Carolyn Bagnall is director of research services for Colliers Turley Martin Tucker’s Kansas City office. She spoke to the Kansas City Business Journal recently about the commercial real estate market.
How has your job changed during the recession?
There are things that you are always aware of but don’t necessarily focus on. An example of that would be sublease space, particularly in the office market, that has increased significantly over the last year. There is always some sublease space on the market, but it’s the kind of thing you keep an eye on as the market starts to suffer some pain because you can anticipate that it will increase then.
Are real estate brokers and businesses using market research differently?
I don’t know that they’re using it differently. They’re looking at it as another signpost about what direction things are going. Commercial real estate is a trailing indicator. ... So you can’t look at commercial real estate and say what is going to happen. But you can, for example, look at it and make some sort of judgment about, once we really get into a recovery, whether the recovery is strengthening. If you see an increase in activity in commercial real estate, then you can pretty well judge that the recovery is for real.
What statistics are watched most closely?
The standard things are vacancy, absorption (the difference in move-ins and move-outs), construction, trends in lease rates. Construction is an area where Kansas City has been fortunate, certainly this time around in the recession, because a lot of the focus of construction has been with a user in hand, a tenant or an owner. But the construction didn’t commence until a significant part of property was leased. That’s not universal, but in a lot of cases, that has happened. One of the things that meant was that our vacancy hasn’t climbed as fast as it has in some places because there was not a lot of construction coming online at the same time.
Have there been any recent changes in the kinds of statistics that people are looking at?
They may want to focus a little bit more, narrow down the statistics. ... When things are going well, a company can look at a half-dozen buildings most comparable to either what they’re looking for or what they’re going to put on the market and have a pretty good idea of what direction things are going. But as the recession hits, there’s a lot more property on the market, a lot more choices for the few people who are looking for space. So they may want to take more time and look at more detail.
What’s been the most revealing research you’ve encountered during the past year?
When the fourth quarter comes around, the Coleman building is going to be completed. It’s 1.1 million square feet. It will be positive net absorption because it’s new to the market and fully occupied at completion. So, right there, you’ve got 1.1 million square feet of positive net absorption. What’s the fourth quarter going to be like? Well, when you’re describing it, you have to look at it not only with that transaction but also without it.
What are some other market drivers you’re watching for?
Well, on the office side, I’m just kind of keeping an eye on the Sprint campus since they have started offering space there to see if they continue to offer additional space over time. Since it’s being converted from owned space to leased space, practically speaking, it’s the same thing numerically as new construction.
What’s your outlook for the year ahead?
As a general thing, I expect the negative news to slow down. ... In the third and fourth quarter, I’m not expecting great things, but I think maybe the negative net absorption is going to be a bit softer. Maybe that’s just optimism. It seems as though there’s a little bit more going on than there was earlier in the year. It takes quite a while for activity to actually resolve itself into deals.
What other things affect your job and what you do?
You always are trying to look at the information differently. You don’t always find something new or different or interesting, but you try to ask a different question. An example would be, not too long ago, I saw some information about the volume of trade through the seaports. There has been quite a bit of discussion about Kansas City taking up some of the overflow. For example, the Chicago rail traffic had become so congested that, that was one of the points mentioned when (BNSF Railway) was planning the Gardner intermodal facility. What I did was I looked at the volume of traffic in the (Los Angeles) and Long Beach ports — because that’s where the Burlington Northern shipping comes from en route to Chicago — and got the data in terms of the drop-off in volume there. Looking at that, it’s clear why some of the activity in the bulk distribution space has slowed in Kansas City. It hasn’t become negative, but there hasn’t been as much activity. That’s not the product of any single factor. But in our second-quarter report, I had a little section where I charted the drop-off in volume at the L.A. and Long Beach ports, and there you can see one reason why activity has slowed in the Kansas City market.