It’s little surprise that the Kansas City, Missouri, industrial market saw falling vacancies and rising construction during the first quarter of 2020. It’s no surprise, either, that even with that strong start no one’s sure where this market is heading now.
The first quarter of 2020 was a strong one for industrial markets across the Midwest. This sector entered the year on a roll, and activity in it only increased during the first three months of this year. But this was all before the nation’s economy was thrown into turmoil by the COVID-19 pandemic.
Today? No one knows what industrial markets will do in the second quarter of the year and beyond.
According to its latest report, Newmark Grubb Zimmer said that the Kansas City industrial market recorded 2 million square feet of net absorption in the first quarter of the year. A total of 34,000 square feet of new industrial space was delivered to the market during the quarter, while projects under construction increased, too, from 6.2 million square feet to 7.1 million.
The industrial vacancy rate dropped by 70 basis points, from 5.7 percent in the fourth quarter of 2019 to 5 percent in the first of 2021.
The first quarter saw some big industrial sales, too. Newmark Grubb Zimmer closed the sale of a 210,750-square-foot industrial and flex portfolio made up of seven properties with 17 tenants. Located near I-435 and Front Street the infill industrial portfolio was a value-add acquisition by Odyssey Real Estate Capital in 2017.
And in new construction news, the city of Shawnee, Kansas, and the Shawnee Economic Development Council said in January that a new $90 million logistics park will bring up to 2 million square feet of light industrial, warehouse and distribution and cold space to Shawnee.
Located on the west side of Highway K-7 and 43rd Street, plans for the 182-acre Heartland Logistics Park include four Class-A multi-tenant buildings ranging in size from 192,000 to 940,000 square feet. The facilities will feature 32-foot to 36-foot clear heights along with extra car and trailer storage options.
The first building in the park received approval from the Shawnee Planning Commission in February. The property will have the capacity to accommodate up to five tenants and is projected to deliver to the market by the end of the year. Shawnee at the beginning of the year estimated that the park would bring from 1,500 to 2,000 new jobs to the city.
But the future? Newmark Grubb Zimmer in its report says that COVID-19 will reduce sales and leasing activity in the second quarter and beyond. The report, though, does say there will be opportunities for leasing and investment sales, especially in second-tier markets with low volatility. Loan-to-debt ratios are high, and owner-occupiers can refinance to record-low rates or lever up to improve their immediate cash position. Investors can refinance or acquire properties at far greater yield spreads than they could have a month ago.
Then there is e-commerce. As online sales continue to rise, the push for near-shore manufacturing operations will become stronger as concerns over international supply chain disruption will not be forgotten. Lean inventory levels will also be reconsidered, leading to increased space needs. Newmark predicts that investors will turn to industrial real estate as an asset class that is less volatile than equities and provides greater returns than the bond market.
