Apartment boom in KC metro area is unlikely to slow anytime soon | The Kansas City Star

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APRIL 1, 2016 11:00 AM

Apartment boom in KC metro area is

unlikely to slow anytime soon
HIGHLIGHTS

Several large complexes opened in suburbs and downtown last year

Occupancy rates exceed 95 percent, so demand is there
But rental rates have been rising faster than wages

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BY DIANE STAFFORD

stafford@kcstar.com

Trendy new apartment towers and historic building conversions in downtown

Kansas City are in the limelight, but the metro area has experienced a quieter
and no less significant boom in apartment complex construction throughout the
city and suburbs.
About 3,000 new residential units are in the works for the citys core. At least that
many units opened last year alone in just the largest new metrowide apartment
developments.
And theyre filling as fast as theyre opening. Overall occupancy rates in the area
are 95 percent or higher, even as rental rates have risen.
This surge, particularly in upscale and lifestyle complexes, mirrors a national
trend toward amenity-rich apartments that include pools, gyms, media rooms,
social centers, landscaping, high-end appliances, granite countertops and upscale
flooring. Renters might even get on-site dry cleaning pickups or developmentsponsored poolside parties.
The boom is fueled by big sectors of the
CONTRACT IS APPROVED FOR
CONVERTING NORMAN
SCHOOL BUILDING INTO
APARTMENTS

population who cant qualify for a mortgage or

simply dont want to own a house.
The demand is market-driven, said Ken
Jaggers with Integra Realty Resources in

Mission. Its driven by millennials, by empty nesters and by divorce, groups that
are especially prone to rent instead of buy.
For Isabelle Shaw, a sparkling new unit in The Landing at Briarcliff, just five
minutes north of downtown, is a no-brainer, with the complexs gym, swimming
pool and covered parking.
Then theres a bonus she didnt expect a social network built among tenants who
meet in the public spaces rather than closing their apartment doors.
Its the live, eat, play thing, said the 25-year-old woman. Whether youre
downtown or in the suburbs, youre finding things like garden areas where tenants
can enjoy the same amenities theyd have with a house and a yard. And you dont
have to buy a gym membership somewhere else.

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At any one time, about 35 percent of the metro area population rents instead of
buys housing. Thats in line with national metro-area averages and shows no sign of
changing.

Options expand
Apartment developers such as Dana Gibson, with Mallin/Gibson KCLoft in the
River Market area, said apartment vacancies just enough to handle normal
turnover are scarce enough these days that some would-be renters are
complaining about lack of choice.
Especially people who move from the coasts are asking, Is this all thats
available? Gibson said.
But Gibson raises an important point about the development surge: We do need to
diversify our product. We cant price ourselves above the budgets of the restaurant
and back-office workers who are priced out of the market if average rents get too
high.
In fact, low-end rental rates also have surged in the last couple of years, and a
recent national study showed that affordability is a big stumbling block. Low-end
rates of $350 a month a few years ago are at least doubled now, and even that isnt
enough to entice developers to build affordable multifamily housing. Sufficient
returns on investment come from higher-end properties.
Time will tell if current rental preferences play out over the long term, said
Daniel Kann with Valbridge Property Advisors in Overland Park. At the current
state, all markets in the Kansas City area are not overbuilt.
Kann said the metro area had several years post-2008 when very few new
multifamily complexes were built. A turnaround began in 2012, but the real
construction surge came in 2014-2015. And, he said, permits filed for new units
show no indication of a 2016 slowdown.
An analysis by Yardi Matrix and its partner company RentCafe said the biggest
higher-end rental complex completed last year in the Kansas City area was The
Landing at Briarcliff, which added 350 units just across the Missouri River north of
downtown.

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One Light, the high-visibility new 24-story tower in the heart of downtown Kansas
City, added the second-largest number of apartments last year, 307, barely edging
out WaterCrest at City Center in Lenexa, with 306 rental units in a suburban
layout.
The rest of Yardi Matrixs 2015 top 10, arrayed throughout the metro area: 290
units at Villa Milano in Leawood; 280 at The Ranch at Prairie Trace in Overland
Park; 259 at Kelly Reserve in Overland Park; 223 at The Heights at Linden Square
in Gladstone; 177 at The Residences at Park Place in Leawood; 176 at 51 Main
near the Country Club Plaza; and 169 at 46 Penn, also near the Plaza.
The 10 largest complexes plus others of at least 50 units that opened last year
added 3,047 rental units, according to the Yardi Matrix tally. Traditionally, thats
about the minimum new count needed simply to keep up with metro population
growth. Of course, there were hundreds more units added last year in smaller and
less pricey developments around town.
Some apartment developers and managers say a slowdown could occur. Older
millennials, as they marry and have children, are inching into homeownership,
leaving apartment living behind. And even as the boomer bulge wants to jettison
lawn mowing and house maintenance in favor of market-rate apartments, the
oldest segment of the population is gravitating toward senior living communities,
assisted living and big continuum of care developments.
For now, though, the appeal of lock and leave living persists, said landlord
Gibson.
Ive been in this business for 30 years, Gibson said. People have always left to
buy houses and make babies. But we have school buses running in the River Market
now. Apartment living isnt the issue. People are taking more of a houseboat
approach to their spaces. Its a social change taking place, a downsizing of things.

Rental rates climb

The surge in apartment living is occurring despite the fact that rental rates have
been rising at more than double the pace of wages, according to Zillow, a real
estate data firm.

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In February, Zillow found a national slowdown in the rise of rental rates, measured
at a seasonally adjusted 2.6 percent higher than a year ago bringing rent
increases more in line with the 2.2 percent increase in average hourly earnings
tracked by the U.S. Department of Labor.
The preponderance of high-end apartment developments, like the areas 10 biggest
developments completed last year, could make for luxury-level vacancies if rent
increases continue to outpace wage growth.
The imbalance of households who can afford a luxury rental in comparison to the
number of luxury projects currently under construction or planned could be a
concern, Kann said. The affordable renter segment is much larger in terms of
population and is being overlooked in terms of new construction.
The median apartment rental rate nationally was about $1,380 a month, according
to Zillow. It was about $1,200 a month in the Kansas City area, largely because of
significantly heftier rates in the Johnson County suburbs. In Overland Park, for
example, half of the rentals were higher than that citys $1,778-a-month median
rate.
The Yardi Matrix data said rental rates in the winter of 2016, for one-bedroom
apartments in the entire Kansas City area, ranged from $330 a month to $1,679,
and the two-bedroom range was $549 to $2,564.
Appraisers note that developers ability to push rates higher is constrained by the
generous supply of product.
Also, the for-sale market is still constrained by the lack of millennials who can
qualify for home loans because theyre burdened by student debt, or have no
savings, or are working in lower-wage jobs, noted Kann, the apartment appraiser.
Downtown apartment developers agree theres a stronger market for one-bedroom
units renting for less than $1,000 a month than for any other configuration.
No one predicts an imminent attempt to turn rental units into condominiums. The
last condo surge, in the early 2000s, wasnt a long-term success. Many intended
condo units never sold and are now on the rental market.
Diane Stafford: 816-234-4359, @kcstarstafford

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NEW UNITS BUILT OR ANNOUNCED IN THE KC METRO AREA

Chart covers market-rate rental complexes of at least 70 multifamily apartment units
Geographic area

2012

2013

2014

2015

2016

2017 *

Downtown/east Kansas City

70

130

861

920

140

Gladstone/Liberty

511

811

196

Jackson County

309

335

Merriam/Mission/Prairie Village

91

North Kansas City

263

340

332

Olathe

228

Overland Park, north

230

316

230

Overland Park, south

212

508

675

272

344

Platte County

298

350

Shawnee/Lenexa

220

808

306

565

380

Grandview/far south

300

Plaza/university area

421

140

Wyandotte County

228

311

TOTALS

475

518

2,274

3,741

3,776

1,867

* proposed
Source: CBRE Kansas City

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