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Industrial Developers Shift into High Gear in Metro Kansas City

Kansas City’s industrial market is experiencing an incredible construction boom that is both market-driven and not limited to just one area or particular deal. In the past two years, multiple, diverse industries and tenant categories have shown interest in a variety of options around the area.

The buildings going up and the tenants filling them cannot be pigeonholed into any single, narrow category. It’s encouraging that the entire market is doing well, not just one particular segment or submarket.

The success of the market is widespread across the region. New buildings have gone up in Johnson County, Jackson County and Wyandotte County in the past few years. Projects also are moving forward in Platte County, up by Kansas City International Airport, and also in Executive and Northland Park.

Additionally, Kansas City is providing options to companies of all sizes, from giant, bulk users to smaller users seeking the features associated with new development.

New buildings such as Westlink Industrial Park in Johnson County and Kaw Point in Wyandotte County have offered tenants looking for 50,000 to 100,000 square feet the opportunity to access the amenities and features of modern construction that are associated with new bulk development.

Both of those projects have enjoyed success and demonstrate that there is demand throughout the client base for new construction.

Currently under construction is the Three Trails Industrial Park in Jackson County, where the first 364,000-square-foot building was recently completed and is already at 78 percent capacity with tenants Boulevard Brewing Co. and Commonwealth Inc.

The second building is nearing completion and is already 75 percent leased, while work has just started on the third and final building.

Logistics park fills up 

Joe Accurso, Cushman & Wakefield

Joe Accurso,
Cushman & Wakefield

The industrial market received another powerful boost in March when a deal to occupy the entire 822,000-square-foot, newly completed Inland Port XIV in Logistics Park Kansas City (LPKC) was inked.

The building is the largest speculative construction project ever in Kansas City. LPKC is a 1,500-acre master-planned distribution and warehouse development that includes a Burlington Northern Santa Fe Railway intermodal facility and is located in Kansas City’s southwest suburbs.

With the new tenant, LPKC will be 98 percent occupied. Construction of three additional buildings at just over 2 million square feet currently is underway. By the end of the year, the park will be nearly 6 million square feet, and plans call for an eventual total of 17 million square feet.

At this point, LPKC could be called a complete success. In just three years, six buildings totaling 3.6 million square feet have been constructed, and the park is basically full. It’s easy to see why there’s a continued push forward with speculative construction at LPKC.

The distribution center deal at LPKC certainly is a highlight, but it is by no means involves the only tenant to set up a major facility in Kansas City over the last couple years. National companies looking for distribution centers with a central location are confident about coming to Kansas City, and for good reason.

The infrastructure, highways and railroads are all in place, and having a tenant lease so much space in Kansas City proves it makes sense to locate in the area.

The city has a lot of inherent advantages, and the ongoing success at LPKC is just going to further validate this market to prospective tenants.

Parsing the data 

Whitney Kerr Jr., Cushman & Wakefield

Whitney Kerr Jr.,
Cushman & Wakefield

The pace of construction has been so rapid that traditional statistics may misrepresent the strength of the Kansas City market.

With so much new space delivered in the first quarter, the vacancy rate actually increased from 7.4 percent to 8.1 percent, despite 783,000 square feet of positive absorption.

An overall vacancy rate of 8.1 percent is still a healthy level for the Kansas City market. At the height of the recession, the vacancy rate flirted with 9 percent, but from 2013 through the end of 2015 it ranged from 7.3 percent to 8 percent.

The increase in vacancy is misleading. Over the last two years, the market has averaged more than 4 million square feet of absorption per year, and the move-in at Inland Port XIV will provide over 800,000 square feet of absorption for the second quarter.

New construction is finally reflecting the demand, and new space will continue to be absorbed quickly.

— By Joe Accurso, Senior Vice President and Whitney Kerr Jr., Managing Director at Cushman & Wakefield. This article originally appeared in the June 2016 issue of Heartland Real Estate Business.

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