CBRE’s Orscheln: Don’t expect a cooling off in the industrial market

Joseph Orscheln

Joseph Orscheln

Guest post by Joseph Orscheln, CBRE

Kansas City has a significant value proposition with its centrality and excellent transportation infrastructure. According to KC SmartPort, Kansas City is the largest rail center in the United States by tonnage and has more Foreign Trade Zone space than any other city. KC SmartPort says, too, that our airport moves more air cargo each year than any air center in a six-state region, we have the most freeway miles per capita and we are at the heart of a rail corridor spanning coast-to-coast across the United States and extending from Canada to Mexico. All of these factors have played into Kansas City being on industrial users’ radars for potential distribution and manufacturing relocation and/or expansion.

To land these prospective companies, Kansas City had to have available Class-A industrial space for occupancy. In the past, the problem was that we had no big box industrial buildings for these companies to occupy. A variety of developers have certainly taken note during the last couple of years and are moving to put up spec buildings in each of our major submarkets to accommodate demand.

Since the Great Recession, we have seen more than 5.9 million square feet of speculative industrial space hit the market with another 4.4 million square feet currently under construction. To date, 5.27 million square feet has already been absorbed. This spec space (currently available and under construction) has been in 28 different buildings, in 12 different projects, controlled by nine different developers, in eight different municipalities and in four different counties throughout the Kansas City metro.

Even more astounding for our conservative marketplace, is the fact that if we combine build-to-suits with Kansas City’s overall spec numbers, then we have witnessed more than13.5 million square feet of new Class-A industrial space come online since the recovery. For a market that was not overbuilt before the 2007 economic downturn, this significantly shows the overall confidence in Kansas City that developers and institutional investors have for our marketplace.

Are we putting up too much space too quickly? According to our data, the answer is, NO! In 2014 alone, we saw eight new buildings delivered to the market and nearly all of the space is already occupied and the overall absorption in the industrial spec sector was 2.5 million square feet.

Kansas City has more than 250 million square feet of industrial space. But when we take a look at what is truly State of the Art (institutional quality construction, meaning 28’+ clear height, concrete construction with adequate loading capabilities), only 20 percent of our overall market qualifies. In the past, when a larger user was looking for bulk distribution space (more than 300,000 square feet) we had limited options, which meant that Kansas City was being skipped over for other markets that already had constructed space available. Even more telling is that only 5 percent of our overall marketplace is State of the Art big box. The United States has more than 12 billion square feet of industrial space, of which only 25 percent is big box. Kansas City is still playing catch up to the national trends, which shows that we are still poised for even more State of the Art speculative development.

It’s over-said at this point, but “Build it and They Will Come” still reins true in Kansas City. We are still seeing a steady demand for spec space from users both new to the market and from companies that are looking to grow locally. Of the companies occupying Kansas City’s spec space, roughly half have been new to market and the other half were local companies looking for expansion space. The future is bright for our beloved city and we should continue to welcome new companies looking for new distribution centers with new speculative space.

Joseph Orscheln is a vice president with the Kansas City office of CBRE.

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