The 2017 Wichita office market has continued to show steady growth. Transaction volume surged in the fourth quarter of 2016 and the first quarter of 2017, and activity has remained steady going into the summer months. We anticipate ending the year similar to 2016 or better.
Momentum in the Central Business District (CBD) continues to build as new projects are announced and others are being completed. The office market activity is increasing as small companies, originally located in co-working spaces, are now beginning to lease larger, more traditional office space. Cargill’s announcement to build a new ground up office on Douglas was a game-changer for the CBD, and many traditional businesses began to take notice. We are now seeing law firms and accounting offices slowly return to the downtown area, attracted to the affordable lease rates, downtown amenities and the ability to attract young professionals.
Meritrust Credit Union recently purchased Cargill’s building at 151 N. Main St. to consolidate their main headquarters, adding to the strength of the CBD office market. All of this activity will continue to boost retail and restaurants, increasing the walkability, energy and vitality of downtown. We continue to see conversions of outdated office buildings into apartments, hotels and mixed uses, lowering the office vacancy rates. However, there is minimal rent growth thus far, making CBD office lease rates among the most affordable in the Wichita market. Obsolete office buildings will continue to struggle as rates stay low and the cost to update office space to today’s standards remains high.
The Delano District is another area to watch, as it has become a trendy submarket for the CBD, with occupancy rates above 90%. Most of Delano is a retail market, however, there is a high demand for office space in this area with little supply available. Several new projects have been announced for apartments and mixed-use properties on the river. The new public library is nearing completion, and the city recently approved a Star Bond and TIF district to fund a new baseball stadium. Delano will be a market to watch as the CBD momentum shifts west across the river.
The northeast Wichita office market remains strong, with occupancy rates over 90%. New construction continues at The Waterfront and Cranbrook, as smaller office properties remain 100% occupied. The Northrock office park will be reverting back to a movie theatre, further compressing the supply in the area. We have witnessed high absorption in properties with small office footprints while other larger sized offices have struggled to lease.
The northwest market sector has seen higher vacancy rates recently with little activity or growth in the office properties. Many of these spaces are mixed-use office and retail.
Other exciting trends in Wichita are the growth of the tech industry. Small start-ups are now expanding into larger footprints and hiring more employees. The community’s effort to promote entrepreneurship and small businesses has paid off. The exposure and resources these firms receive at events such as One Million Cups, Start-Up Wichita and the E2E Accelerator have diversified the landscape of traditional small businesses in Wichita.
With the rapid expansion in small businesses and the momentum we are witnessing in the Central Business District, we believe Wichita is poised for strong growth in the office sector through 2017 and beyond.