KANSAS CITY INDUSTRIAL MARKET
8.8 MSF of new supply from construction was the most on record.
“The Kansas City market continues to be a thriving industrial market as a result of its geographically-centralized location, superior infrastructure and business-friendly foreign trade zone program. Kansas City is home to the largest rail center in the U.S. by tonnage and is ideally located at the crossroads of the east-to-west corridor and the route from Mexico to Canada. Multiple intermodal facilities and infrastructure continue to spur development activity within the market. Four interstate systems converge upon Kansas City, resulting in more freeway-lane miles per capita than any other U.S. city, while allowing goods to be delivered to 85% of the nation’s population within two days." — Ed Elder, SIOR, President | Kansas City
Kansas City’s central location and multiple intermodal operations allow the growing e-commerce and distribution sector to quickly deliver goods. Many major retailers continue to invest in the market, evidenced by decade-high absorption and development in 2017. While Kansas City can reach a large percent of the U.S. populace in a few days’ drive, the surrounding population is also large and growing. In 2017, over 14 million people lived within 250 miles of the market’s core and this is projected to grow by over 2% in the next five years.
Kansas City is one of the most logistics-friendly industrial markets in the country. Its ground, air and rail offerings rival all other markets in the U.S. Logistics Park Kansas City (LPKC) continued to grow and attract tenants at an unprecedented pace for the market in 2017. The park is served by BNSF Railway and continues to show the growing demand for occupiers to be near inland ports with a capacity to hold 17 million square feet of industrial buildings. There are 7+ million square feet of new distribution facilities at LPKC, with speculative and build-to-suit opportunities available.
Due to a large amount of new development, the overall vacancy rate in Kansas City climbed slightly to 6.7% in 2017, a 0.1 percentage point increase compared with the previous year. Despite the increase, the overall vacancy rate remains much lower than the decade rate of 7.9% in 2011. The pace of new development seems to have slowed at year-end while demand remained high, meaning vacancies will most likely decrease in the coming year.
At 7.4 million square feet, net absorption in 2017 crushed the previous annual record of 6.4 million square feet in 2016. The market continues to do well with all occupier types, evidenced by large leases from the retail, wholesale and 3PL sectors. With demand from e-commerce expected to increase in the coming year, the Kansas City market will continue to thrive with record levels of absorption projected for the foreseeable future.
At year-end, construction completions reached an all-time peak of 8.8 million square feet, surpassing the previous record of 8.7 million square feet in 2016. New development was warranted in Kansas City, evidenced by the vacancy rate essentially remaining stable despite over 16 million square feet of new development the past 24 months. Under construction declined at year-end to only 5 million square, its lowest level since 2014, but with demand expected to increase, ground breakings should also increase in the coming quarters leading to another strong year for development in 2018.
Asking rates have risen steadily since 2009, finishing the year at $4.64 per square foot per year NNN. While rents have increased, they remain well below the national average. These economic rates will continue to be a draw for major tenants to enter and expand within the market in the coming year.