When the parent company of Urban Outfitters announced plans for a new fulfillment center in Missouri last month, Gov. Mike Parson highlighted the advantage geography plays in the state’s search for new business developments.
“Missouri is a strategic choice for companies like [URBN brand] Nuuly that they are looking for a location in the middle of America for their expansion plans,” Parson said in a statement.
In recent years, the state has become a prevalent link in the supply chains of multiple companies due to its central location, incentive mix, and healthy labor supply. And even if warehouse rents have hit levels not seen in recent years, that’s unlikely to scare businesses anytime soon.
This is especially true in the Kansas City market, which experienced record net absorption of industrial real estate in 2022 despite unprecedented rental growth, according to JLL.
“Leases have seen increases in agreed-to final terms that haven’t been seen in decades, especially in new construction,” according to a fourth-quarter report from the commercial real estate company.
Notable Missouri warehouse listings from 2020
Note: The first eight facilities listed are all in the Kansas City metropolitan area.
The pressure of high transportation costs after the COVID-19 pandemic can make more expensive leases more attractive to businesses.
Occupancy costs account for just 3% to 6% of total logistics spending, according to a CBRE report released in November, while transportation costs account for 50% to 70%. Beyond cost, long transit times from distant facilities are a tough sell for consumers who often seek Amazon Prime-like delivery speeds, no matter which company they order from.
“Reducing order cycle time, which results from shorter transit times, is critical,” said Gawon Yun, assistant professor of logistics and supply chain management at Missouri State University.
Eighty-five percent of the US population can be reached from a Kansas City location in two days or less, according to the Missouri Department of Economic Development. This has led to increased interest in Kansas City-area real estate from companies with e-commerce fulfillment operations, including Chewy, which opened its 800,000-square-foot Belton, Missouri fulfillment center in 2021 .
Missouri has attracted the online pet products retailer due to its strong job market and geographic advantages, Pete Krillies, vice president of real estate, facilities and procurement, said in an emailed statement.
“In particular, the City of Belton has provided a prime location to accommodate the size of our business,” Krillies said. “This has allowed us to grow our Belton team to more than 1,100 team members and continue to serve our customers within our 1-2 day delivery promise.”
Chewy announced his plans at Belton in the summer of 2020, a time of immense economic uncertainty as the COVID-19 pandemic was still in its early stages. Subash Alias, CEO of Missouri Partnership, said it was a surprise when a company representing Chewy asked about the Kansas City area.
“We were so excited to get a call, but that was the first of many,” Alias said.
Demand for fulfillment and distribution centers to support e-commerce operations has increased further in the years since Chewy’s announcement, Alias said, and the planned opening of URBN adds to that trend.
Industrial tenants flocked to Kansas City last year
Top 10 markets by net take up of industrial real estate in 2022, by square footage
But sustaining momentum in Missouri may be tough: The local housing market is tightening while the national market is experiencing a slowdown amid a wave of economic uncertainty.
The Kansas City market’s industrial construction pipeline declined in the fourth quarter as completions outpaced pioneers, according to JLL. The firm attributed this in part to project delays as companies face higher interest rates, but noted that there is still room for growth.
“The pace of new construction in 2023 remains strong, surpassing levels seen at any time prior to 2022 and is expected to meet market demand,” according to JLL.