Although much of the area’s growth will likely involve a handful of large projects that can overcome
current national and international economic trends, the region’s fundamental strengths and inherent economic diversity should help it avoid the worst of current economic woes.

Because of tightening credit markets and increasing concern over slowing world economies, several commercial real estate markets face increased risk. That by itself is not fatal and in markets such as retail it is not even new. However, sources from the Federal Reserve to major real estate firms see these combined trends as bringing market slowdowns.

Lower return and profit expectations in the current market that are likely to exasperate more general reductions. This will especially impact projects that may have begun when land and other costs were at pricing peaks, but now face more difficult markets. The area’s retail segment, for example, may be vulnerable to some of these trends, especially in areas where overbuilding has already been an issue. Some projects may change their strategies because of the resulting concerns for profitability.

Another trend was cited in last year’s retail market outlook assembly sponsored by Ingram’s. Several commercial real estate leaders at the event noted that Wall Street investors are increasingly replacing traditional retail backers. One result is that this group generally brings less willingness to take risks. With the sub-prime mortgage confusion increasingly affecting both commercial markets and Wall Street, that trend is expanding.

Nationally, lenders and fixed-income investor groups have tended to retrench. These sources for capital are frequently demanding stricter underwriting requirements, at least in some markets. Capital is costing more, although equity capital and other sources may help to maintain real estate leverage.

Despite these potentially dire predictions, many of the doomsday headlines and talking head-predictions of recession seem premature. First, the ultimate depth of the current market slowdowns is yet unknown and tactics such as recent moves by the Federal Reserve are still being measured. Equally significant, a number of important trends counterbalance these negative forces. For greater
Kansas City, the best news may be that several of these positive trends are at work here.

One of the most dramatic was noted at another event, the Kansas City release of the 2008 Emerging
Trends in Real Estate report presented by Price Waterhouse Coopers and the Urban Land Institute.
Although several important market forces were noted, one of the most visible involves increasing
importance of the so-called “global pathway markets,” regions where major airports, shipping ports and other transportation-oriented markets that are increasingly critical on the world’s economic stage.

As unlikely as it might at first seem, greater Kansas City is, at least partially, a part of this trend. Although cities such as New York, Seattle or Los Angeles are obvious leaders, Kansas City and surrounding communities are increasingly involved in transportation-related markets that are part of this movement. The trend already has impacted local commercial development.