It’s a common refrain in conversations with some of Wichita’s largest commercial real estate brokerages: the industrial market has been a 2022 stand-out performer with more room to run, even in the face of inflation and interest rate concerns.
“Industrial has continued to be one of the most sought after segments of the business, and we don’t see that slowing down,” said Johnathan Weigand, director of strategic initiatives at J.P. Weigand & Sons, in an email.
Evidence of that sector momentum could be seen last week, as the ICT21 industrial district landed its first tenant, Pennsylvania-based JTM Foods, for a 195,000-square-foot facility set for completion in 2023.
The national industrial market is showing signs of cooling from its torrid pandemic pace, as Amazon — one of the biggest consumers of warehouse space in the U.S. — announced earlier in the year it would be pulling back.
But Cushman & Wakefield recently found tenant demand to be up 30% on an annual basis, and local firms gave multiple reasons why interest in metro area industrial space remains high from companies looking for options inside the U.S.
Landmark Commercial Real Estate president Kevin Dreiling said the city is “very well located” for continued industrial opportunities.
Grant Glasgow, NAI Martens president and leasing broker for ICT21, said the work of WSU Tech and Deloitte’s The Smart Factory on Wichita State University’s Innovation Campus are examples of investments that stand out to companies evaluating where to put a facility and needing high-quality employees.
“One of our strengths is our workforce,” he said.
Beyond Industrial
There are other sectors doing well, Brad Saville, Landmark Commercial Real Estate founder and CEO, said.
“Restaurants — especially with drive-thrus — have been easy to fill,” he said. “QSR (quick-service restaurant) and fast casual concepts have continued to purchase ground and expand quickly.”
Weigand highlighted retail and restaurant momentum, as well, with “a definite uptick” particularly in the Class A sector.
For commercial activity, overall — in addition to rapidly-growing areas on N. Greenwich Road (from 21st to 37th Street) in northeast Wichita and N. Maize Road (from 29th to 45th Street) in northwest Wichita — Saville noted several other hotspots, including Derby and N. Ridge Road.
Saville and Weigand both flagged multi-family and medical development as areas of continued strength, with Saville saying he has also seen “an increase in activity for office and retail interest in downtown Wichita.”
Rachel Lange-Mills, director of real estate at Lange Real Estate, added that land deals are doing well.
“Investors are maximizing on the opportunity to develop land and new construction continues to expand with rental rates still rising,” she said in an email.
There are a few soft spots in the market, though, Saville said.
“I feel that there is a weakness in big box retail as well as suburban office,” he said.
Weigand added that, with the exception of medical, office space “still has not recovered post-pandemic.”
Inflation, Interest Rate Impacts
Even with the local market high-points, there is no ignoring pressure that inflation and rising interest rates are putting on commercial real estate.
“We are expecting interest rates to continue to rise over the next 3-6 months and then hopefully go back down,” Saville said. “We are sure hoping that inflation will slow down.”
Lange-Mills said her team has seen “more national users being impacted by the fear of the unknown and uncertainty of the market,” but that on a local level, “we seem to be more isolated from this occurring.”
After an extended stretch of labor, inflation and supply chain impacts on construction, Saville said he is seeing progress on some of those fronts with positive implications for real estate.
“We are starting to see construction materials stabilize with lead times becoming more predictable,” he said. “For the last 12 months, construction prices and lead times have been a runaway train.”
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