top trends in real estate for 2015, according to Emerging Trends, include the following: 1. The 18-hour city comes of age. The increase in downtown transformations combining the key ingredients of housing, retail, dining, and walk-towork offices will cause increased investment and development in the next level of cities outside of 24hour markets. These re-emerging downtowns will be “18-hour” markets and will include places like RaleighDurham, Charlotte, Denver, and perhaps in the future, Kansas City. The key to 18-hour markets is each city’s ambition to strengthen its urban centers as live/work/ play environments. 2. The changing age game. Millennials prefer renter by choice multifamily housing versus home ownership. Expect this to be at least a seven-year trend before. G L O BAL , U. S . , KANS AS CITY O V ERV IE W. The most important issue continued to be the economy and over half of the voters expect life for the next generation of Americans to be worse. There is still a majority of Americans who have an unfavorable view of both the Democratic Party and the Republican Party, and a majority of Americans believe the government is doing too many things that should be better left to businesses and individuals. In 2015, expect the Republican-controlled Congress to make major changes to The Affordable Care Act (ACA) commonly known as Obamacare. The ACA is expected to add $6.3 trillion in debt to the U.S. economy over the next 10 years and there are multiple issues in this legislation that are not only bad for the U.S. job market, but are causing an increase in the cost of insurance for most Americans. Over five million Americans had their insurance cancelled due to the ACA in 2013, but expect 60 to 80 million more Americans to lose their healthcare insurance and be forced to look at alternative forms of insurance or be forced into the federal exchange. Another alternative, paying the penalty for not getting insurance, could have a larger negative effect on younger Americans over the next few years. We can expect the Republican-controlled Congress to suggest changes to Obamacare, as well as pass other bills that would provide a more acceptable immigration policy, lower corporate income taxes for U.S. corporations, a simplified income tax code, and a host of other regulations designed to improve job growth and to speed up the economy. The question remains whether President Obama will work to compromise with the Republican-controlled Congress in 2015 and 2016. The hope is that the White House and Congress can reach equitable compromises so that the economy can move forward in a sustained and predictable manner. millennials will have to make a decision about whether to stay urban or move to the suburbs. Expect the over $1 trillion in student debt to further slow home ownership for this group. With 77 million baby boomers on the leading edge of retirement age, expect an increase in resort and retirement communities as well as more movement from home ownership to rental living. Also, anticipate medical office as a strengthening trend to serve the aging baby boomer market. Labor force growth rate continues to slow as millions of long-term unemployed are now permanently out of the labor market. Job growth will become the most important focus of our economy as it is a key factor in filling office buildings, promoting new housing, and improving sales in the retail sector. Real estate’s love/hate relationship with technology intensifies. STEM workers (Science Technology Engineering and Math) will continue to be the focus of job growth in the years ahead. Technology will change the retail sector with more online consumption, the warehousing sector with same-day fulfillment, and the office sector with the downsizing of per worker space needs. Event risk is here to stay. Political risks have intensified in 2014 and they are expected to be even a bigger factor in the years ahead. A flight to safety in global capital will continue. Sovereign wealth funds, old family money, and high net worth individuals continue to converge on the United States for investment opportunities. Real estate in all forms will appeal as a durable asset class in a risky world. Investment returns for the NCREIF and NAREIT will increase 60 to 90 basis points by 2020. A Darwinian market keeps a squeeze on companies. Specialization in all sectors will become the trend. Lowperforming investment managers will be eliminated and the larger investors will seek more control over their investments. A new 900-pound gorilla swings into view. U.S. retirement assets will hit $23 trillion in 2014 and will continue to grow in the future. A more institutionallike allocation of 5% of these assets to real estate would represent a $1.2 trillion increase in real estate investing. However, liquidity will be especially important, which may favor REITS as a vehicle over direct investments. Infrastructure: Time for the United States to get serious? The millennial generation is intolerant of congestion and delay. Real estate depends upon ease of commuting. Infrastructure improvements will be improved across the United States and access to transportation hubs, downtowns, and multiple services will continue to be the trend. 9. Housing steps off the roller coaster. Housing should anticipate moderate price increases, but should be more predictable in the future. Due to the shortfall in supply of new for sale units, expect new housing to continue at a reasonable level over the next several years. 10. Keeping an eye on the bubble – emerging concerns. Equity underwriting will be less rigorous in 2015 than in 2014. Easing of standards on the debt side will continue and mortgage spreads will tighten. Beware of boom/bust cycles and not having a deep market knowledge. Ask the question, “If the local guys won’t buy, why should you?” Active management will continue to bring success and profits to those with real estate operating and management skills. Value-add propositions will continue to be attractive to institutional and private investors. An increase in investment in secondary and tertiary markets will be seen due to attractive cap rates compared to primary markets. Real estate companies that can harness the power of social media to manage and market properties will gain an enormous advantage over those who do not. Social networking markets are also the physical markets for real estate. CEO’s who are promoting “reverse mentoring” using millennial savvy to educate top managers will be the most successful. Financing with low historical interest rates will continue to be high. Commercial mortgage-backed securities (CMBS) issuances will increase to nearly $100 billion in 2015. The yield curve will still be relatively flat, so seven to 10 year maturities should be the most desirable for commercial properties. The sense of urgency to accomplish this in 2015 will gain momentum for long-term investors. A rare confluence of positive trends favoring industrial properties and developers will align. With the reshoring of manufacturing, a renewal of home building, and the alteration of retailing business models, expect the development of industrial space to gain momentum. Existing industrial properties will be a solid buy in 2015 and looks to be the case through 2017. Mixed-use or multiple-use developments will continue to be the most desirable for large investors. Real estate that falls into the “commodity bucket” will be cheap but will continue to be less desirable as millennials require a connected community. In 2015, expect cap rates to decline slightly or to stay stable in 24-hour cities, while in secondary and tertiary cities we will see a decline in cap rates and a rise in values. Well located, highly functional, and institutional quality real estate will continue to be the most desirable investments in 2015. KANSAS CITY ECONOMY. In 2014, the Kansas City economy began to gain steam. Industry leaders included the automobile industry, IT, and. Another major story was the battle for the future development on the Kemper Arena site. American Royal advocates have made an aggressive pitch to the city to demolish Kemper Arena and rebuild it as a $60 million event center for the American Royal complex. A competing plan, promoted by Foutch Brothers, for a $22 million repurposing of Kemper as a youth and amateur sports hub was recently withdrawn after concerns about legal ramifications concerning interference with the American Royal Association’s lease of Kemper Arena. While Kansas City leaders have supported the plan to raze and replace Kemper Arena, at year-end 2014, the City Council of Kansas City, Missouri was uncertain what course of action it would take and decided it should consider including more proposals for the redevelopment of Kemper Arena. KANSAS CITY REGION. The region’s gross regional product (GRP) grew at an annual rate of approximately 2.9% compared to 1.9% in 2013. Again, the regional GRP exceeded the U.S. GDP of 2.2%. The area’s GRP is expected to decline slightly in 2015 to 2.73% which would more closely mirror the expected U.S. GDP growth. Kansas City’s recovery continues to accelerate as employment growth, particularly led by Cerner and the healthcare sector, exceeds expectations. More contributors to job growth include finance, insurance, healthcare, and service sector job growth, together with an improvement in manufacturing. Kansas City’s total employment is projected to now reach its historical average with 1.5% growth in 2015 and nearly 1.4% in 2016. The Kansas City Metropolitan economy has. The U.S. Soccer National Training Center, a $75 million-plus complex, will be built in Kansas City, Kansas. It will house a National Training and Coaching Development Center, athlete training and performance analysis facilities, youth and professional soccer fields and development programs. G L O BAL , U. S . , KANS AS CITY O V ERV IE W. the health sectors as they have in the past, but the addition of e-commerce and the intermodal have also become major influences. For the third year in a row, Cerner made the biggest headlines when they broke ground on their innovation campus on the Three Trails Crossing campus. This project, which will span 10 years and will add nearly 4.5 million square feet of office space, will now hold over 16,000 new Cerner employees, which increased by 1,000 employees over prior projections. The campus is now expected to cost $4.45 billion and has again brought to the forefront the 350-acre, $1.1 billion Oxford on the Blue research park and a 90-acre industrial park planned by NorthPoint Development. Also, Sporting Club CEO, Robb Heineman, announced in November that officials with the organization would build a 190-acre soccer village that will include a $75 million national training and coaching development center for the U.S. Soccer Federation and its national teams. The plan will also call for 16 soccer fields, eight youth fields and eight lighted professional fields, as well as a state-of-the-art indoor complex with a practice field. Other major projects announced include over 4,000 units of multifamily underway or planned in Kansas City and the $139.5 million headquarters expansion by Burns & McDonnell which will add eventually up to 2,100 new employees in 700,000 square feet. The year 2015 will also bring the start of the BluHawk 100-acre mixed-use project in Overland Park; the 90-acre mixed-use CityPlace project at College Boulevard and Highway 69 in Overland Park led by BRES; and 46 Penn Centre, a $78 million Country Club Plaza office tower proposed by BRES, which finally gained full city approvals in late November 2014. added an average of 10,100 jobs year-over-year since job growth turned positive in July 2010, but this is still 2,200 fewer jobs per year on average than during the mid 2000’s. However, we do expect this growth in jobs to escalate over the next two to three years as our economy begins to see the benefits of explosive growth in the automobile, e-commerce and healthcare industries in particular. In order for the region to truly expand job growth to a level seen by larger cities, regional leaders must continue to focus on the drivers of regional economic prosperity, which include clusters of firms that trade with the rest of the world, high-quality human capital, and increased innovation and entrepreneurship. Finally, the industrial market continues to further accelerate with over 3.2 million square feet of new Class A space under construction as compared to just over two million in 2013. Leading this surge is activity at the intermodal centers, the automobile industry and related businesses, and e-commerce. Expect Kansas City to be a highly sought-after industrial location for these three sectors over the coming years, as the intermodal alone will spur industrial development of nearly 120 million square feet over the next 20 years. The Kansas City Metropolitan area continues to look more like a primary city versus a secondary city with its acceleration in multifamily activity in the downtown core. While there has been an emphasis on the growth of residential in the downtown core for many years, with 14 projects and over 2,200 units now underway or planned, we are seeing the biggest surge in downtown housing in years. The ultimate goal of increasing to 40,000 units, or more, to. BRES’ experience now covers 212 cities in 38 states and we’re still growing. create a true 18-hour city and a vibrant community is now in sight. KANSAS CITY LOCATION. Perhaps Kansas City’s strongest attribute is its location in the middle of the country and in the central time zone, which allows it to attract a constant influx of visitors from a multitude of small communities in the surrounding seven states. Kansas City is within a four-hour drive of over 8.65 million people in Kansas, Missouri, Iowa, Illinois, Nebraska, Arkansas, and Oklahoma and is a true tourist destination for these communities. The Kansas City Metropolitan area is home to over 2.31 million people and is home to the corporate headquarters of AMC Entertainment, American Century, BATS Trading, Black & Veatch, Burns & McDonnell, Cerner Corporation, Commerce Bank, DeBruce Grain, DST Systems, Garmin International, Great Plains Energy, H&R Block, Hallmark Cards, JE Dunn Construction Company, Seaboard Corporation, Sprint/SoftBank, UMB Financial, Westar Energy, YRC Worldwide, and many others. Kansas City residents are very well educated with over 39% having a college degree and over 92% having a high school education. There are a large number of major universities located in or near Kansas City and over 15 institutions within the metro area offering graduate degrees in numerous disciplines. The University of Kansas and the University of Missouri offer professional degrees in law, medicine, dentistry and pharmacy. Kansas State University offers opportunities in bioscience and biotechnology and degrees in osteopathic medicine are offered by Kansas. University of Medicine and Biosciences. Colleges and universities in and around Kansas City include Avila University, Cleveland Chiropractic College, DeVry UniversityMissouri, Kansas City Art Institute, Kansas City University of Medicine and Biosciences, MidAmerica Nazarene University, Missouri Western State University, Ottawa University, Park University, Rockhurst University, University of Kansas, University of Missouri-Kansas City, University of Phoenix, Webster University, William Jewell College, and many more. A CULTURAL ARTS COMMUNITY. Kansas City is well known nationally and internationally for its art and culture and has a multitude of amazing venues to enjoy arts and cultural events. Some of these venues include the Nelson Atkins Museum of Art and the Bloch building, the American Royal Museum and Visitor’s Center, the Kansas City Symphony, Starlight Theater, Copaken Stage for Repertory Theatre, National World War I Museum at the Liberty Memorial, the American Jazz Museum, the Airline History Museum, Negro League Baseball Museum, the Nerman Museum of Contemporary Art, Science City, and a host of others. The world renowned Kauffman Center for the Performing Arts is ranked in the top four performance halls in the world. In fact, Kansas City ranks number one in the country based upon the number of cultural venues compared to population of our community and is ranked in the top seven in the country in terms of cultural art destinations. SPORTS AND ENTERTAINMENT. Kansas City continues to be one of the top sports and entertainment cities in the country. A number of professional. teams call Kansas City home, including: the Kansas City Chiefs; the Kansas City Royals; Sporting Kansas City; Kansas City Storm; Missouri Mavericks hockey team; the Missouri Comets; the Kansas City T-Bones; and the Kansas City Renegades indoor football club. Also, high ranking college teams from the University of Kansas, University of Missouri, and the University of Missouri-Kansas City are located within our community. And, in 2014, the Kansas City Royals nearly won its first World Series since 1985 after they took the American League pennant and lost in the seventh and final game of the World Series by a score of 3-2 to the San Francisco Giants. Kansas City continues to be one of the top sports and entertainment cities in the country. Because of Kansas City’s location in the center of the country, it is home to a wide variety of entertainment venues, including: Worlds of Fun; the Kansas City Zoo; Oceans of Fun; the Woodlands; Union Station; Community America Ballpark; Schlitterbahn Vacation Village; the Kansas Speedway; and the Independence Events Center. Legoland Discovery Center and the Sea Life Aquarium in the Crown Center District have also brought national attention to our community and been well received by Kansas City and the surrounding communities. Add to this group, Snow Creek Ski Resort, the Overland Park Arboretum and Botanical. G L O BAL , U. S . , KANS AS CITY O V ERV IE W. Due in part to venues such as the Bloch Building, Kansas City ranks number one in the country based upon the number of cultural venues per capita and is ranked in the top seven in the country in terms of cultral art destinations. Gardens, Powell Gardens, the 18th & Vine cultural district, and the Renaissance Festival, and you truly have an impressive variety of things to do in Kansas City. Kansas City is a strong education-minded city due to an excellent network of school districts, community colleges, universities, workforce development boards and organizations like the KC STEM Alliance and PREP-KC, which are committed to working together to ensure that all secondary students have the opportunity to be part of the skilled workforce for the new economy. An increasingly educated and skilled workforce continues to draw new businesses to our community that need quality workers. Recently announced is KC Rising, a new effort that will provide existing businesses the ability to greater scale, synchronize and optimize initiatives. It should help fully realize the Kansas City region’s potential through business growth and is expected to solidify a longer term and more global vision to the region’s job growth focus. UNPARALLELED TRANSPORTATION PRESENCE. The Kansas City Metropolitan area is served by nine major commercial airlines and their connection partners. These carriers offer over 260 daily departures with non-stop service to over 68 destinations. Kansas City’s new air modal center, adjacent to Kansas City International airport, is continuing to strengthen cargo shipment capabilities and distribution opportunities together with several intermodal locations located in our community. This has allowed Kansas City to be recognized as a top five city in the nation for cargo distribution. Kansas City also continues to rank as one of the strongest distribution centers in the country. It has the number one ranking by rail freight volume and the number two ranking of largest rail centers in the U.S. behind Chicago. Kansas City’s new rail intermodal hubs, one by Burlington Northern Santa Fe Railroad and one by Kansas City Southern Railway, join existing hubs run by Union Pacific and Norfolk-Southern and have further strengthened Kansas City’s reputation as a top five distribution town. Kansas City also has eight, Class one rail carriers, three regional lines, and a local switching carrier (KC Terminal) serving the area. Amtrak passenger trains also serve the city four times per day. Kansas City continues to have enviable barge traffic enjoying the Missouri River Corps of Engineers managed shipping channel running from St. Louis, Missouri to Sioux City, Iowa, with seven barge lines operating along the Kansas City strip of the Missouri River. In fact, Kansas City is considered an inland port, one of only 12 in the entire country. The metropolitan area is served by four interstates including I-70, I-35, I-29, and I-49. There are four additional interstate linkages around the metropolitan area including I-435, I-635, I-470, and I-670. Kansas City is further served by 10 federal highways, thereby providing a superior traffic system throughout the region. And, I-35, known as the. North American Free Trade Agreement (NAFTA Highway), stretching from Mexico to Canada, continues to enhance and expedite the flow of distribution not only throughout the metropolitan area but also throughout the U.S. KANSAS CITY RANKINGS. At its 2014 annual luncheon, the Kansas City Area Development Council announced it had been ranked the number one “Best In Class” regional economic development acquisition in the U.S. according to the 2014 Winning Strategies report. But that is just the start of the rankings. Kansas City was also ranked third overall on the list of America’s favorite cities by Travel & Leisure. Huffington Post ranked Kansas City the number one city to keep on your radar due to its affordability, cultural venues, and desirable lifestyle. Kansas City ranks high in a host of other categories including 17th on Travel & Leisure magazine’s America’s best cities for hipsters; ranked ninth by Entrepreneur.com as a top city for tech start-ups; eighth best place to retire; a top five city for young entrepreneurs; a top 10 ranking for America’s best downtowns; ninth ranking for travel destination; and increased its ranking to 27th in the country for young brain power. Kansas City continues to be one of 15 global cities to watch including Barcelona, Seattle, Beijing, and Abu Dhabi. Kansas City continues to rank number one in the country for barbeque and has the ninth strongest metropolitan economy in the country. Kansas City also ranked number one in affordability by Travel & Leisure. Additional rankings for Kansas City include 11th for best parks systems in the nation; 14th for best city in America; 11th for female entrepreneurs; and ranked as a top 10 coolest city in the Midwest. Kansas City also has high rankings in other categories including a top three ranking for the nation’s philanthropic communities, in the top seven for America’s smartest cities by USA Today, a top 10 romantic city by liveability.com, and the ninth best city in America to raise a family by Parenting Magazine. Our Sprint Center, in downtown Kansas City, ranks as the second busiest venue in the United States and the seventh busiest in the world. Kansas City also ranked number one in affordability by Travel & Leisure. This year, the University Of Kansas Hospital made the ranks of the top 50 grossing non-profit hospitals and was ranked as the best hospital in Kansas and nationally ranked in all 12 medical and surgical specialties. This ranking was by US News and World Report, which evaluated nearly 5,000 hospitals in the 2014-2015 Best Hospital list. Additionally, other area hospital systems such as St. Luke’s Hospital, which ranks second in Missouri and second. in the Kansas City Metro area, together with several other healthcare systems are spending hundreds of millions of dollars to improve their area hospital and care centers. These high ranking hospital systems make Kansas City a destination of choice for high-quality medical and cancer care. Kansas City was the first location in America to get Google Fiber, which offers symmetric gigabit internet access. Google recently announced it will roll out its new service, Google Fiber, for small business, and has already begun hooking up small businesses in the community. Expect this expansion by Google Fiber to increase the value of those buildings that provide this service to their tenants, as well as make Kansas City more attractive to the multitude of high level tech talent looking for new headquarter locations. The Kansas City animal health corridor, which stretches from Manhattan, Kansas to Columbia, Missouri, continues to see more growth while representing nearly 34% of the sales in the global animal health market, now totaling in excess of $22 billion. There are more than 300 animal health-related companies operating in the region, including three new companies CK9, TVAX animal health, and FitBark, which join some of the most influential health companies in the world such as Bayer Animal Health, Boehringer Ingelheim Vet Medica, Nestle Purina PetCare, Zoetis, Hills Pet Nutrition, Ceva, MRI Global, Agri Laboratories, Cereal Food Processors, Pfizer Animal Health, Zupreem, MWI Veterinary Supply, Argenta, Magna Starter Biotech, Pet Screen, and the United States Animal Health Association. Over the last 10 years, the animal health corridor has created nearly 1,800 jobs with over $1.55 billion of capital investment. In addition, the Kansas City Area Life Sciences Institute (KCALSI) together with major life science partners, such as the Kansas Bioscience Authority, Kansas City Animal Health Corridor, Midwest Research Institute, national bio- and agridefense, and the Stowers Institute for Medical Research, continue to push Kansas City forward as one of the leading national life sciences cities. The life sciences industry has now made over $1.4 billion in research expenditures over the last 11 years and ranks as one of the top three areas in the country for life sciences research academia. KANSAS CITY METRO RECAP. In 2014, Kansas City saw an increase in major real estate project announcements. With the now under-construction, 16,000-employee Cerner headquarters at their Three Trails Crossing campus, the new U.S. soccer national training facility at The Village West Complex, speculative office projects like one on Tomahawk Creek Parkway in Leawood, Kansas, major multifamily projects underway throughout the community, two new intermodal centers, a multitude of e-commerce facilities, and automobile-related business expansions, 2015 should be another exciting year for real estate in Kansas City. Over the last 10 years, the animal health corridor has created nearly 1,800 jobs with over $1.55 billion of capital investment. Communitywide, including development activity in all property sectors, the commercial and industrial construction planned or underway in late 2014 and into 2015 far surpasses previous years. As long as interest rates remain stable with only gradual increases, we expect this activity to increase further in 2015 as the Kansas City Metropolitan area sees a variety of improvements through all real estate sectors. Many new companies are now considering relocating to the metropolitan area from outside our community. They will look for better quality, newer facilities with the most up-todate technological features. The Kansas Area Development Council (KCADC), as well as local economic development groups, have seen more activity in 2014 than in years past thanks to a robust and skilled workforce, economic incentives, and an eager development community. As always, economic incentive packages continue to be integral to attracting new investment by those businesses looking at our community and comparing it to other communities throughout the country. It should be the goal of our business and government leaders to work together and consistently promote the Kansas City Metropolitan area as a united community that desires new business from both inside and outside our community. While our metropolitan area crosses state lines and includes over 50 separate communities, all of our government leaders need to work together to encourage increased investment and development activity to more readily attract new business and new investment in Kansas City. Kansas City continues to be “a great place to live, work and play” and with the expansion of Google Fiber in our town, a great place to be connected! G L O BAL , U. S . , KANS AS CITY O V ERV IE W. ANIMAL HEALTH CORRIDOR. The multifamily sector in 2014 added 2,670 multifamily units and over 4,000 more units are under construction or planned for 2015. On the industrial side, speculative development is in full swing and by year-end 2014 over five million square feet of speculative mid-bulk or bulk industrial projects were either under construction or ready to commence. In 2015, expect over four million square feet of development in the industrial sector representing an investment of over $450 million of new activity and making Kansas City one of the top industrial centers posed by site consultants. Contributor: Kenneth G. Block, SIOR, CCIM, Managing Principal. The downtown core continues to be a center of activity for the Kansas City Metropolitan area in 2014 with more to come in 2015. Downtown Kansas City includes the Central Business District (CBD) and neighboring submarkets as far south as Crown Center. The area is defined geographically from the Missouri River to 31st Street and from the Kansas/Missouri state line to Troost Avenue. Within the downtown submarket are the CBD, River Market, Crown Center, Freight House/Crossroads and. West Bottoms, and portions of midtown. Data for each of these divisions for office space are more specifically detailed within the Kansas City office market section of this report. The overall downtown submarket includes data for office, industrial, retail, residential and specialty real estate. Occupancy for all real estate categories has improved steadily since 2010. Current downtown vacancy has dropped to 7.6%, continuing a trend of stability and market health. Asking rents have increased by approximately 5% over last year following steady incremental increases since 2012. Construction has doubled over the last 12 months, and absorption is positive by approximately 125,000 square feet. The saying, “you have to mess up to cleanup” is definitely applicable as construction for the new streetcar line gets under way. The $100 million, two-mile starter line will run from the City Market to Union Station along Main Street. Kansas City is one of 15 major metropolitan cities to tackle light rail including Phoenix, Minneapolis, St. Paul, Los Angeles, St. Louis, and Salt Lake City. These communities are known to be just as infatuated with their automobiles as Kansas City. The concept is less about transportation and more about building a strong residential population base, bringing street-level business back to downtown and attracting the convention traffic necessary to support the investment in the Kansas City Convention Center. Occupancy for all real estate categories has improved steadily since 2010. Northpoint Development Company recently started the $63 million, 258-unit luxury apartment renovation project in the historic Kansas City Power & Light Building in downtown Kansas City. Kansas City lost the 2016 Republican National Convention bid to Cleveland, Ohio based upon a number of factors. Improved transportation is perhaps a step in the right direction for future conventions of this size. Our lack of hotel space has always been considered as a real detriment to the downtown core. Unfortunately, a large downtown hotel development is yet to materialize, due to lack of funding options. But other hotel options continue forward. The Interstate Building, located at 417 E. 13th and the Gumbel Building at 801 Walnut were purchased by a developer with the intent to convert both historic former office buildings into a 76-room Holiday Inn Express and a 70-room Hampton Inn. The developer recognized that Kansas City has strong demand for hospitality in the downtown submarket. Perhaps the demand can be met through facilities of a smaller scale like these versus a single, large venue. Residential interest remains strong in the downtown submarket with over 2,200 units planned or under construction at year end 2014. CLASS A AND B OFFICE USE. Although the downtown submarket is quite strong, the weakest element in real estate is in Class A and B office use. Vacancy, specific to office space within the downtown loop, is over 27%. The conversion of Commerce Tower and the. Kansas City Power & Light Building from office space to residential use, though, has statistically improved downtown office vacancy. These exceptional buildings have become obsolete for their intended use. Adaptively repurposing them to housing is an appropriate and responsible use of the public/private partnerships formed during the entitlement process. Entitlements were also granted for the 80,000 sq. foot Boss Building and the 138,000 sq. foot Swofford Building. Together they are converting to 151 units known as The Roasters Block located at 70410 Broadway and 330 W. 8th in the Garment District. While the announcement came in 2013, the General Services Administration (GSA) relocation of 900 employees from the Bannister Federal Complex to the Two Pershing Square office building at 2300 Main Street only began in December of 2014. Both that 140,000 sq. foot transaction and the 82,000 sq. foot lease to Sungevity, Inc. within City Center Square are getting 2015 off to a strong start. Kansas City’s tallest office building, One Kansas City Place, located at 1200 Main Street, has new primary owners in the American subsidiary of GAW Capital Partners out of Hong Kong. The new ownership plans improvements to the 822,000 sq. foot building that will bring it up from 40% vacancy. WEST BOTTOMS CHALLENGES. Many agree the West Bottoms area is long overdue for more sophisticated development. Haunted houses, open only in the month of October, and antique stores open only one weekend a month, are current draws to the area. Kemper Arena will surely factor into the equation. Yet to be resolved is just how? As a destination for families seeking a recreational athletic venue? Or will it be razed, and become the site of a smaller events center for the American Royal? Or will the City Council’s request for development proposals bring even more ideas and uses for the city-owned venue? The West Bottoms has some of Kansas City’s oldest warehouse properties. Conversion to residential use would bring strong community and economic viability to the area. However, the high expense associated with compliance with modern life safety standards, coupled with environmental issues created by former use, have kept developers from attempting residential conversions. Additional issues over the downtown core include an aged and crumbling infrastructure; we have a populous with a long memory of floods past; and the area has unusual access over steep bluffs. Still, the scale and intrinsic architectural quality of the buildings, the rapidly reducing number of conversion possibilities in other parts of downtown, and a strong trend supporting urban community living make the West Bottoms another area in the downtown submarket ripe for development. D O WNTO W N D EV EL O P MENT. Residential interest remains strong in the downtown submarket. Three major residential projects are currently underway. One Light and the residential conversions of Commerce Tower and the Kansas City Power & Light Building are all under construction and receiving positive interest. One Light, located at 13th and Walnut, is nearly $80 million and 25 stories. The project will hold 315 units and boasts a waiting list of 1,000. The project is 343,000 square feet with an anticipated completion date of 2015 and discussions of another tower are already circulating. Plans for Commerce Tower are to reduce the 439,000 sq. foot office property to 82,000 square feet of office and converting the balance to residential units. The Kansas City Power & Light Building at 106 W. 14th Street has been an iconoclastic element in the Kansas City skyline since 1931. At 36 stories and 231,000 square feet, the $63 million dollar project will bring 218 luxury apartments and a new parking structure to downtown. Renovations for both the KCPL Building and Commerce Tower are assisted by entitlements that include Historic Preservation Tax Credits. Developers for both projects insist the financial feasibility would not exist without the tax credits. While the KCPL Building is an obvious candidate for preservation tax credits, the Commerce Tower does not officially meet the 50-year age requirement. Because it is one of Kansas City’s few examples of International Style architecture makes it an excellent choice for acceptance by the National Register of Historic Places. In addition to conversion projects, there are several notable new residential developments under construction. In September, construction began on 56 high-end units called Centropolis on Grand at 5th Street and Grand Boulevard in the River Market. The five-story, 82,000 sq. foot project is expected to be completed in 2015. Also, in the River Market area are another 137 units on the 300 block of Wyandotte. This five-story complex of units, called RMWest Apartments, is expected to open in the first quarter of 2015 at a construction cost of $16 million. A second phase adding 148 more units is already planned for spring. Both projects received tax assistance through the city of Kansas City. Contributor: Matthew L. Levi, CCIM, Vice President. Perceptive Software moved into their new 237,900 sq. foot two-building corporate headquarters at 8900 Renner Road in the Lenexa City Center project in September, 2014. The site allows for the future development of two additional buildings totaling 380,000 square feet as the company continues to expand. As office markets saw positive strides in 2014, the Kansas City Metropolitan area real estate border war continued to impact many of the cities’ key submarkets. Following the national trend of an overall lower unemployment rate, the United States office market vacancy rate closed at 11.2%, down from 12.1% at the close of 2013. The decline in vacancy was helped by the overall positive absorption over the past year of 92 million square feet of space. This positive impact was helped by the United States adding more than two million jobs since the beginning of the year, which our country has not seen since 1999. On a national basis, the office market landscape has seen an increase to more open, creative workspace options. This has been driven by technology, as well as the increase in millennials entering the workforce. The millennial footprint will continue to rise, and is expected to be 50% of the workforce by 2020. Locally, we are seeing this equate to more residential/multi-family development in our inner core, Central Business District (CBD), by converting prior office space into creative residential space. Nationally, the office market saw the average rental rate elevate, closely corresponding with improved absorption. rates. National rates increased from $21.75 per square foot just a year ago to $22.38 per square foot to end 2014. Naturally, the Kansas City office market lagged behind the national rate in price, but jointly followed the same trend. Continued office building construction lends positive perspective of an improved market. The United States office market delivered 55 million square feet of new space, much of which is preleased, showing the demand for new Class A office space. Overall, the Kansas City market saw positives both in rental rate increases as well as year-to-date (YTD) absorption. Many landlords were able to take a deep breath as leasing activity was on the rise, and in return rental rates increased from $16.39 to $17.03 per square foot. Additionally, the market saw a positive absorption of nearly 2.3 million square feet across all classes. Class A just outpaced Class B year-to-date absorption. Although down from 2013, Class A properties still saw a net absorption of 969,010 square feet. This positive absorption was lead by the delivery of phase II of Cerner’s Kansas City, Kansas campus of 330,000, Perceptive Software’s new headquarters of 240,000 square feet, and 102,304 square feet of the 111,200 square foot 39 Rainbow Development, adjacent to The University of Kansas Hospital. Although the. positive absorption is a sign of progress, the better sign is the average rental rate increase to $21.40 per square foot, up from the 2013 average rental rate of $20.06 per square foot. The CBD and South Johnson County led Class B in 2014 net absorption, with 286,068 square feet, and 233,047 square feet respectively. The total of 943,145 year-to-date net absorption is a positive swing of 33.2% over 2013 net absorption of 630,000 square feet. Following in the footsteps of Class A properties climbing average rental rate, Class B saw a slight increase from $16.41 per square foot in 2013, to $16.66 in 2014. Overall, the Kansas City market saw positives both in rental rate increases as well as year-to-date (YTD) absorption. SOUTH JOHNSON COUNTY. At the close of 2014, the South Johnson County submarket consisted of: • Approximately 28.512 million square feet of all building classes • 2.38 million square feet available, including sublease space, equates to an overall vacancy of 8.3%, a level slightly down from 9.6% for the same period in 2013 Significant office leases completed in 2014 included: • AxelaCare Health Solutions, LLC 45,000 square feet • Multi Service Corporation 38,000 square feet • Intouch Solutions 30,000 square feet • Quality Technology Services 27,000 square feet • Cargill 25,000 square feet • Arrowhead Insurance 24,000 square feet • Merrill Lynch 23,000 square feet • BHC Rhodes 20,500 square feet • Building Classes A, B, and C reported a total of. 2014 Vacancy By Class 12.8% Class C office space may be the smallest footprint in the Kansas City Metropolitan office market, but it closed 2014 with an enormous positive year-to-date absorption of 59% to 362,389 square feet, up from 148,400 square feet in 2013. Following the trend of both Class A and Class B properties, Class C saw an increase in average rental rate, rising from $12.70 per square foot, to $13.52 per square foot. Due to a combination of large scale deliveries and companies taking advantage of jumping the state line for state tax incentives, the Kansas City office market only saw. a 0.7% decrease in its vacancy rate compared to 2013. In our 2013 report, we posed the question, “Will the office market continue on a path of recovery and when and to what end will these realized positive fundamentals influence an increase in local rental rates?” Looking at the overall above statistics, our path of recovery is still in progress, but moving in a positive direction. As for the rental rates, the market was able to see steady growth across the board, showing the ability for area landlords to garner a higher rate, and the market has seen rock bottom, and moving back up.