We asked Nick Jones, President of Kansas City, MO-based industrial development company, Jones Development, to share his insights about the industry.
Are there any industrial development-specific trends across the country you’re seeing that the KCMO market may or may not have seen yet?
Generally, a return to pre-pandemic normalcy. Despite the choppiness in the capital markets and uncertainty with current interest rates, underlying market and deal fundamentals matter again.
Over the past few years, there was a rush to solve for ‘bigger being better’. While that bet was largely correct coming out of the pandemic, we’re significantly over-supplied with 500k+ square-foot buildings, so it’s a matter of time before those larger blocks of space are fully absorbed – both in KC and beyond.
Given the availability of larger buildings, and less tenant activity at that scale, I think it remains to be seen how long that absorption run takes and then what happens to those rental rates.
Have you noticed any changes in the industry as it relates to the recent emphasis to on-shore manufacturing?
I think this is still in its infancy, but anticipate a long runway ahead. Coming out of 2020, we all quickly recognized our dependence on manufacturing overseas, supply chain challenges, and nearly four years later, while it’s much improved, we’re collectively working through the proper right-sizing of it all.
That said, I think self-reliance is starting to manifest itself as manufacturing is brought back to the states. Further, much of the Federal spending is just now starting to work its way through the system – chips, battery, EV, or otherwise. We foresee significant continued investment in the domestic manufacturing sector.
Economic uncertainty continues to exert pressure on consumers, developers, occupiers and investors. How do you think that will impact demand for industrial space in the next few years?
Investors and developers are dealing with the trifecta of high interest rates, muted tenant demand, and uncertainty regarding asset valuations.
Demand is healthy at certain sizes, valuations appear to be more stable than they were in 2023, and while hope is not a good business plan, there is a larger consensus that we might see some rate relief in the back half of 2024.
While we don’t predict widespread distress in industrial, there may be some isolated instances of significant stress.
At the end of the day, demand for industrial space ultimately comes down to the consumer. As long as the consumer is buying, manufacturers are producing and subsequently storing and delivering. Sticky inflation data persists leading to continued uncertainty and gridlock. So, it really remains to be seen how long the consumer hangs on. We foresee 2024 being another slower year, but are optimistic about the sector in the years ahead!