The Kansas City industrial market is thriving, out performing other commercial real estate sectors in Q3
The Kansas City industrial market is thriving, out performing other commercial real estate sectors in Q3. Industrial construction activity has gained speed creating an unprecedented amount of new supply, yet absorption and demand continue to keep pace. Expect the Kansas City industrial market to continue performing exceptionally well despite the pandemic-related challenges other commercial real estate sectors face.
Key Takeaways
• Build-to-suit and speculative development are at all-time highs
• E-commerce will be the driving force in industrial real estate for the foreseeable future
• Suppliers are gravitating towards rail for inland transportation at a greater rate
Kansas City Highlights
The Kansas City industrial sector remains white hot as demand for modern industrial space stays elevated. E-commerce will be the driving force in industrial real estate for the foreseeable future as the ongoing global pandemic continues to fuel demand for consumer products purchased online. With sales continuing to grow, e-commerce now represents a 13.6% market share of total non-auto retail sales. The Kansas City industrial market is performing exceptionally well despite the pandemic-related challenges other commercial real estate sectors face.
Recent Activity Within the Industrial Market
The outlook for the industrial sector remains robust, especially in the near-term, thanks to a recovering economy and strong e-commerce trends. Essential indicators for industrial real estate, including loaded inbound container volumes and intermodal rail volumes, continue to rise. Rail traffic has grown consistently, with total annual volumes up more than 12% through the latest reported figures. Suppliers are increasingly gravitating towards rail for inland transportation as it is more cost-effective relative to trucking, especially as fuel costs continue to rise. Recently, the Cass Freight Index showed volumes of goods being shipped by road and rail in North America returning to pre-pandemic levels. As rail and truck traffic continue to increase, Kansas City remains well positioned for future growth.
The pandemic has presented challenges and opportunities for the manufacturing industry. Record-long raw material lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products continue to affect all segments of the manufacturing economy. Despite these challenges, manufacturing remains strong with output in expansion mode for the 16th consecutive month. The Institute for Supply Chain Management’s Production Manufacturing Index (PMI) registered 61.1 in September, up 1.2 percentage points relative to the previous month. In the same month, 17 of the 18 manufacturing industries reported growth.
Recent Growth Around the Metro
Industrial development activity continues to operate at record levels for the market with more than 12.75 million SF under active construction in Q3 2021, including 10.49 million SF of speculative inventory. An additional 2.25 million SF is under construction within build-to-suit products. In Q3 over 2.35 million SF was delivered to the market including the new 796,000 SF Chewy, Inc. building at Southview Commerce. Additional buildings delivered throughout the third quarter include Raymore Commerce Center Building I, Turner Logistics Building 2 and the first building in Heartland Meadows. Year to date, more than 5.35 million SF has been delivered to the Kansas City market, with an additional 5.88 million SF projected to be completed by the end of the year. Low vacancy rates and strong market fundamentals continue to drive the need for future speculative development. An unprecedented amount of new supply is making its way to the Kansas City market, yet absorption totals and demand levels are keeping pace with the elevated supply.
Several large industrial leases were completed in Q3 2021 throughout the Kansas City Metro. Turner Logistics Park continues to attract tenants to the new industrial park in Wyandotte County. Pratt Industries, Eiko and Bennett Tool & Die all signed leases within Turner Logistics in Q3. USPS signed a 151,000 SF lease at Riverside Horizons X, while Owens & Minor will lease the entire Building 1 at Executive Park Logistics Center, totaling 133,000 SF.
Growth in investor demand for industrial properties continues to surpass all other property types. From a national standpoint, core markets will continue to prosper. Look for the largest increases in emerging markets near logistics hubs and infill markets with large population centers, as investors look to increase their last-mile industrial portfolios. Investors are active in the thriving Kansas City market. In Lenexa, Taurus Investment Holdings acquired a 20-building industrial portfolio from Clarion Partners for $55.3 million. The 715,632 SF portfolio included buildings within Metro Business Park, Pflumm Business Park and Congleton Business Park. In Shawnee, SparrowHawk Real Estate acquired the first building of Heartland Logistics Park. The 272,882 SF building is well-positioned in the growing K-7 corridor. Southern Glazer’s Wine & Spirts purchased the first spec building completed at Raymore Commerce Center. The buyer will use the building for their growing distribution needs.
