resilient economy iconResilient Economy

Introduction

The concept of economic resilience relates to a community’s ability to foresee, adapt to and advantageously leverage changing conditions. Economies are resilient when they demonstrate:

  • The ability to recover quickly from a disruptor;
  • The ability to withstand a disruptor; and
  • The ability to avoid the disruptor altogether.

Disruptors may include:

  • Downturns in the national or global economy that impacts demand for local goods and services;
  • Downturns in economic sectors critical to maintain and sustain local economic activities; and
  • External impacts such as natural or man-made disasters, closures of a major employer, changing climate, and other uncontrollable factors.

With recent experience gained from the Great Recession and the COVID-19 Pandemic, it is more important than ever to focus on resilient economic strategies. Our community’s long-term economic prosperity is linked to its resilience when facing disruptions to the local and regional economy.

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Goal: Build an adaptable framework for continued growth in a changing environment.

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Appraised Value

Development Incentives

Objective: Increase business retention and grow business activity.

Recruitment and retention of businesses depend on several factors—Lee’s Summit’s existing strengths, national and regional projections for jobs as value-added by sector, the amount of real estate “inventory” ready for economic development, and in-commuting and out commuting access and trip times for jobs.

Land Inventory and Projections

Major challenges to additional growth in these areas include land inventory for commercial development and the number of existing buildings ready to accommodate recruited or expanding businesses. The City needs access to sufficient business-oriented real estate for quick construction or move-ins, and economic developers need to maintain a full record of what is available.

Capturing Resident Talent to Work in Lee’s Summit

Another way to think about economic resilience is the pattern of commuting in and out of Lee’s Summit. Eighty percent of employed residents of Lee’s Summit commute elsewhere for work. (Note: these are pre-pandemic metrics and do not reflect recent work-at-home trends.) More than 80 percent of these out-commuters are “replaced” each day by in-commuters holding jobs in Lee’s Summit. A recruitment opportunity could be to attract more of those in-commuters to become residents who would spend more of their earnings in the City. A large portion of the outcommuters work in growing economic sectors. Attracting more businesses in those sectors might enable the city to keep more of its own residents in Lee’s Summit during working hours.

Lee’s Summit’s out-commuters earn substantially more than the in-commuters, or even Lee’s Summit residents who both reside and work in the city. Out-commuters are earning more outside of the city and are bringing those earnings home to spend. That’s a healthy portion of the City’s economy, which supports retail with household purchases. It also means that people employed at jobs in the City earn less than other current residents. There could be room for more highpaying jobs in Lee’s Summit and additional middle and lower-wage workers to become residents, which would diversify the local workforce. In all cases, commuting times and costs could be reduced.

For the year 2018 (latest available data from the U.S. Census Bureau), there were an estimated monthly average of 42,138 wage and salary jobs located in the city of Lee’s Summit. Of those, 10,055 (24%) were held by residents of Lee’s Summit while 32,083 (76%) commuted into the city from other places. On the other side of the commuting ledger, there were 49,503 employed residents of Lee’s Summit in 2018. Of those, 10,055 (20%) remained in the city for work while 39,448 (80%) commuted to other places for their jobs.

In one sense, therefore, Lee’s Summit’s population “during the day,” when more commuters left than entered, was lower than “at night” when all the commuters returned to their homes. These 2018 numbers are notably different from 2002, the beginning point of the available data. In 2002, 64% of jobs in the city were filled by outside workers (increasing to 76% in 2018) and 77% of the city’s employed residents commuted to other places (slightly lower than 80% in 2018).

The Census Bureau’s commuting data assigns all commuters into just three annual earnings categories: Under $15,000, between $15,000 and $40,000, and above $40,000.

In 2018, out-commuters earned quite a bit more than the other two commuting categories. Almost six of ten Lee’s Summit residents who commuted elsewhere had jobs where they earned more than $40,000 per year. Only four out of ten Lee’s Summit residents remaining in the city for their jobs earned that much, while people commuting into Lee’s Summit had an even lower percentage at just over a third.

Jobs in Lee’s Summit appear to be generally paying lower wages, on average, than those earned by residents working outside the city. This means, of course, that Lee’s Summit residents are bringing home substantially higher wages from outside the city, which increases local buying power, the ability to afford higher value housing.

Class A Office Opportunities

The commercial real estate brokerage of Newmark- Grubb- Zimmer (NGZ) provides quarterly market reports on the office market for various sub-geographies of the Kansas City metropolitan area. Lee’s Summit is within two sub-geographies: Eastern Jackson County and Southeastern Jackson County.

As of the 4th quarter of 2020, NGZ reported that Eastern Jackson County and Southeastern Jackson County together had 5.56 million square feet of office space, (7.5% of the metropolitan inventory). But these two areas had only 1.0% of the metro area’s Class A office space (269,450 square feet). On another other hand, these two areas had one-fifth (20.1%) of the region’s Class C office space.

Eastern Jackson County and Southeastern Jackson County have just four Class A buildings, or only 2.4% of all Class A buildings in the metro area. The average Class A office building in this Lee’s Summit area has 67,360 square feet, or about 40% the size of the average of 165,380 square feet for the 168 metro area Class A buildings.

The greater Lee’s Summit is focused on lower quality, lower-priced office space, not on the higher value, higher-priced buildings. The relatively little Class A office space in or around Lee’s Summit averaged $23.50 per square foot in annual asking rents at the end of 2020, virtually equal to the metropolitan area’s Class A space ($23.58). Lee’s Summit can command Class A rents if only it can attract Class A space.

The relative abundance of Class C space in and around Lee’s Summit forces the overall average office rent per square foot to just 91% of the metro area overall average ($18.93 psf vs. $20.82 psf). Only two of the nine sub-geographies of the NGZ office report have Class A office space under construction—Downtown KCMO and South Johnson County—a total of 368,000 square feet which, itself, is more Class A space than currently exists in Eastern Jackson County and Southeastern Jackson County.

This is an indicator that the Lee’s Summit area is not a significant player in the Class A market. Yet 80% of the Lee’s Summit employed workforce commutes to other places for their jobs and those people have considerably higher earnings than those working in Lee’s Summit. Lee’s Summit could attract more Class A office development and capture more of this relatively high-paid workforce?

But now we have to consider the lingering potential effects of the Covid-19 pandemic. In the short run, almost nine out of ten U.S. office workers were able to shift at least some of their work to their homes—sharply reducing the “demand” for office space. With the lengthening of the pandemic’s timeframe, there is increasing speculation that future office space demand will not be what it once was. With telecommuting technology advancing rapidly, many corporations may opt for less office space that is “shared” by employees when they are in the office, but much/ most of the time, these office workers will work remotely.

The nation and the world are still sorting out options for different uses and absorption of work places—particularly office space where workers tend to have jobs that can be done remotely. This could very well reduce the demand for office space—especially Class A space which is more expensive. That said, more easily accessible office space nearer to workers’ homes might better satisfy future demand for common work areas. Still, competition to fill existing space and retain tenants will likely intensify, thus reducing potential rates of return for new construction. Pursuing an aggressive policy toward more Class A space in the next few years may not be sensible while the market continues to shake out.

Industrial Opportunities

Lee’s Summit has two city-owned rail spurs in existing areas of industrial development. These service two available sites for new industrial development totaling approximately 150 acres. These available sites are well-suited for businesses that require access to rail for product or material transport and should be reserved to attract such industry opportunities. City ownership of these two spurs provides added benefit, allowing for direct negotiation and correspondence with the City, rather than also involving the Union Pacific Railroad.

Objective: Diversify Lee’s Summit’s economy.

Regional Job Growth

Comprehensive job count numbers for the City of Lee’s Summit are not available, but Census data indicates the number of jobs in the City increased by 60 percent between 2002 and 2017, while net growth was only 4.4 percent in Jackson County. This was a slower rate than the entire state of Missouri (9.5 percent), the Kansas City metro area (16.6 percent) and the U.S. as a whole—at 21.3 percent.

Diversify Lee’s Summit’s economy. This is not necessarily a reflection on job growth in Lee’s Summit. Indeed, later in this report is shown that the city added some 60 percent more jobs from 2002 to 2017. But it is and indicator that Lee’s Summit is part of a county, much of it within the city of Kansas City, that is experiencing sluggish job growth—even though there are hundreds of thousands of jobs in the county.

The city’s job count was 26,000 in 2002, or seven percent of all jobs in the county. By 2017, the city’s job count increased by over 15,000 to 41,790 while the rest of Jackson County experienced job increases totaling only 240, increasing city’s share to 11 percent.

Both Jackson County and the wider metropolitan area offer well-balanced employment economies compared to national averages, securing Lee’s Summit in a positive position for continued growth and resilience. Residents of Lee’s Summit are within proximity to a wide range of job opportunities.

Regional Job Growth by Sector

Within the City, 49.5 percent of jobs (based on 2017 data) are in economic sectors projected for quick growth throughout the U.S.—construction, transportation and warehousing, professional, scientific and technical services, educational services health care and social assistance, and hospitality and food service. In 2002, 43.9 percent of Lee’s Summit’s jobs were in these sectors, suggesting a trend toward greater resilience. In addition, 58.6 percent of jobs at the City’s 35 largest employers are in ascending sectors.

Location quotients for Lee’s Summit and Jackson County show strengths in the healthcare sector, the retail and food service sectors, educational services, professional, technical and scientific services, and construction. These are “export sectors” to target for further recruitment and retention—they are also among the most rapidly growing sectors in the United States and in the Kansas City metropolitan area. In many ways, Lee’s Summit is well positioned with a diverse and resilient economic base.

Another potential strength is Lee’s Summit Municipal Airport. With City demographics favoring higher income households and the executive class, the Lee’s Summit’s airport traffic could increase with additional corporate and private air travel. This might also become a crucial center for quick delivery of online purchases by households, businesses, and the healthcare sector.

Lee’s Summit Projected Job Growth by Sector

In 2017, Lee’s Summit had an 11 percent share of all jobs in Jackson County.

  • Retail trade in Lee’s Summit represented 17 percent of all retail jobs in the county.
  • Educational services in Lee’s Summit were 14 percent of the county total.
  • Health Care and Social Assistance jobs made up 13 percent of all county jobs in this sector.
  • On the other hand, Lee’s Summit’s share of jobs in the professional, scientific, and technical services sector was only six percent.
  • The transportation and warehousing sector and the finance and insurance sector made up only seven percent each.

Based on employment projections for Jackson County by the Missouri Economic Research and Information Center (MERIC) and Mid-America Regional Council (MARC), and manipulations by Saint Louis University, Lee’s Summit jobs should increase by 24,200 (25%) over the 2020 job number of 95,471 to 119,671 jobs in 2040.

Professional, Scientific and Technical Services

Projections estimate 4,880 net new jobs in the professional, scientific and technical services sector in Lee’s Summit between 2020 and 2040. Extrapolation of metropolitan Kansas City projections for this sector suggests that there could be as many as 27,860 additional jobs in this sector. Lee’s Summit would capture 17.5% of this metropolitan-wide growth.

Many people employed in this sector currently reside in Lee’s Summit. Mixed-use employment centers would help keep more of this labor force In Lee’s Summit, potentially capturing 30% of this sector. This would add 8,300 more jobs where the average salary in 2018 in the Kansas City metro area was $74,600, according to MERIC. That many more jobs would also require the addition of more than two million square feet of office, research, and lab space.

Health Care

Lee’s Summit could capture about one of every three additional health care jobs in the metro area. This would solidify Lee’s Summit as a dominant center for the health care industry, services to the public and research. This also likely means that Lee’s Summit will have to enable major health care providers to develop and expand facilities. Creation of prominent medical center “villages” in the city could change much of the image of this sector and make health care more accessible to the public in mixed-use projects that include lodging, dining, office space and relatively dense residential options. Combining this growth sector with the professional services sector would establish Lee’s Summit as a formidable suburban-based and economically diverse city.

Retail, Dining and Lodging

These are challenging sectors for the coming decade. Affected by rapidly changing technologies and by concerns about public health where people gather for shopping and entertainment, it is challenging to project future configurations and operational structures of stores, restaurants and hotels.

This need not prevent Lee’s Summit from encouraging cutting-edge innovation in such commercial ventures. The city has ample retail and related centers, some of very large scale, that may be suitable for substantial redevelopment or repurposing for rapidly changing consumer-oriented places. Indoor malls are effectively a thing of the past and big box stores are heading that direction, though some are adapting quickly to more experiential shopping and to a variety of technological and product delivery advances.

As a result, jobs may not grow in these sectors as rapidly as in the past. National and regional employment projections seem to already downplay such opportunities. Consumer demand, however, will likely not abate over time; much of it may seek safer, more convenient, faster and more entertaining ways to obtain goods, services and overnight accommodations. Enabling entrepreneurs in these sectors to innovate could put Lee’s Summit in a position as a leader in finding solutions to those challenges that need to be addressed in the 2020s. This may require less restrictive zoning and related ordinances and adjustment of building codes to allow more innovative uses of buildings, outside spaces and even air rights. Innovations might also require substantial changes in street patterns, delivery areas and parking. Such experimentation, if the businesses in these sectors pursue them, are best tested in growing, higher-income markets, like Lee’s Summit if modernization and sustainable development models are encouraged.

Market Analysis – Supply versus Demand

  • Esri’s “Retail MarketPlace Profiles” quantify and compare:
  • Local annual purchasing power for retail goods and for dining out.
  • Local annual sales of merchants in these categories.
  • Where purchasing power (“demand”) exceeds sales (“supply”)
  • There is room for additional merchants, or at least for more sales.
  • Where sales exceed purchasing power.
  • There is little justification to attract more merchants other than to replace others.

The Overall Retail Picture

According to dollar figures from ESRI, last updated in 2017, Lee’s Summit’s residents spend just over $1.5 billion annually on retail purchases. This compares to the $1.4 billion in sales captured in Lee’s Summit, suggesting that residents resort to making some retail purchases outside of the city.

The opposite is true regarding food and drink purchases. Lee’s Summit residents account for only 79 percent of food and drink sales in the city, or approximately $167 million. This suggests that approximately 21 percent of Lee’s Summit food and drink sales are captured by non-residents.

Overall, the retail and food and drink demand (or purchase power) of Lee’s Summit residents exceeds sales by only four percent as a total. Any ‘leaked dollars’ – or resident purchases outside of Lee’s Summit – are replaced by non-resident purchases.

Broadly speaking, Lee’s Summit has a balanced amount of retail and dining space in the city.

The graph shows “demand” as the amount of “retail” and “food & drink” purchases that Lee’s Summit’s residents make in a single year (in this case, 2017*) regardless of where those purchases are made.

The “sales” represent sales in retail and food and drink establishments located in the City of Lee’s Summit regardless of the purchasers.

While Lee’s Summit residents spend some of their retail and dining dollars outside of the city, nonresidents also make purchases in Lee’s Summit. This graph suggests that “leaked dollars” by Lee’s Summit residents are effectively replaced by non-resident spending in the city.

Still, there are opportunities for more growth in some categories.

Sectors that are Over-Supplied

Despite the overall balanced supply and demand picture of Lee’s Summit residents, there are several sectors that are either over- or undersupplied. Figures indicate that Lee’s Summit serves as a regional draw for automobile dealers, grocery stores, specialty food services and dining as sales in these sectors exceed resident demand.

Esri lists 13 “3-digit” retail sectors (using NAICS) and, within them, 27 “4-digit” sectors. On this graph are shown those sectors, or categories, where sales in Lee’s Summit exceed the purchasing power of Lee’s Summit residents.

For instance, auto dealers in Lee’s Summit have annual sales of $406.9 million. But Lee’s Summit residents spend only $260.0 million for autos.

Therefore, almost $150 million in auto sales are taking place in Lee’s Summit by outsiders. In fact, it is more than that because some Lee’s Summit residents purchase autos from other cities. Lee’s Summit appears to be something of a regional auto dealer, grocery, and dining concentration.

Sectors that are Under-Supplied

Several retail sectors are under-supplied, where purchasing power of residents exceeds actual sales by Lee’s Summit merchants. These undersupplied sectors suggest areas of growth opportunity for Lee’s Summit either in more stores or more square feet of retail space. The biggest sector where demand exceeds supply is general merchandise stores. The 2017 figures depict that almost $93 million in local buying power for this sector is being satisfied outside of Lee’s Summit – perhaps in neighboring communities or in online purchases.

This graph depicts several of the other categories where purchasing power by Lee’s Summit residents exceeds actual sales by Lee’s Summit merchants. Theoretically, these represent categories or sectors where more stores, or more square feet, or at least more sales could be accommodated.

Most of these are “3-digit” sectors; their “4-digit” detailed sectors are not shown if all of those subsectors also show that demand exceeds supply. One obvious exception is the bottom category, Dining Places – Alcoholic Beverages. Purchases by Lee’s Summit residents total about $5.1 million per year, but sales within the city are only about $3.3 million.

But there are two other “4-digit” food & drink subcategories in this” 3-digit” sector. Those two are on the previous graph: specialty food services and restaurants/other eating places. That is, this overall category (NAICS code 722), where local sales generally exceed local purchasing power, has one sub-category where the opposite is true.

The biggest sector where demand exceeds supply is general merchandise stores. Buying power in Lee’s Summit is $290.0 million, but sales are $197.2 million. About $93 million in local buying power, therefore, is being satisfied elsewhere—maybe in Independence or Blue Springs.

A general conclusion is that retail sales and purchasing power, in general, are well-balanced in Lee’s Summit. But there are sectors where Lee’s Summit could attract more square feet. Given the strong retail opportunities along, say, the I-70 corridor outside of Lee’s Summit it may not be a high priority to attract more retail space.

But more retail space may be necessary, as the population and employment projections suggest. There will be more purchasing power in the city as the population grows, and more jobs needed in retailing/dining. The projections indicate that over 900,000 additional square feet of retail space may be necessary to satisfy this growth.

Data on how many square feet of retail/dining space actually exists in Lee’s Summit is presently unavailable. Anecdotal evidence hints that there is “too much” retail space in the city in light of many changes in the nature of retailing—ecommerce, for instance. But more retail space will certainly be needed as growth continues.

Objective: Maintain a diverse and valuable tax base. Maintain a positive return on investment as the community grows so the community continues to enjoy the finest quality services and infrastructure.

The field of economic development has dramatically evolved in the last 40 years to where it is tightly integrated into city planning, public works and infrastructure, education and training, and fiscal sustainability, among other responsibilities of city management. Even parks and recreation departments are involved as they support quality of life in the community, which potentially attracts and retains workforce talent.

If possible, Lee’s Summit should prepare for additional economic disruptions. These may be similar or not to the COVID-19 pandemic’s impact with community lockdowns and employee working from home. One such scenario could be a permanent shift of many jobs from separate office buildings and business parks to home settings. This could depress the commercial real estate industry, leading to increased vacancies, lower rents and less construction. It could also increase demand for faster, more affordable and reliable residential internet service.

While the non-residential real estate sector could weaken due to the pandemic, expanding the City’s participation in the Missouri Certified Sites program is a good way to inform developers and businesses of Lee’s Summit’s growth potential. Re-imagining how the City leverages current commercial centers is also critical. Many are under-occupied and obsolete in the current retail environment, yet they are well-served by transportation and utility networks and may hold potential for high density housing as mixed-use developments that require a small amount of commercial space.

While Lee’s Summit will continue to grow by adding new housing, new residents, and new commercial buildings with new jobs, it also has many areas where reinvestment, and even redevelopment, are in order. As a city with both old and new components, it is just as important to reinvest in previously developed areas as it is to attract and manage new growth. A city cannot allow itself to suffer disinvestment even as new investment is taking place. A few suggested strategies for reinvestment and redevelopment include:

Commit to a Diversified Economy: Support growing industry sectors such as healthcare, hospitality, professional services, and even the arts to capitalize on national and regional trends.

Foster Startups and Innovation: Older buildings and aging strip centers can be less expensive opportunities for new companies while giving those properties a new lease on life.

Reinvest in Older, “Affordable” Housing: Work with economic development officials, housing investors, and lenders to provide resources to preserve and upgrade older neighborhoods which are important for attracting younger families, entry-level workers, and lower-wage workers in essential local jobs.

Enforce Zoning, Building, and Design Codes: Assure that long-developed neighborhoods and commercial centers aren’t allowed to deteriorate for lack of compliance. Public assistance for financing improvements might be required.

Attract Infill Housing: Capitalize on market forces favoring higher density housing and mixed use environments where appropriate and where increased density enhances overall community value. Aging strip centers, near-downtown neighborhoods, and higher-traffic corridors and intersections can be targeted.

Concentrate and Disperse Retail: Commercial centers should be reinforced to assure that incompatible uses do not infringe on the retailing experience. Convenience retail, however, should be relocated to mixed-use areas to encourage walking and less dependence on automobiles.

Create or Reinforce Commercial Organizations: Better coordination of marketing, tenanting, parking, business hours, and the like through strong local associations will lead to more sustainable commercial areas. The Main Street program as implemented in Downtown Lee’s Summit is an excellent model,

Placemaking: Make investments in the public realm and “hidden” infrastructure that provide a more comfortable environment for consumers, residents, and workers.

Access and Connections: Define districts and implement wayfinding to create better connections between different areas of the city.

Build a Greenway System: Create a citywide greenway system to promote active lifestyles and community health while also attracting talent for economic development.

Take the Comprehensive Plan “On the Road” to state and federal government representatives, legislative leaders, and executive departments to identify funding and related opportunities for redevelopment locations. Keeping government representatives well-informed is always good policy.

Create a Public Relations and Marketing Program: Design it to attract private investors and development talent committed to realizing revitalization elements of the plan and, conversely, to resisting public and private actions and investments that are not compatible with the plan.

Adjusted for inflation, Lee’s Summit’s city government revenues increased by 24 percent between fiscal years 2003–19 (73 percent when not adjusted for inflation), even when factoring in economic downturns such as the Great Recession. Lee’s Summit’s inflation-adjusted revenues were $121.4 million at its previous peak in 2007, a level not reached again until 2017.

However, the City’s population grew approximately 40 percent between 2000–19, outpacing inflation-adjusted revenue growth so that per capita revenues declined seven percent between 2003–19. Inflation-adjusted per capita revenues peaked in 2007 but declined by 15 percent through 2019.

Analysis of the City’s Comprehensive Annual Financial Reports for 2003–19 show that property and sales taxes made up nearly two-thirds of Lee’s Summit’s government revenues in 2019 (32.0% and 32.1%, respectively), down 6.5 percent from 2003 (36.9% and 33.7%, respectively). This demonstrates a gradual decline in reliance on each source, but also shows how each grew more slowly than overall revenues. On a noninflation- adjusted basis, total revenues increased 73 percent from 2003–19, but property taxes increased by only 50 percent and sales taxes by 65 percent. These two major sources of revenues did not keep up with overall revenue growth.

Less reliance on those two taxes could signal a positive trend but it also reflects potentially sluggish property values and slow growth in retail sales as more shopping is conducted online or other communities. Principles of economic resiliency would suggest that attracting more high value commercial (or even residential) property, could support an increase in property taxes, which would also benefit other taxing jurisdictions. Taking into account the relatively high-paying jobs of many Lee’s Summit residents, attracting high value real estate might encourage more residents to shift their workplace locations to Lee’s Summit from other locations. These scenarios, of course, should be weighed against uncontrollable forces that potentially depress commercial real estate values, such as social distancing and online shopping.

The potential for sales tax growth is significantly influenced by the rapidly changing retail climate. The United States has approximately five times the retail space per capita as is available in Europe. This metric could indicate a significant surplus as the result of over-building if other factors such as population, spending trends, and retail demand are in balance to validate the comparison.

The largest area of growth for City revenues from 2003–19 came from the “other” category, which captured 8.6 percent of all revenues in 2003, doubling to 16.2 percent in 2019. This 224 percent increase significantly surpassed the 73 percent growth of all City revenues combined. Addressing the categorical breakdown of “other” revenues should be a priority.

Changes in consumer spending and shopping preferences are key factors impacting the city’s—and the nation’s—retail and commercial real estate situation. Malls and strip shopping centers have becoming less appealing than in the past. Experiential shopping and dining, in places with character such as downtown areas, are more appealing to consumers, as is online purchasing. Focusing economic development in the City’s Downtown area or creating experiential shopping environments where old strip shopping centers have become dormant, could be a viable strategy.