Market Study Analysis for the Assessment Year 2021

Market Study Analysis for the Assessment Year 2021 – Johnson County
Jan. 1, 2021
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 2021.  In our annual valuation process, we reviewed over twenty-two 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. Industrial and multifamily properties continue to see market conditions conducive for growth. Demand has continued to be strong despite the pandemic. Office and retail properties have remained relatively flat overall as the market is still adjusting to the way people work and shop due to the presence of COVID-19. The hotel inventory increased with regards to rooms; however, the market really struggled overall during 2020.

Multifamily new construction starts have slowed and buildings currently under construction have experienced delays. Older communities continue to renovate albeit perhaps at a slower pace than in the past. In 2020, capitalization rates are down across the board in Johnson County. The vast majority of properties report stable rents with occupancies in the mid- to-upper nineties. The Johnson County multifamily market continues to perform better than many markets in the country.

Industrial properties remain at the height of the expansion cycle as over 1.8 million square feet of warehouse permits were issued in 2020. The first building of the planned Heartland Logistics Park in northwest Shawnee is currently under construction. The approximately 273,000 square foot warehouse is the first of five proposed buildings which will total over 2 million square feet of warehouse space when complete. Block and Company is constructing a new roughly 606,000 square foot warehouse in southwest Lenexa, as it continues to develop the Lenexa Logistics Centre East business park. Lineage Logistics, a temperature-controlled food distribution company, has begun construction on an estimated 350,000 square foot cold storage warehouse in the Lone Elm Commerce Center at I-35 and 167th street in southern Olathe. While much of the larger new construction is concentrated in Shawnee, Lenexa and Olathe, smaller industrial properties continue to be developed throughout the county.

Office properties in Johnson County experienced more than 1,100,000 square feet under construction in 2020, the majority of which was in the cities of Olathe, Overland Park, Prairie Village and Leawood. The newly completed Johnson County Courthouse in Olathe with approximately 390,000 square feet is scheduled to be occupied in early 2021 and Phase I of Shamrock East with nearly half a million square feet (including a parking garage) was close to obtaining a Certificate of Occupancy. For 2021, rental rates are stable in most areas of the County but increased within the College Boulevard market. Office capitalization rates are flat throughout all investment classes. Speculative construction has moderately increased. Nationally, suburban office markets such as Johnson County have outperformed more urban areas during the COVID-19 pandemic.

Retail properties had approximately 250,000 square feet of new construction permits issued during 2020, despite the pandemic. 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 Sonoma Plaza at 87th Street & I-435 in Lenexa was strong with permits issued for several new strip centers and a few eateries. The area along the Metcalf corridor in Overland Park has seen quite a bit of construction as well, some new and some redevelopment. Capitalization rates were slightly down overall for restaurants. The capitalization rates for single-tenant retail properties were down 25 basis points for all A and B+ investment class properties. Strip center properties saw a slight decrease of 25 basis points in capitalization rates for C investment class properties only. However, A investment class neighborhood and community shopping center properties saw an increase of 50 basis points, while the B and C investment classes of this property type saw an increase of 25 basis points. Retail continues to experience more build-to-suit construction than speculative construction during the 2020 year.

Hotel/Motel property in Johnson County saw significant declines in occupancy and REVPAR due to the COVID-19 pandemic. Due to the unstable market conditions, Johnson County contracted a 2021 Hotel Benchmark Study. The results of the study determined valuations declined 30% for full-service hotels. Additionally, select and limited-service hotels saw valuations decline 20%. Despite COVID-19, Johnson County added three new hotels which added 292 rooms. The total room count increased 3% to 9,842 rooms. There are several more projects that are in various stages of planning and construction. Industry experts predict hotels to continue to struggle into 2021, with most predicting REVPAR reaching pre-COVID-19 levels in 2024.

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 include all commercial and condominium properties with reliance from the commercial land study as support.