Jan. 1, 2020
Pursuant to K.S.A. §79-1460a
A study of the residential real estate indicators reflects the market has continued to grow with nearly 90% of the residential properties increasing in value for 2020. In our annual valuation process, we reviewed over twenty thousand residential sales and used this data in a sales comparison analysis within ORION to develop Market values. In addition, the ORION Mass Appraisal system utilizes a national cost service, Marshall & Swift (CoreLogic), which provides the Appraiser’s office with annual updates each July. No changes were implemented from the annual depreciation study performed for residential property. Land analysis indicates the supply is generally in balance with minor adjustments made to land values. Land values in the Northeast area of the County have seen continued upward pressure due to improved residential properties being purchased and subsequently torn down to facilitate construction of totally new residential dwellings.
Commercial real estate uses the Income, Cost, or Market approach to estimate value. Conditions for most of the commercial real market remains fairly stable. The number of permits for new construction still points to an expanding market trend for most property types. The capitalization rate for large industrial buildings has contracted by 25 basis points and conversely for a second year in a row, capitalization rates for good quality shopping centers has increased by 25 basis points. The biennial Hotel Capitalization Rate Study indicates that hotel capitalization rates are unchanged from previous years.
Multifamily new construction remains strong with 1,799 recently completed units and 4,068 units under construction. Proposed projects add up to approximately 9,623 units. The proposed projects seek approval for initial plans, zoning changes, Tax Increment Financing and other dynamics. Many older properties are choosing to renovate to attract tenants who cannot afford rents like those at new luxury properties but wanting similar amenities. Multifamily rents, occupancy, and capitalization rates remain stable.
Industrial Properties continue to be at the top of the expansion cycle as there has been 2.5 million square feet of warehouse space permits issued during 2019, including four permits for greater than 250,000 square feet each. One warehouse building is larger than 950,000 square feet while another is greater than 760,000 square feet, both being in or near the BNSF Intermodal. Though the southwest part of the county is seeing this large warehouse construction activity, Olathe and Lenexa are also experiencing significant industrial building construction.
Office Properties have more than 950,000 square feet currently under construction and most is in the cities of Olathe, Overland Park, and Leawood. More specifically, the new Johnson County Courthouse contains approximately 390,000 square feet, the Shamrock East building at 95th and Metcalf in Overland Park will contain 230,000 square feet and the balance is in various smaller office structures. Office capitalization rates continue to remain stable and speculative construction has increased only moderately. There was slight upward movement in high quality office rental rates through 2019.
Retail Properties had 310,000 square feet of construction permits issued during 2019. There continues to be redevelopment in the county for older sites demolished to make room for new construction, and often in the form of mixed-use type properties. Construction of restaurants was strong with permits issued for 30,000 square feet to build 6 new eateries. Capitalization rates have remained stable with only a slight increase of 25 basis points for good quality neighborhood and community shopping center properties. Retail continues to experience more build-to-suit construction than speculative construction during the 2019 year.
Hotel/Motel property in Johnson County has seen significant supply growth with eight new hotels and several more proposed. The county added 836 new hotel rooms in 2019, which more than doubled 2018’s new room count of 359. All eight new hotels are of the category “select service” type and creates a total of 9,950 rooms in the county, which is up 9% from the prior year. Despite a significant amount of new supply, REVPAR and capitalization rates remain stable and these two factors result in generally stable valuations.
The annual depreciation study for commercial property found evidence for adjusting very few of the structure categories for; depreciation, economic life, and other table variables. These adjustments however, realign internal depreciation with verified sale transaction value indications. The land study for commercial property is updated annually and found minimal upward pressure for land values. Computer Assisted Land Pricing (CALP) models were expanded to include all commercial properties and condominium properties that were previously manually priced.