Guest poster John Hassler believes in Kansas City’s strength as a rail hub. Unfortunately, developers and investors aren’t sinking their dollars into creating new rail-served properties in this important Midwest market.
By John Hassler Zimmer Real Estate Services, L.C.
From its humble beginnings as a trading post that employed the first permanent rail bridge over the Missouri River to its current days of boasting the largest rail center (by tonnage) in the United States, the Kansas City area has long been thought of as one of the Midwest’s foremost rail hubs.
In a time of rising fuel costs, environmental footprint sensitivity and supply chain sophistication, conditions are ripe for industrial users in the Kansas City area to take advantage of the major Class-1 railroads (UP, BNSF, NS, KCS) running throughout the nation’s most centralized location.
However, the reality is that many users who are in the market for existing buildings serviced by active spurs are continually coming up short in their search for viable options. At a time in which national Class-1 rail tonnage has increased by 6.7 percent over the last decade, the number of buildings advertising the potential use of rail lines in the area has fallen by .33 percent.
The reasons for the lack of actively-served alternatives are widespread but much of the problem can be traced back to the mid 1990s when we saw a major directive by rail companies to remove their lightly or completely unused switches and replace them in areas of higher and more concentrated traffic. Other unused switches were detached in an effort to reduce the expense of ongoing maintenance and the liability of deteriorating lines – an exercise that ended up impacting lesser-utilized Class-B and -C buildings moreso than their larger and more heavily used Class-A counterparts.
Additionally, while rail has continued to become a more appealing mode of shipment for most organizations that require bulk freight transportation, many in the area have also faced a barrier of entry into rail usage as the investment to bring inactive spurs and lines back to life, coupled with moderate to low tonnage requirements, have often proved to become an unreasonable proposition for all involved.
Further, this lack of rail service has continued to go virtually unnoticed by area developers as only 2.16 percent of industrial properties constructed during the last 10 years have yielded actively served alternatives. The pace has since come to a complete halt as there is not one major industrial project slated for delivery to the market within the next 12 months employing an active spur capable of delivering carloads directly to users.
At a time in which the demand for rail continues to grow without end in site, developers and investors should be reexamining the benefits of Kansas City’s strategic location and today’s historically low rates to reinvest in turnkey rail-served properties that will stand out in this market and provide a solution for years to come.
(Sources: CoStar Group / KC Smartport / Association of American Railroads / Barbara Moore & Tony Love – Union Pacific)
John Hassler is an associate with Kansas City’s Zimmer Real Estate Services. He can be reached at 816-268-4208 or by e-mail at [email protected]
