Third-Party Logistics Providers Lead the Way in Kansas City’s Big-Box Warehouse Leasing Activity

Third-party logistics (3PL) providers leased more big-box (200,000 sq. ft. or larger) warehouse space in Kansas City and across North America than any other occupier category, according to a new report from CBRE.

In 2022, 3PLs accounted for 32.6% of local and 41% of North American big-box lease transactions, claiming the largest share for the first time since CBRE began tracking the activity in 2012. The previous leader in big-box leasing activity - retailers and wholesalers - fell to second place, taking 21.1% of the leasing share in Kansas City and 35.8% in North America. E-commerce only users came in third in Kansas City, accounting for 19.2% of local leasing activity, with food and beverage occupiers trailing at 17.6%.

As a result of enduring pandemic-era shifts, companies have expanded their reliance on 3PL partners to create resilient supply chains and economically address customer needs. Kansas City’s central location and economic rental rates will incentivize further 3PL expansion into the market, leading to increased taking rents.

“Kansas City is strengthening its position as a key logistics hub for automotive supplies, distributors and 3PLs due to the city’s strategic transportation infrastructure, robust labor pool and multiple intermodal facilities,” said Austin Baier, Senior Vice President of CBRE’s Kansas City office. “In the past three years, the city has delivered record big-box space while seeing absorption exceed space delivered, decreasing available inventory.”

High demand for space improved all of Kansas City’s fundamentals in 2022. Transaction volume equaled 2021’s record pace, leading to a 44% increase in net absorption to 11.8 million sq. ft. This made Kansas City the sixth-highest growth market in North America. The direct vacancy rate decreased 170 bps to 3.2% despite 10.5 million sq. ft. of construction completions. Seven million sq. ft. is currently under construction, with 17% pre-leased.

“Kansas City sale activity decreased in H2 2022. Rapidly rising interest rates have led to an increase of approximately 100 bps in core cap rates from the mid-4% range to the mid-5% range,” said Judd Welliver, Executive Vice President of CBRE. “Kansas City offers investors an opportunity to acquire assets at an attractive basis below replacement cost, and a going-in yield that offers positive leverage during year one.”

CBRE analyzed warehouses of 200,000 sq. ft. and larger since they are used for large-scale national and international product distribution. Encompassing the United States, Mexico and Canada, the big-box report found that industrial facilities had record-low vacancy rates and unprecedented rent growth in 2022, despite record new construction deliveries. Demand was driven primarily by a desire to serve markets with growing populations, modernize space for automation and improve supply chain resilience.

To read the full report, click here.