The industrial market is reaching new heights in construction and dropping to the lowest vacancy rate in over a decade. Yearly absorption numbers have been positive since 2011 with planned build-to-suit completions ensuring that this positive trend will continue. Direct asking rents for the region are returning to pre-recession levels. Reasons for caution do exist however with deal pipelines slowing slightly and a possible inventory over-supply on the horizon.
New construction ventures are leading the majority of market activity. The biggest source of positive absorption during the third quarter was the delivery and occupancy of a new 829,700-SF build-to-suit facility by Davidson Surface Air in the North County submarket. The North County submarket had the highest level of positive absorption in the market for the quarter and is trailing only the Airport submarket for year-to-date numbers. Construction completions are totaling over 2.8 million square feet (MSF) for 2018 and new projects continue to break ground in St. Louis with the current under construction square footage reaching 6.3 MSF. This is the highest level of activity recorded in the history of St. Louis commercial real estate. The Metro East submarket is responsible for over half of the square footage, and the new World Wide Technology (WWT) facilities are over 30% of that number.
The overall vacancy rate for the St. Louis industrial market dropped in the third quarter to 6.21%. This is nearly two percentage points lower than in the third quarter of 2017. It is important to note that the market has not been below 6.21% vacancy since the third quarter in 2006 (and the rate was only below that level for one quarter before rising to 6.4%). Obviously, this story of low vacancy is not the same in every submarket across the region. Both Earth City and North County have double digit vacancy rates at 11.05% and 11.13% respectively. St. Charles County, West County, and Jefferson County experienced the lowest vacancy. Asking rents responded to the decreasing vacancy rates by rising year-over-year from $4.23 per square foot (PSF) to $4.58 PSF. The last time average rates were this high was in 2008. The peak for the market was achieved in the first quarter of 2007 at $4.83 PSF.
The labor market remains an important component of industrial growth in the St. Louis region. The Federal Reserve reported that the U.S. unemployment rate dropped to 3.9% in August, while the St. Louis market dropped to 3.3%. Access to a trained, skilled labor force is crucial for long-term growth. Preliminary numbers from the Bureau of Labor Statistics for September showed that Manufacturing jobs grew 2.4% over the last year. Growth for Trade, Transportation, and Utilities jobs remain positive. This sector is currently employs more people than pre-recession 2008 numbers.
Real GDP has grown consecutively for 17 quarters per the most recent April numbers from the U.S. Bureau of Economic Analysis. If investors and owners remain confident in the health of the economy, growth should continue.