Industrial market fundamentals remain very strong
The Kansas City industrial market continues to thrive as online consumer spending has propelled e-commerce activity to new heights. Industrial construction activity has reached an all-time high as demand for modern centrally-located warehouse space remains elevated.
- Industrial market fundamentals remain very strong
- Absorption throughout Q1 continues to keep pace with 2020 levels and construction activity
- Construction activity remains widespread with additional developments in the pipeline
- Increased e-commerce activity will translate into additional need for industrial space in the foreseeable future
Kansas City Highlights
The Kansas City industrial sector operated full steam ahead throughout 2020, and that momentum is carrying over into 2021. As a result, the industrial sector continues to outperform all other commercial real estate sectors throughout the Kansas City metro and nationally. The robust industrial fundamentals at the beginning of 2021 point to further expansion expected for the sector. E-commerce and overall retail growth will continue to fuel the need for additional modern industrial space for the foreseeable future.
The overall vacancy rate in Kansas City decreased slightly to 5.5% at the end of Q1 2021. The vacancy rate has declined by 10 basis points relative to this time at the end of 2020 and 50 basis points one year ago. A total of 2,017,664 SF of net absorption occurred throughout Q1 2021, which continues to keep pace with the previous quarter’s absorption totals. Asking rents continue to experience a slight upward trend, however, remain relatively unchanged across the entire metro. Construction development, both speculative and build-to-suit, continues to operate near all-time highs for the Kansas City metro. Currently, there is 11.62 million SF of active industrial construction throughout the Kansas City metro. Construction activity remains widespread across all submarkets throughout the Kansas City metro and not just limited to well-performing industrial parks.
Recent Activity Within the Industrial Market
The Kansas City industrial market continues to remain very active spurred by the demand for distribution and warehouse needs to keep pace with the growing e-commerce segment. A driving factor for industrial demand, e-commerce accounted for 14% of all retail sales in 2020, a 3.4% increase over 2019. Domestic e-commerce activity is expected to reach $1 trillion by 2022. As a result, big-box omnichannel retailers, third-party logistics providers, and food and beverage manufacturers supporting both e-commerce and fulfillment activity continue expansion efforts both locally and nationally. This is allowing the industrial market to be on very solid footing heading into the new year. However, e-commerce is just part of the success of the industrial sector. Manufacturing production is also growing faster than expected, with output growth for the 10th consecutive month. The Institute for Supply Chain Management’s Production Manufacturing Index (PMI) registered 64.7 in March, up 3.9 percentage points from February’s reading of 60.8.
Recent Growth Around the Metro
Industrial construction continues near record levels for Kansas City with more than 11.62 million SF under active construction in Q1 2021, including 8.57 million SF of speculative inventory. An additional 3.05 million SF remains under construction within build-to-suit products. In Q1, just over 1 million SF was delivered to the market including a 741,000 SF building at Liberty Logistics Park. Looking ahead to Q2 2021, nearly 4.5 million SF of industrial product is projected to be completed. The sheer amount of new construction is unprecedented, as demand levels and subsequent absorption totals will be tested as new product is delivered to the market.
Several large industrial leases were completed throughout Q1 2021 in the Kansas City Metro. In Johnson County, Advantage Sales and Marketing leased 303,000 SF at Lenexa Logistics Center East, while Ceva Biomune leased 260,000 SF at Lone Elm 716 in Olathe. In Liberty, Scarbrough International leased 226,000 SF at Liberty Logistics Park and Metro Supply Chain Group leased 101,000 SF at 5208 Stilwell. From a transactional standpoint, investors continue to have a large appetite for industrial product. This was evident from several large acquisitions throughout the KC metro in Q1 2021. Bentall Kennedy’s MEPT Fund sold two Lenexa industrial portfolios in the first quarter. ATCAP Partners acquired the Kansas Commerce Center Portfolio totaling 734,000 SF for $44.35 million. Additionally, SparrowHawk Real Estate acquired the College & Renner Corporate Center from MEPT. The portfolio totaled more than 225,000 SF for $26.8 million. In Shawnee, Sealy & Company acquired a 99,700 SF industrial building within Perimeter Park Commerce Center from Jones Development for $11.23 million.