Kansas City’s low vacancy rates and strong market fundamentals are a driving force for future speculative construction.
E-commerce activity continues to push new industrial development to previously unseen levels throughout the metro. The outlook for manufacturing remains positive while progress is being made to solve supply chain labor shortage issues.
• Economic growth in the first three months of the year remained positive, encouraging further industrial expansion.
• Asking rents continue to trend upward and demand levels remain high.
• E-commerce and overall retail growth will continue to fuel the need for industrial space for the foreseeable future.
Kansas City Highlights
The Kansas City industrial sector continues to reach new heights for the metro as e-commerce activity fuels new industrial development throughout the metro. The Kansas City industrial market continues to perform exceptionally well and has exceeded record levels of construction to keep pace with current demand.
Recent Activity Within the Industrial Market
Economic growth in the first three months of the year remained positive, encouraging further industrial expansion. The U.S. industrial sector has operated full steam ahead since 2020, a momentum that has carried quarter after quarter since. Robust industrial fundamentals at the beginning of 2022 point to further expansion for the sector. Essential economic indicators for industrial real estate, including loaded inbound container and intermodal rail volume, continue to move in a positive direction. E-commerce and overall retail growth will continue to fuel the need for industrial space for the foreseeable future.
Economic activity in the manufacturing sector grew in March with the overall economy achieving a 22nd consecutive month of growth. According to the Institute for Supply Chain Management (ISM), March registered a reading of 57.1 on their Production Manufacturing Index (PMI). ISM also reported that 16 of the 18 manufacturing sectors it tracks saw growth in March. The outlook for manufacturing remains positive while progress is being made to solve labor shortage issues at all tiers of the supply chain.
Recent Growth Around the Metro
Industrial development activity continues to operate at record levels for the market with more than 13.1 million SF under active construction in Q1 2022. Additionally, 2.98 million SF was delivered to the market during the first quarter. Low vacancy rates and strong market fundamentals continue to drive the need for future speculative development. The amount of new supply making its way to the Kansas City market is unprecedented, yet absorption totals and demand levels continue to keep pace with the elevated supply levels.
Several large industrial leases were completed throughout the first quarter for the Kansas City Metro. Nautical Manufacturing & Fulfillment leased more than 460,000 SF within Blue River Commerce Center. In Liberty, Scarborough International expanded their footprint by an additional 188,000 SF at Liberty Logistics Park. Zoetis, the largest global animal health company, is the first tenant to lease space within Lee’s Summit Commerce Center. The manufacturer will lease 215,000 SF of space. Schlage Lock Company leased 117,000 SF within Lone Elm Commerce Center, while Consolidated Electrical Distributors leased 106,000 SF at 45 Osage Avenue in Kansas City, Kansas.
From a transactional standpoint, growth in investor demand for industrial properties continues to surpass expectations as investors have a strong preference for industrial assets. As a result, the industrial capital markets sector recorded its best year ever in 2022. Investment activity is expected to remain robust. Additional opportunities will arise as recent spec construction will likely be sold after stabilization, given the current market conditions. Stockbridge Real Estate acquired the FedEx Freight Terminal located in Edwardsville, Kansas in the first quarter of 2022 for $90 million. The 339-dock-door truck terminal is 100% occupied by FedEx with a long-term lease in place. STAG Industrial acquired a 700,000 SF facility and an additional 17 acres from LaSalle Investment Management for $60+ million. The building is 100% leased to Musician’s Friend (Guitar Center).