HEARTLAND SNAPSHOT, MAY 2007

Kansas City, Missouri Industrial Market

In metro Kansas City, Missouri, a new trend is emerging in the industrial sector. The logistics network is changing, as the nation’s economy shifts away from manufacturing and towards an increased focus on importing. Overwhelmed ports and distribution facilities on the East and West coasts have made the Kansas City area a prime market for the development of new industrial ports.

The Kansas City industrial market is hovering at approximately an 8 percent vacancy rate, down from 9.5 percent at the end of 2005. The overall market comprises 173 million square feet of industrial product. The net absorption in 2006 was just less than 3 million square feet. There have been 12 straight quarters in which the industrial market has produced positive net absorption

The average park size of 14 business parks studied in Johnson County, Kansas, is 98 acres, with an average lot size of 3.08 acres. The average size of the buildings is 25,506 square feet. The average percentage of developed and absorbed land in these parks is 88.25 percent. Available land has decreased from a total of 1,257 acres to a scattered 175 acres remaining for development.

This analysis indicates a disconnect between the size of past industrial parks (lot size and building size) and the current and future requirements for big box warehouses; these buildings typically range from 400,000 to 1 million square feet. Additionally, there is virtually no available land with the appropriate zoning and entitlements, as well as adequate infrastructure in place.

An example of this shift to larger industrial developments is the planned BNSF Intermodal Logistic Park. The 1,350-acre tract in Gardner, Kansas, will have a significant impact on the market. Approximately 1,000 acres will be developed for a major distribution center with the remaining 350 acres reserved for an intermodal facility. The primary users for this space will be retailers and logistic providers servicing the Midwest’s distribution requirements.

Small industrial warehouses that distribute within a 30-to-50-mile radius have primarily driven the Johnson County industrial market for the past 40 years. These buildings are built in a cluster and typically range from 12,000 to 40,000 square feet. The future for this types of facility may be related to animal health science. The Johnson County submarket is actively cultivating a growing presence in the animal health industry.

The shift to larger parks in order to accommodate regional bulk distribution facilities has put the Kansas City industrial market at a crossroads. The build-to-suit market indicates metropolitan Kansas City is on the map as a destination for super-regional big box industrial buildings, yet Johnson County industrial parks are virtually out of land. With a strong local economy, investors and developers must actively respond to the new product industrial parks are expected to deliver. The local development community has been slow to recognize the demand for new parks, and if it does not capitalize on this trend, others will.

— Robert Galamba is president of Kansas City-based Galamba Real Estate Services.


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