The global guru of commercial real estate, Spencer Levy, lived up to his reputation when he addressed the record audience at the Downtown KC Office Summit. on Sept. 25 at The Gallery event space in the Power & Light District.
And, he has the experience and travel portfolio to support his guru cred. Levy is the Chairman, America’s Research and Senior Economic Advisor for CBRE, the largest commercial real estate services company on the planet.
“I never considered Kansas City to be anywhere close to an institutional-grade investment until I visited it late last year,” Levy told The Baltimore Sun in June.
“I was so surprised with its new light-rail system, the billions of dollars it is putting into its airport, and the growth of the Power & Light District (developed by Baltimore-based The Cordish Companies) that I recommended it (KC) to a Canadian pension fund investment adviser. To my surprise, Kansas City was already on their radar screen, as part of an ‘emerging market’ strategy in the United States.”
As the keynote speaker for the third annual Downtown KC Office Summit, Levy painted a statistical picture of the U.S. economy, the investment world and the essential tools that every city needs in order to grow and prosper for the foreseeable future.
“When I take a look around the country and I see the best markets in America … I see 15 or 16 markets, like L.A. New York, San Francisco,” Levy said. “But… hasn’t that always been the case? The reality is that it hasn’t always been the case.
“Great cities in America weren’t always great. They did something to help them turn the corner.”
The balance of Levy’s talk focused on the “somethings” that KC leaders and investors can consider for Kansas City to elevate its game in the near- and long-term future.
The Downtown Council identified seven essential takeaways from his Levy’s hour-long presentation:
There are two scarce commodities in the investing world: (1) Large, high-yield investments, i.e., stocks, bonds and commercial real estate; and (2) Talent.
- Kansas City is one of the highest yielding markets in the U.S. at 7.5% for a 10-year annual income return for all property types.
- KC had the 6th highest growth percentage for tech talent labor over the last five years among the largest tech markets in the U.S., according to CBRE, July 2019
Three things matter most in every market on the planet: For small markets, like Kansas City, these three elements will allow you to thrive in a slowing growth world.
- Foreign investment
Levy’s advice: Increase foreign money in Kansas City
- Get out and brand Kansas City; get on a plane and go where the money is
- Foreign money will come to markets like KC because of higher yields
- This number has to go up for KC to get to the next level.
- Enormously important
- Cities that are getting foreign money are going to do well
- Foreign money brings everything you want in your market
- It will drive Kansas City… or any other market forward
Cities that are attracting foreign money today
- Major markets, i.e., Chicago ($9.B), New York ($34B), Dallas ($8B), Seattle ($6B), Los Angeles ($14B)
- Secondary markets (KC’s peers) like Honolulu ($3B), Cincinnati ($2B), Austin ($3B), San Antonio ($1B) – “…drawing foreign money like crazy”
- Kansas City – currently ($120M)
Peer Cities – Statistical exercise – Kansas City vs. 8 peer cities
- Population – KC + 4 peers of the same size
- 2.2M – in KC, Cincinnati, Columbus, Indianapolis and Cleveland
- Aspirations – greater momentum in 4 other, slightly larger peer cities
- Charlotte, San Antonio, Portland, Austin
- Annual Job Growth – Next 5 years
- KC projection, 0.5% … lowest among the 9 peer cities
- Education – % with 4-year degree
- KC projection, 34% – ranks 6th among peers
- Tech talent rank – Nationally, San Francisco is #1; Austin #6
- KC rank – #32 among all cities; 5th among the 9 peers
- Office market size
- KC ranks 2nd among peers at 40M square feet
- Office development (% of existing inventory)
- Austin leads peer cities with 8.3%
- KC ranks 6th at 1.4%
- International investment – percent of total, 2015-2019
- Cincinnati #1 at 21.7%; Austin #2 at 15.6%
- KC ranks 9th of 9 peers with 4.7%
“New is the new new.”
- Average office rent in KC and most peer cities: $21/ft
- Consider, San Antonio – getting $21 for old space; $60/ft for new space
- KC needs to continue to build even if today’s rental rate is soft overall
- ‘We are facing a future with no inflation. That changes the way you look at commercial real estate.’
- Local is the new global. Be maximum Kansas City.
- Retail is not dead, it can work here.
- Find your strongest educational centers and build around them.
The Downtown Council presents the summit each year to draw a bead on the hottest commodity in Downtown’s escalating revitalization – the commercial office market. The Office Summit was considered a sell-out in each of its first three voyages.
Downtown Office Summit Sponsors
Presenting – Downtown Council of Kansas City, Missouri
Platinum – AREA Real Estate Advisors, Bank of America, Economic Development Corporation of Kansas City Missouri, JE Dunn Construction, Lathrop Gage, McCownGordon Construction and the Kansas City Power & Light District.
Gold – Academy Bank, Burns & McDonnell, City of Kansas City Missouri, Generator Studio, Grand Place (3D Development), Henderson Engineers, LewisRice and STRATA (Copaken Brooks and Jury & Associates).
Silver – BNIM, CBRE, Centric, Cushman & Wakefield, the Kansas City Streetcar Authority and Thomas McGee Group.