KANSAS CITY—Cassidy Turley has just published a new study on this metro area’s second quarter, and it shows that the industrial market has started to see real benefits from the expansion of several major auto factories.
As reported previously in GlobeSt.com, Ford recently made a $1.1 billion investment here, including upgrades and retooling at its Kansas City plant, all part of a plan to manufacture its Transit commercial van and the F150 truck here. And in January 2013, General Motors announced that it would spend $600 million to upgrade its Fairfax Plant.
The impact on the many smaller auto supply companies here has been profound. “They’re now signing long-term contracts with the big auto companies,” Whitney Kerr, Jr., managing director and principal with Cassidy Turley, tells GlobeSt.com. “That’s a big difference from what we saw in the past.” Before the crash, “the suppliers would only lease facilities for two or three years; now, they are making commitments of seven to ten years, and many are developing their own facilities.”
Martinrea International, for example, one of the largest global Tier 1 auto-parts suppliers, signed a long-term, build-to-suit lease in April for a 275,560-square-foot building in suburban Riverside. The company will use the industrial facility, which will sit on 15.22 acres at 5233 NW 41st Street in the Riverside Horizons Business Park, to supply components for Chevy Malibus built at the GM’s Fairfax Plant.
And Martinrea is just one of many suppliers to begin sinking deeper roots here, Kerr says. “It seems like the auto companies are starting to think long-term and letting the suppliers make more profit so they will continue enjoying good financial health.”
If there were any surprises in the second quarter numbers, it was that even with all of the activity in 2013 and 2014, net absorption for the industrial market was low. The market has 195-million-square-feet, but produced just 84,000-square-feet of net absorption in the second quarter. However, the area still saw a lot of activity. “Gross absorption was 1.93-million-square-feet,” according to the Cassidy Turley study. “The quarterly average since the beginning of 2005 was 2.16-million-square-feet, so the second-quarter total was close to the long-term average.”
Vacancy rates also increased in the second quarter, from 7.7% at the end of March to 8.0% at the end of June. However, the boost was primarily due to the large amount of speculative construction in the market. “Second-quarter deliveries totaled 945,000-square-feet,” Cassidy Turley found. “This included three speculative buildings that added 729,000-square-feet to the market. They were not yet leased at completion.”
Carolyn Bagnall, Cassidy Turley’s director of research for Kansas City, says that vacancy may rise half a point by the end of the year, largely due to all of the construction underway. Developers have about 2.6-million-square-feet currently under construction, and about 1.8-million-square-feet are build-to-suit or have already been leased. About 832,000-square-feet remains available. Still, “by the first half of 2015, leasing should catch up, and vacancy should fall again to its historical average of 7.6%.”