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St. Louis Industrial Market Is a Force to Be Reckoned With

KP Development is redeveloping a former Chrysler assembly plant located in Fenton, Missouri, into Fenton Logistics Park. The 
295-acre site is situated near the I-44 and I-270 interchange.

KP Development is redeveloping a former Chrysler assembly plant located in Fenton, Missouri, into Fenton Logistics Park. The 295-acre site is situated near the I-44 and I-270 interchange.

The St. Louis industrial market has enjoyed robust growth in recent years in part because of a growing economy, the rise of e-commerce and 3PL activity, favorable tax incentives and abatement packages and a movement to quality from existing users. With a population of 37.5 million in a 300-mile radius and over 96 million in a 500-mile radius, St. Louis is a distribution force to be reckoned with.

Over the past five years, vacancy has dropped from 9 percent to 4.1 percent as of the second quarter of 2017. This number, paired with asking lease rates rising 9 percent during that same time frame, illustrate the health of the market. With more than 2.7 million square feet of space absorbed already this year, the 4.2 million square feet currently under construction will be absorbed quickly.

Jon Hinds, CBRE

Jon Hinds, CBRE

Low vacancies have spurred the need for speculative space, which has increased at a rate not seen before in this market. Recent ongoing or completed projects include a 548,850-square-foot space at Aviator Business Park, 158,000 square feet at Fenton Logistics Park and two 100,000-square-foot buildings at Hazelwood Logistics Center.

Having spec product on the market places St. Louis on the radars of users that require state-of-the-art space, but who don’t have time to wait for a build-to-suit project. This makes the entire metro more competitive nationally.

What’s driving demand?

Overall activity is being driven by multiple factors, the most visible of which is the rise of e-commerce users and 3PL firms leasing large blocks of space to satisfy requirements for distribution space and “last mile” shipments. These users are taking space anywhere from 100,000 to over 750,000 square feet and are buoyed by strong demand in the e-commerce sector.

There are also a number of existing traditional users that have taken advantage of the combination of the favorable economic climate and tax incentives to move from older Class B and C buildings into newer Class A space that meets modern demands. This flight to quality furthers the demand for new construction.

Katie Haywood, CBRE

Katie Haywood, CBRE

Major parks across Missouri and Illinois are generating tremendous volume with room to grow. Some of the major players for new development include Hazelwood Logistics Center, Premier 370, Aviator Business Park, Park 370 Business Center, Gateway Commerce Center, Lakeview Commerce Center and Fenton Logistics Park.

Some examples of public incentives sparking development are in Fenton Logistics Park, Aviator Business Park, and Hazelwood Logistics Center. At Fenton Logistics Park, the site of a vacated Chrysler plant, KP Development used tax incentives and a prime location for interstate access to bring the site back to life. The first spec building, totaling 158,000 square feet, was recently delivered at the property.

Hazelwood Logistics Center has experienced increased activity as of late, with four completed spec buildings in the past two years, and a fifth on the way. Offering 17 years of tax abatement, with 10 years of full abatement and seven years at 50 percent, allows lease rates to remain competitive for new construction.

Various cities assist with infrastructure projects in some cases, illustrating their commitment to growing the industrial footprint in their submarkets. Aviator Business Park, on the site of a former Ford plant, offers 25-year abatements, with 10 years of full abatement and 15 years at 50 percent.

Will Mura, CBRE

Will Mura, CBRE

Many of these business parks are not fully built out yet, setting the table for more space to be filled by new entrants to the market or by existing users looking for a move to quality space from older product.

We should continue to see strong leasing and investment activity over the coming years, and that also holds true for spec development. E-commerce and 3PL users are driving growth across the region as St. Louis solidifies itself as a distribution powerhouse.

— By Jon Hinds, First Vice President, CBRE, Katie Haywood, Vice President, and Will Mura, Senior Associate. This article first appeared in the September 2017 issue of Heartland Real Estate Business magazine.

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