Ed Lampitt, DTZ
The St. Louis industrial market posted net absorption of 5.2 million square feet in 2014, passing the all-time record for annual absorption set back in 2005 by more than 20 percent. This is more than double the square feet absorbed in 2013, which itself was a banner year.
The positive absorption figure has significantly affected the market’s overall industrial vacancy rate, dropping it to 6.3 percent — the lowest rate since 2005. The Class A vacancy dropped to an impressive 4.1 percent and modern bulk vacancy rate stands at 4.6 percent.
Just as in 2006-2007 when nearly 5 million square feet of new construction was delivered, St. Louis is seeing a surge of new construction with these historic vacancy rates.
The lack of available industrial space has drastically changed the landscape for tenants during the last few years. To put the issue into context, in 2010 after the Great Recession had begun, St. Louis had 26 Class A warehouse buildings with more than 100,000 square feet vacant, driving the Class A vacancy rate to 16.5 percent. In 2014, just three such buildings were available.
Strong absorption and low vacancy are affecting rents as well. Asking rents have jumped 20 percent since the beginning of 2014. Landlords are more confident than in the recent past and are tighter on concessions. They are also asking for higher rates as tenants find it more difficult to find space.
This pendulum shift is driving some tenants to take a closer look at Class B and C product. All of this points to additional new construction to address the lack of available space, especially large blocks, in the coming year.
Spec Construction Rebounds
Nearly half of all modern bulk product in St. Louis is located on the Illinois side of the Mississippi River in the Metro East submarket. Procter & Gamble, Dial and Unilever are just a few of the nationally known tenants that call this submarket home.
Metro East’s zero percent vacancy is forcing tenants to expand existing space or enter into a build to suit, and has developers focused on speculative development in the submarket.
The first speculative building in greater St. Louis since 2007 is under construction at Gateway Commerce Center in the eastern portion of the St. Louis area. The modern distribution park offers nearly 10 million square feet of inventory. The 673,137-square-foot modern bulk warehouse, Gateway 673, will be delivered this March.
Down the road from Gateway in Lakeview Commerce Center, WorldWide Technologies is expanding one of its existing buildings by 409,000 square feet, taking the building to more than 1 million square feet. The facility will be delivered this summer.
Firing On All Cylinders
The impact of the General Motors (GM) assembly plant continues throughout St. Louis as it has begun production of two new products, the Chevy Colorado and GMC Canyon. The St. Charles submarket has had zero modern bulk vacancy for the last five quarters and boasts just a 2.4 percent vacancy rate across all product types.
Demand from GM suppliers for industrial space is high due to proximity to the plant in Wentzville, Mo. a growth in the area is expected as GM recently announced it is adding a third line of assembly workers for an additional 700 jobs. This is the first time the plant has added a third shift since its inception in 1980.
Construction on the Missouri side has picked up as well. In North County, Panattoni Development Co. broke ground on its second building in Aviator Business Park, the site of the old Ford assembly plant in Hazelwood, Mo. The 535,000-square-foot modern bulk building will be the first speculative building on the Missouri side.
While speculative development has begun at Aviator, build-to-suit projects also have begun at nearby NorthPark. This mixed-use park, which is already the home of Express Scripts’ headquarters, recently broke ground on a major build-to-suit project for Swedish manufacturer SKF. Another build-to-suit for NorthPark is expected to be announced in the first quarter of this year.
Twenty miles south in Fenton, Mo., KP Development closed on Fenton Logistics Center in November 2014. More announcements about new construction at this 300-acre industrial park, vacated by Chrysler, are expected in the coming year.
While every submarket is pointing upward, all eyes will be on the North County submarket in the first half of 2015 when vacancy rates will be at their lowest.
Although buildings with 50,000 to 100,000 square feet are a small segment of the industrial market, currently North County has nine vacancies due to tenants moving to larger spaces.
Increased competition is expected as vacancy rates remain flat for buildings of that size. However, it is not expected to last long due to heightened demand.
— By Ed Lampitt, SIOR, CCIM, senior vice president of DTZ. This article first appeared in the February 2015 issue of Heartland Real Estate Business magazine.