Industry still bullish as St Louis warehouse boom continues

Ed Lampitt wasn’t concerned about hyperbole when he got up to speak last month for the Society of Industrial and Office Realtors’ annual market outlook.

It’s “the greatest industrial market ever,” declared Lampitt, who specializes in industrial real estate for commercial real estate firm Cushman & Wakefield.

With a steady rise in e-commerce driving demand for new logistics space, strong economic fundamentals and plenty of land still available to develop the giant warehouses the industry wants, St. Louis is coming off one of its strongest years for industrial real estate. And many in the industry locally aren’t shedding their bullish optimism in 2018.

“There are no economic indicators that point to the market cooling off, so to speak,” said Vince Bajardi, who heads Clayton-based Sansone Group’s industrial real estate practice. “There are users that are out there right now that need five, six, 700,000 square feet, and there’s only one building available that can accommodate that use.”

That’s despite a surge in speculative warehouse construction over the last two years in big logistics parks in Edwardsville, Hazelwood and St. Charles County. Some 4 million square feet of industrial space was completed last year, on top of the 6 million square feet delivered in 2016.

Big users have been filling the new space. E-commerce giant Amazon alone has leased well over 1 million square feet in Edwardsville and Hazelwood.

“For the last two or three years we’ve really been attracting companies that have not been in St. Louis before,” said Geoff Orf, senior vice president at commercial real estate firm Colliers’ St. Louis office. “And some of the more high profile tenants that have come to town have attracted other companies.”

Lampitt’s research estimates the region absorbed 5.4 million square feet of industrial space last year and has absorbed more than 2 million square feet a year since 2014.

Going forward, there’s about 2 million square feet of industrial space under construction and an additional 3 million or so on the drawing board, Bajardi said.

A 600,000-square-foot speculative warehouse in Edwardsville’s Gateway Commerce Center developed by a joint venture that includes Earth City-based TriStar is almost finished. Also in Edwardsville, Fenton-based Kadean Construction is building a 769,000-square-foot light industrial building in the Lakeview Commerce Center for Panattoni Development.

All the speculative construction has nudged up vacancy rates. Clayton-based Gershman Commercial Real Estate estimated the overall vacancy rate ticked up to 5.3 percent in the fourth quarter last year from 4.9 percent in the third quarter.

“The uptick in the overall vacancy rate is directly attributed to the increase in speculative construction,” Gershman wrote in a report on the industrial sector.

Commercial real estate firm CBRE’s end of 2017 snapshot of the St. Louis market found industrial vacancy rates had ticked up to 5.1 percent from about 4.5 percent at the end of 2016. Still, average asking rental rates rose to $4.74 per square foot, CBRE found, the highest in St. Louis since 2005.

Lampitt, at Cushman, noted that the industrial space under construction is slowing from the last couple of years. And his research suggests industrial vacancy rates are still well below the historic average of 8 percent in the market.

“I think our developers are doing a great job of being pretty disciplined in their approach,” he said.

St. Louis isn’t unique in the boom in industrial space. The growth of e-commerce and logistics is driving warehouse development everywhere.

“We’re not the only regional player that’s seeing historic construction and development,” Sansone’s Bajardi said. “All of our neighbors are, too.”

That said, Colliers tapped St. Louis as one of its 10 markets in the country to watch for industrial development in a report released earlier this year.

While much of the recent warehouse development here has been for finished goods and last-mile delivery to consumers, the St. Louis region does have significant infrastructure for bulk materials. Its port infrastructure and barge terminals give it a unique position with river commerce. And its six Class 1 railroads in the region make it a strong rail junction. Just Friday, Kansas City Southern announced a new $500 million freight facility for train to truck loading in the small Metro East town of Jerseyville, 20 miles north of Alton.

“Any way you can move goods more efficiently and cheaply is a positive,” Bajardi said. “When gas prices hit $4 a gallon, companies start looking at using rail again.”

But for now, with gas prices lower, St. Louis has ample space left to develop for finished good warehouses. Already, Kansas City-based NorthPoint Development is laying the groundwork for a new logistics park with space for 3 million square feet of development north of the St. Louis Outlet Mall in Hazelwood.

“One thing we have going for us right now in terms of very large users is we have a number of parks that can support very large industrial development,” Orf said.

View original article published by the St. Louis Post-Dispatch here -