Kansas City leads the nation with the lowest vacancy rate for 2019 industrial construction completions, according to a recent report from CBRE.
Developers completed construction of 289 million SF of industrial and logistics real estate in the U.S. last year, but any concerns of oversupply are tempered, as only 39 percent of space in new construction was available.
Deliveries outpaced the 255 million SF of new absorption, but with robust leasing from occupiers, especially e-commerce and retail firms that often require modern building design and amenities, supply and demand dynamics remain healthy.
“With national vacancy at 4.4 percent, it was becoming difficult for occupiers to find modern space,” said James Breeze, CBRE Global Head of Industrial & Logistics Research.
Another major factor contributing to the strong absorption of new construction is the increase in built-to-suit development—the construction of space for a specific space user. This segment made up 28.1 percent of new construction activity, as companies increasingly need unique requirements to meet their specific demands.
“This new supply is needed and will keep transaction activity strong, especially for larger deals. The robust activity in newly constructed product also warrants the large amount of groundbreakings we continue to see," Breeze said.
In markets with over 4 million SF of new development, Kansas City finished 2019 with the lowest overall vacancy rate for 2019 construction completions at 7.3 percent, followed by Miami, Baltimore, and Greenville, SC, which all had vacancy rates for newly constructed product under 20 percent. Dallas-Fort Worth was the strongest core market, with nearly 75 percent of the 25 million SF completed in 2019 taken.
“The statistics tell the story, there is still very strong demand in Kansas City from a wide variety of industrial users,” said Joe Orscheln, a senior vice president in CBRE’s Kansas City office. “The majority of the space delivered in 2019 was speculative, which speaks even further to market demand.”
According to the report, supply fundamentals should remain stable this year, as already 33 percent of the 309 million SF under construction nationwide is already accounted for. A pre-leasing rate of 25 percent for under-construction product typically are indicative of a solid leasing environment.
“With pre-leasing robust for under construction projects, the overall vacancy rate is expected to remain in check in the foreseeable future,” said Breeze.