The industrial sector has surged during the last year in the biggest markets in the Midwest. Kansas City is no exception. Fueled in part by the rush of consumers to online shopping during the COVID-19 pandemic, Kansas City’s industrial market enjoyed a boom year in 2020. And so far? This year looks just as strong.
Consider this number: 8.9 million square feet. That’s how much industrial space was under construction in the Kansas City market as of the end of the first quarter of this year, according to research from CBRE. CBRE also reported that 2.7 million square feet of industrial space was completed in the first quarter. In total, more than 15 million square feet of industrial buildings are on track to be completed in 2021. That would be a record for the market.
Midwest Real Estate News recently spoke with two of the leaders of KC SmartPort, an economic development group serving the logistics industry in the Kansas City area: Chris Gutierrez, president of KC SmartPort, and Elli Bowen, vice president with the organization. They both agreed that the future of industrial in the Kansas City region looks bright.
To start off, can you tell us a bit about Kansas City SmartPort and how busy it has been during the pandemic?
Chris Gutierrez: We cover an 18-county, bi-state region. Our goal is to bring new freight-based economic development to the area. The Kansas City industrial market has been on a strong run for the last 10 years. The pandemic has pushed the gas pedal even farther to the floor. Our industrial activity in 2020 was unbelievable, and we did all our work remotely. We did not meet with clients in person. We did not travel. But still, 2020 was unbelievably strong. And 2021 has not let up. The market has been doing very well.
We did have to pivot last year. We got together, Elli, Mary Rooney, our marketing director, and I. We knew that we couldn’t stop the work that we do. We just knew we had to pivot to virtual. That’s what we did. We met with people virtually and kept the buzz going about Kansas City. Elli had the best example of opening a major project during COVID. She worked with Chewy (the pet food maker) on a 796,000-square-foot ecommerce fulfillment center in Belton, Missouri. That project opened during this pandemic.
The good news is that we are now starting to think about getting back to traveling and meeting people in person. But I think that we exceeded our expectations during the pandemic. We think we did pretty well. We just didn’t like it as much as we like being on the road and meeting with people in person.
How difficult was it to meet with clients and sell them on the Kansas City market when you had to do it all virtually?
Elli Bowen: Fortunately, we were well set up to be able to deliver the positive message of what it means to work in the Kansas City region. We just had to dig deeper to be able to deliver that epiphany of what it’s like to do business in Kansas City. In normal times, we’d get a client into the Kansas City market and get their boots on the different sites. We could more easily share with them what we feel in Kansas City. Going completely virtual, we lost that. We had to pivot to deliver the feel of what it is like to operate in Kansas City.
How challenging was it to get the Chewy fulfillment center project done during the height of a pandemic?
Bowen: We opened talks with their site consultant in the first week of the lockdowns here. Chewy got approval from Belton city officials in July. The entire process, from the start of talks to that eventual approval, was entirely virtual. It was certainly a learning process along the way.
The virtual process looked different for each of the projects we’ve been working on during the pandemic. We don’t have a cookie-cutter process. We identity what is important to each of our clients. We listen to their needs. We work with our community partners and local leaders to get their faces and voices in our virtual meetings. We might send drone footage of a site to clients. The goal is to get as much face-to-face interaction as possible and to listen to what is most important for clients.
Did you see any industrial slowdown during the pandemic?
Gutierrez: On the industrial front, activity never really stopped. As the demand for ecommerce and food delivery accelerated because of the pandemic, the industrial market kept growing. We recruited 12 companies to the Kansas City region in 2020. That was a record year for us. And the demand for this region continues into 2021. Most of the industries we worked with were deemed essential. People still showed up for work. The office sector and some other sectors had huge changes that they are still going through. On the industrial side, we continued to grow. In 2021, we are on pace to have a record year of industrial spec development. We are optimistic. We don’t see a change to this pace in 2022. I continue to be optimistic that our local market will keep building. Clients are interested in Kansas City.
What attracts clients to Kansas City?
Bowen: They each have their own reasons internally to build out their supply chain markets. But they are all interested in speed to market. That tops our clients’ lists. That became even more important when COVID hit. Companies were struggling to figure out how to add capacity to their network. Kansas City is positioned well. We have a local development community that is aggressive. Sites and buildings are available for companies so that they can come in quickly.
We also have a strong workforce. We continue to build out our talent pipeline. We are trying to remove any of the barriers to building out our distribution network. We are also helped by our location in the United States. We can reach 85 percent of the U.S. population in a drive of two days or less.
Urban Outfitters also announced during the pandemic, this summer, that it would build a distribution center that will cover nearly 1 million square feet near the Kansas Speedway in Kansas City, Kansas. That’s another sign that Kansas City is a desirable location for industrial real estate.
Gutierrez: Urban Outfitters had identified Kansas City as a central location between two of its distribution hubs in Reno, Nevada, and Philadelphia. When COVID hit, Urban Outfitters’ need for a centralized location to meet online and store delivery went through the roof. The company shifted from in-store growth to growth in its online sales. Urban Outfitters has called this new facility its heart. The company is building a state-of-the-art automated facility that will be cutting edge.
The workforce, the central location and speed to market, it is all here for them. The COVID pandemic accelerated that need to have product now. That is the key for us. That will drive new development opportunities here.
Ecommerce was on the rise before COVID. Do you think the pandemic will only spur more demand for online shopping?
Gutierrez: I don’t think we are going to see the growth in ecommerce slow. We are very focused on the food market here. My wife and I had a great Hello Fresh meal last night. We are fully invested in that model of food delivery, just like so many others are. I don’t see the demand for ecommerce slowing at all.
Bowen: Consumer behaviors shifted dramatically in 2020. I had never purchased groceries online before 2020. Now I don’t perceive myself as ever going back to shopping for groceries in person.
Amazon obviously remains the giant in online retail. How important is the Kansas City market to Amazon?
Gutierrez: Amazon has been the dominant player nationally in terms of industrial and they have been a big player here, too. Amazon has two facilities under construction in our region right now. We hope to see that continue as Amazon expands its own network of logistics. We will see Amazon continue to grow in Kansas City. But we are also focusing on other ecommerce players that are attracted to our market. We have a great relationship with these players, too.
What are the biggest selling points of the Kansas City market?
Bowen: It’s hard to beat our central location. We have a long history of being in the heartland. We have a strong transportation network. Being in the center of the United States offers a lot of benefits to these companies as they shift to a regional distribution model.