By Ora Reynolds and Mike Bell, Hunt Midwest
Kansas City industrial real estate is trending upward with no shortage of leasing activity. The city’s location in the heart of America, with 30 percent more interstate miles per capita running through it than any other city, offers efficiency and redundancy for global e-commerce and distribution operations.
With over 270 million square feet of existing industrial space in both surface and underground business parks, ample land for new buildings, a skilled logistics workforce and robust power and fiber infrastructure, Kansas City is one of the preferred geographic locations for distribution centers and is poised for continued growth based on these strong fundamentals.
Ora Reynolds, Hunt Midwest
The nation’s transition to online purchasing at an unprecedented pace has created ripples of change. The increase in e-commerce is driving demand for more distribution space at a rate of 1.25 million square feet for each $1 billion increase in online sales, and this demand puts an increasing pressure on the supply chain for resiliency.
Americans are purchasing everything online, from food and essential supplies to clothing and gifts. In the second quarter of 2020, Americans increased their online purchasing by $211.5 billion, according to the U.S. Department of Commerce. The rapid adaptation of the e-commerce model by consumers is projected to create a need for over 260 million square feet of distribution space to support the move from retail brick-and-mortar to warehouse fulfillment.
Mike Bell, Hunt Midwest
Supply chain resiliency
In addition to the e-commerce demand driver, the need to mitigate supply chain risk creates the need for additional industrial space. The pandemic has caused the supply chain to transform from an existing just-in-time distribution model to a new just-in-case inventory model.
This change requires companies to have redundancy, not just efficiency. Hence the need for safety stock that is ready for distribution as the demand increases quickly during a crisis like COVID-19. Industry economists estimate that a 5 percent increase in safety stock will add an additional 750 million square feet of industrial distribution space nationwide. Companies will need to locate new distribution centers in areas that can serve population hubs and geographical regions in the most expedient and cost-effective manner.
Companies are capitalizing on the benefits of Kansas City’s diverse offerings to meet their supply chain needs during the pandemic and into the future. Since March, several companies announced expansions in Kansas City, including Amazon, Chewy.com, Farm Foods Direct, World Pantry and Nostrum Labs, to name just a few. These specific companies all utilize an e-commerce platform to meet consumer demand for food, pet supplies, pharmaceuticals, grocery and other essential items.
Customers expect next-day or two-day deliveries for online purchases. By selecting Kansas City, these companies can reach 90 percent of the U.S. population within two days by ground or next day by air.
Underground options
Kansas City is unique in its real estate offerings, which include the availability of underground warehouse space. Kansas City is home to over 22 million square feet of underground business complexes, leasing large blocks of space for distribution, warehousing, light manufacturing and mission-critical data centers. The largest is SubTropolis, with nearly 7 million square feet of leased underground buildings and the ability to grow to 14 million square feet.
Underground industrial buildings offer four key attributes that beat out surface industrial buildings: lower lease rates, reduced operational costs, flexibility/speed to market and space that is naturally temperature controlled. These benefits allow companies to meet their immediate needs to store temperature-sensitive safety stock — such as medical supplies or pet food — without incurring the major expense of building out surface warehouses.
A tenant can move into a new state-of-the-art 100,000 to 200,000-square-foot building in just 120 days. Existing low latency fiber supports new automated fulfillment systems and warehouse management technologies.
The industrial market in Kansas City is thriving and our underground business complexes, with so many unique attributes, are in an ideal position to capitalize on these new demand drivers.
Ora Reynolds is president and CEO of Hunt Midwest while Mike Bell serves as senior vice president of commercial real estate. This article originally ran in the September 2020 issue of Heartland Real Estate Business magazine.