New Tenants, Developments Signal Strength of Kansas City Industrial Market
The Kansas City industrial real estate market recorded very healthy maturation in 2019. When surveying the strength of our market, we typically consider how many new tenants or users entered the market with major investments and how many development deals were announced.
Diving into the analytics, it is exciting to see some disciplined characteristics of a solid industrial market, including a slight slowdown in the pace of market expansion, a diverse group of business types demanding space, and the swift adjustment to appropriately balance supply and demand.
Users entering the market
The highlight reel of industrial deals in 2019 was impressive. Notable transactions include a new 420,000-square-foot water bottling plant for Niagara in South Kansas City, a 2 million-square-foot logistics hub expansion for Kubota Tractor Corp., and a 765,000-square-foot food distribution center for Hostess Brands.
Additionally, Walmart just announced plans for a 1.8 million-square-foot distribution center to add to its existing three distribution centers in the area. A variety of new auto suppliers have absorbed over 1 million square feet of space to serve the Ford and General Motors automotive plants.
I’m often asked what industries are moving to Kansas City and my response is all of them. The type interested in the region include a wide variety of industry sectors. The absorption is not limited to e-commerce, which will continue to absorb space, but also includes food and beverage, transportation, medical, home goods (and other industries supporting the residential real estate market), and the manufacturing sector.
Strategic supply chain management is another key element for users expanding into the Kansas City industrial market.
There are a multitude of factors for supply chain expansion. These include Kansas City being located in the crossroads of four of the nation’s major interstate highways, home to the largest rail center in the United States by tonnage, and available inventory of buildings and affordability with the cost of living 2.5 percent below the national average.
An eye on development
Patience has been the key to Kansas City’s industrial success. In the last five years, 28.8 million square feet of new Class A product has been added to our market. This space has been steadily absorbed and our market vacancy rate remains healthy at 5.9 percent. Developers in the region have kept pace and have not overdelivered an amount of space that would deteriorate rental rates.
Active development can be seen in parks throughout the metro by Kansas City-based development companies such as NorthPoint Development and VanTrust Real Estate, which have become national leaders. Northpoint Kansas City-area parks with spec development currently include Northland Park, Southview, Riverside Horizons and Logistics Park Kansas City. VanTrust was successful with the development of a 140,000-square-foot industrial building at 9700 Widmer Road in Lenexa, Kansas — a shift in focus to smaller tenants.
Additional activity in the market includes Platform Ventures, which recently acquired a large industrial site in South Kansas City served by KCS Rail that will bring its national capabilities to Kansas City with development planned for nearly 2 million square feet, and Lenexa Logistics Center, which will eventually house 1.7 million square feet of industrial space being developed by Block Real Estate Services.
Real estate practitioners are continuously asked about market conditions. The extended period of economic growth has changed the question from, “what are your expectations for the economy?” to “when do you expect a slowdown?” Based on the discipline and expertise of our development and construction community and the steady demand of diverse users, we don’t see any reason for a slowdown in terms that you would historically expect.
However, we do foresee that the market will create its own curbs. The limited number of available workers will be the only restriction that we can realistically predict. When the users for the buildings can no longer fill the properties with labor, the market will naturally slow down.
With regards to institutional investors, we believe they will find the region more and more attractive. While cap rates are inviting compared to gateway cities, rent growth needs to keep pace with competitive markets. Lease comps recently completed but not yet announced and leases in the upcoming months will show rent increases. As this continues, the market will be very appealing for institutional investors.
— By Mark Long, President and CEO, Newmark Grubb Zimmer. This article originally appeared in the January 2020 issue of Heartland Real Estate Business magazine.