REBusinessOnline

Demand Drives Bulk Industrial Construction in St. Louis Region’s I-70 Corridor

Pictured is the Hazelwood Industrial Center in North St. Louis County. (Photo courtesy of Srenco Aerial Photography)

By Allison Gray, Steadfast City Economic & Community Partners

The growing demand for distribution space and the related importance of freight logistics and a healthy supply chain have remained steady even though the COVID-19 pandemic continues to shake up markets across the U.S. and around the globe.

This demand is evident in the bi-state St. Louis region, where more inventory of bulk distribution space has been added in the five-year period between 2015 and 2019 than at any other point in St. Louis history, totaling more than 18 million square feet of top-of-the-line modern bulk space.

Allison Gray, Steadfast City Economic & Community Partners

Recent construction and development trends in the bi-state St. Louis area reveal that bulk distribution buildings — those that top 250,000 square feet — have been the highest growing sector for the regional inventory. Since 2016, 94 percent of all bulk construction has been focused along the vital I-70 corridor, while 90 percent  of the new major industrial parks with significant construction are located within 10 minutes of the I-70 corridor.

This corridor, which includes portions of I-170, I-270 and I-370, is a development hotspot that links Illinois and Missouri. It has emerged as a major logistics corridor supported with more than $600 million of roadway infrastructure investment that will help to foster continued growth among the national manufacturers, suppliers and distributors choosing to locate in this part of the St. Louis region. Already, the corridor is home to more than 28,000 businesses with more than 380,000 employees.

Those are just some of the findings captured in the St. Louis Regional Real Estate Market Indicators & Workforce Statistics report, which was released in May by the St. Louis Regional Freightway and focuses predominantly on bulk industrial buildings that are important to the freight and logistics supply chain.

Market fundamentals

The report further highlights the overall vacancy rate for the entire St. Louis industrial market, which dropped below 6 percent  for the first time in more than 15 years. Since 2016, construction for large distribution buildings in the region has been split evenly between speculative developments and build-to-suit projects for occupiers. Meanwhile, triple net lease (NNN) asking rents for the St. Louis bulk distribution market are currently $3.71 per square feet, which are lower than the average rates in the peer cities of Kansas City, Louisville and Nashville.

“Prior to the COVID-19 shutdown, industrial activity in the St. Louis market was so strong that, although transaction time has lengthened, market activity remained very good,” says Geoff Orf, senior vice president — industrial with Colliers International. “Amazon recently signed leases for another 1.1 million square feet in St. Louis and there are a number of active users in the market for 200,000 square feet or more — especially in the I-70/I-270 corridor. We expect industrial absorption this year to be on par with average absorption since coming out of the downturn.”

Rail activity

The report also points out several rail developments underway to further strengthen the freight network in the St. Louis region, which is the third-largest rail hub in the nation, linking six Class I, local and shortline railroads and serving all corners of the U.S. without the need for railroad interchange. Both BNSF and Union Pacific are working on plans to improve and increase their freight capacity on both sides of the Mississippi River, while Norfolk Southern services the General Motors facility located along the I-70 corridor in Wentzville, Missouri, which announced a large investment in the plant prior to the arrival of COVID-19.

Key elements of St. Louis’ labor force are highlighted, revealing how the St. Louis region has more workers in production occupations and transportation/material moving occupations than Louisville, Kansas City, Memphis or Nashville. The job-ready workforce in the region also supports specialized industry, with international companies that are leaders in aerospace, agriculture, metal manufacturing and recycling, logistics, chemical manufacturing and the automotive industry all maintaining a strong presence in St. Louis.

Companies that continue to expand their footprint and workforce in the bi-state area include Amazon, World Wide Technology, Bayer, Bunge and General Motors, while the region is also home to significant operations for Boeing, AB InBev, Hershey’s, Walgreens, ADM, Procter & Gamble, Unilever and Dial Corp., to name just a few. Various operations for many of these businesses can be found in the busy I-70 corridor.

These companies, and the many national developers and institutional grade investors active in the St. Louis market, benefit from the bi-state region’s competitive advantages in freight and distribution. In addition to being served by six Class I railroads, there are other logistical advantages, such as being home to America’s second-largest inland port based on tonnage, four interstates with national access, five airports, including two international airports that have cargo capacity, and an ample supply of utilities. Add in the availability of space and speed of delivery, and it’s clear that there are many factors continuing to drive growth within the region.

Many of the available real estate sites are featured in the interactive report’s map, which visually captures the concentration of developments along the I-70 corridor, while also showcasing just how rich the entire St. Louis region is with industrial parks and development-ready land for all types of industrial or corporate use. These sites can be accessed directly through the report or online at thefreightway.com/real-estate.

As supply chains continue to shift in response to the COVID-19 pandemic, the St. Louis region appears to be well positioned to accommodate those shifts, and that flexibility will play a key role in fostering continued growth in the region.

Allison Gray serves as vice president with Steadfast City Economic & Community Partners. This article originally ran in the September 2020 issue of Heartland Real Estate Business magazine.

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