By Mary Lamie, Bi-State Development
Modern bulk distribution buildings under construction in the St. Louis region hit a historic high earlier this year, approaching 8 million square feet. The record level of construction illustrates the industrial real estate market in the southwestern Illinois and eastern Missouri region continues to expand to meet ever-increasing demand as world and domestic markets strive to move beyond the disruption that has defined the past two years.
The need for reliable freight logistics and flexible supply chains is proving more essential than ever to keep economies moving, and regions that can meet those needs while delivering the modern bulk and manufacturing space distributors and developers demand will have the greatest potential for continued growth.
Mary Lamie, Bi-State Development
In mid-2022, nearly 7.4 million square feet remained under construction in the St. Louis region, a level of construction 78 percent higher than 2021 and 47 percent higher than the most recent five-year average.
Also noteworthy is the fact that 100 percent of the modern bulk construction projects underway is speculative. That represents more speculative activity in the region today than in 2019, 2020 and 2021 combined, a clear indication that developers believe the St. Louis market is a solid place for investment. The number of major national institutional-grade owners with a presence in the region also jumped almost 78 percent, from 19 in the second quarter of 2021 to 34 in the second quarter of 2022, further underscoring the strength of the market.
As the projects underway are completed, they will add to the more than 78 million square feet of modern bulk inventory this region already offers, all supported by a world-class freight network and an industry leading labor force. The new inventory being delivered this year comes at a good time given the region’s low vacancy rates and still affordable rental rates. A recent report from Colliers reveals the direct average rate for industrial space in the market is up nearly 16 percent from one year ago, but relatively stable at $5.42 per square foot.
The St. Louis region provides tremendous optionality to efficiently move goods in and out via river, rail, truck and runway, and continuing investment in infrastructure and industrial space will support that freight movement well into the future.
The St. Louis Regional Freightway’s 2023 Priority Projects List includes 25 infrastructure projects totaling more than $3.8 billion, up $2.75 billion from last year. Those investments are focused on strengthening critical roads, bridges, rail infrastructure, and port and airport facilities, and help to drive the high level of industrial construction occurring on both sides of the Mississippi River in Illinois and Missouri.
The highest concentrations are occurring in North St. Louis County, Missouri (36.5 percent), Madison County, Illinois (33 percent) and St. Charles County, Missouri (19.3 percent). The I-70 corridor runs through all three counties, and 90 percent of all construction activity in the last five years has occurred within a 10-minute drive time of that corridor.
I-70 in the St. Louis region has become a vital freight transportation corridor supporting the global supply chains for the aerospace, automotive and agricultural industries. More than $133 million in infrastructure projects have been funded along that significant corridor to improve the route and support the economic drivers located along it. One of those drivers is True Manufacturing, where Chester Jones serves as manager of supply chain operations.
“Our headquarters sits right off I-70 in O’Fallon, Missouri, and we often say here that I-70 is the heartbeat of True Manufacturing. With facilities located to the west in Mexico, Missouri, then down south in Pacific, Missouri and north in Bowling Green, Missouri, we traverse I-70 with about 88 trucks per day going between the headquarters facility and those facilities. So, it’s key for us to have ease of access and the ability to move quickly throughout the area,” says Jones.
Another noteworthy corridor is a 60-mile stretch of Illinois Route 3 near St. Louis. Spanning from north of Alton in Madison County to south of Waterloo in Monroe County, this nationally significant heavy industrial corridor is a thriving hub for manufacturing and logistics operations that generate more than $16 billion in annual business revenue and support 221,881 direct and indirect jobs.
The Illinois Route 3 corridor has distinct advantages over other areas around the country, such as the percentage of direct jobs in manufacturing, transportation and warehousing that greatly eclipse the regional and national averages.
More than 22,000 of the workers are employed in the top two sectors within the corridor — manufacturing and transportation/warehousing — which respectively represent 14 percent and 13.8 percent of the total workforce. That is significantly greater than the St. Louis region and the United States, where manufacturing is just over 8 percent and transportation/warehousing is 5 percent of the total workforce. More than 20 types of manufacturing operations are present in the corridor, delivering a location quotient of 1.26 or more and indicating a noteworthy regional concentration.
“These concentrations and logistical connections make it a unique asset in the Midwest from a site selection point of view,” says Doug Rasmussen, CEO and managing principal of Steadfast City Economic & Community Partners, the author of a recently completed economic impact study on the Illinois Route 3 corridor.
More information on these logistics corridors can be found in the St. Louis Regional Real Estate Market Indicators Q2 2022 Report. Commissioned annually by the St. Louis Regional Freightway, it presents key industrial market trends and statistics for the St. Louis region.
It also highlights the competitive advantages that reinforce the region’s unique position as one location with global access, including the presence of six Class I railroads, five airports with capacity, four interstates with national access and America’s third largest inland port, which is home to the Ag Coast of America. The Featured Real Estate Sites Map shows the dozens of prime industrial sites across the bi-state region, including those served by rail, and can also be found at https://www.thefreightway.com/real-estate/.
Mary Lamie is vice president of multimodal enterprises with Bi-State Development and head of the St. Louis Regional Freightway. This article originally appeared in the September 2022 issue of Heartland Real Estate Business magazine.