Despite the economic turbulence COVID-19 has unleashed on 2020, the industrial real estate market seems to have buckled in for a relatively smooth ride, according to a recent CCIM KC panel.
Brent Miles, chief marketing officer and founding partner of NorthPoint Development and Joe Orscheim, SIOR, CCIM, senior vice president of CBRE, joined moderator Ben Boyd, CCIM Kansas City director of programs and vice president of Colliers International, for a webinar discussion last Friday about the state of the industrial market.
Both Miles and Orschein agreed that e-commerce is the major driver strengthening the industrial market as online shopping has exploded during the pandemic. Miles noted that increased demand for industrial space for companies like Amazon and Chewy is COVID-related, but he thinks the expansion represents a permanent change.
“They are the infrastructure and the plumbing of how we’re getting goods,” Miles said.
According to Miles, NorthPoint Development, which owns approximately 75 million square feet of industrial properties across the United States, saw only about 5 percent of its clients request and receive rent relief.
Orschein said he anticipated more requests from tenants for rent abatement than actually were made. Landlords, he said, used the requests as an opportunity to obtain updated financials, and in some instances, to extend the lease term by the number of months they abated rent.
“It was good for both parties. It’s always good for a landlord to show that they’re looking out for their customer and obviously they want them to be financially strong so the project remains successful,” Orschein said.
Miles said that availability of labor remains a concern in the industrial market, with uncertainty about how future stimulus or bailout legislation will affect unemployment and labor.
Orschein noted that there is a challenge to find “really good tracts that are ready to go” in the Kansas City area in order to satisfy demand. “We’re getting weekly calls from out of town developers and capital sources that are looking to land here in Kansas City, and we just need more land. We’ve got to figure it out. There’s strong demand, and we’re not seeing any kind of a slowdown so we’re encouraging everyone to just keep putting them up and we’ll all fill them,” said Orschein.
Orschein also noted that rental rates in the Kansas City industrial market are “pretty steady and level” and that he is seeing lower cap rates. He anticipates that the local industrial market will see one or two big institutional players enter by the end of the year.
“Everybody is taking note of Kansas City,” Orschein said.
According to Orschein, there is strong demand for industrial space for the food industry; however, the challenge is to figure out food requirements and freezer cooler needs.
“It’s obviously very expensive and highly specialized, but the need is there. We’ve just got to figure it out in Kansas City. In the industrial world, it seems like after the first couple of weeks of COVID hitting, it’s like everybody just got on the same page and said let’s all get back to work and keep the train moving,” Orschein said.