Industrial X Missouri

An industrial slowdown? It’s not on the horizon yet

The “Help Wanted” signs tell the story. They keep popping up at warehouses, distribution centers and manufacturing facilities.

Mike Bell, vice president and general manager of Kansas City’s Hunt Midwest Real Estate Development, said that the industrial sector in his market remains especially strong.

And when he needs a reminder of this? He looks at Hunt Midwest’s own SubTropolis, the huge underground industrial complex in Kansas City. Bell said that the 53 tenants at SubTropolis are posting plenty of “Help Wanted” signs. Other tenants are adding new shifts so that their employees can work nearly around the clock.

These, Bell says, are the obvious signs of an industrial market that is soaring.

“The companies here are incredibly busy,” Bell said. “And that’s just one example. The industrial sector is busy across the Kansas City market. There is so much going on in this market right now.”

Bell isn’t alone. Commercial brokers across the Midwest say that the industrial market – including the demand for spec construction – is in the middle of a boom period.

This is backed up by the Mid-Year Investment Strategy Annual report in July by LaSalle Investment Management.

That report says that the industrial sector continues to be the strongest performer in the United States, with an overall vacancy rate of just 8 percent. That rate is the lowest that LaSalle has recorded in 16 years.

But there are changes coming to this market: LaSalle reports that construction is ramping up quickly in the industrial sector. And because of this, 2017 will likely be the first year since the U.S. economic recovery began that the vacancy rate for the U.S. industrial sector will rise.

This shouldn’t be cause for panic, though. Analysts with LaSalle say that industrial properties remain extremely attractive to investors and that demand for industrial space will continue to rise.

In fact, Bill Maher, head of research and strategy for the Americas with LaSalle, said that commercial real estate in general remains a top choice for investors. And Maher doesn’t see anything in the short-term that will change this, even with political uncertainty in the United States.

“In an enviornment of political change that has caused increased political and regulatory uncertainty, the financial and economic sectors, including real estate, in North America have remained remarkably steady,” Maher said.

The Kansas City market provides a good example of the enduring strength of industrial. Demand is rising, vacancy rates are dropping and rents are increasing.

What’s behind this increase in activity? Bell points to the growing popularity of online shopping. Companies are turning to Midwest markets such as Kansas City because they need to send their merchandise to as many customers as quickly as possible.

Locating their distribution centers and warehouses in the center of the country boosts this ability.

“For the longest time, the East and West coasts were the places to be in the industrial market,” Bell said. “That’s where the population was at its densest. But business is picking up in Kansas City and other Midwest markets largely because of how quickly people expect to receive the products they order online. That has had an incredible impact.”

Bell said that Kansas City benefits from its location today. It is well-situated for all companies that want to reach a wide swath of the country in one or two days.

This explains why companies such as Amazon and drugstore chain CVS are making such strong pushes into the Kansas City market.

But Bell said that the area’s strong labor force matters, too, when it comes to attracting companies to the Kansas City region.

Another key factor? Kansas City’s land prices are less expensive than what industrial users can find on the coasts.

“We have always had a good labor base here,” Bell said. “One of the keys to industrial is logistics, location and labor. If you have all three, you’ll grow. We have always had transportation and labor. Companies are now seeing, too, that we have a strong logistics base, too.”