Hot off a record-setting year, St. Louis’ industrial market is continuing to fuel new growth and development across the region, according to research by JLL. For the third consecutive year, absorption in St. Louis’ industrial market kept pace with new construction. Since 2015, the market has both absorbed and built more than 12 million square feet of space, and the construction cycle is expected to continue as users and developers already have more than three million square feet under construction in 2018.
The region’s activity is following national trends that show nearly 75 percent of new completions in the fourth quarter were speculative deliveries. After slow downs in early 2017, the U.S. industrial market experienced a strong bounce-back in demand with 82 million square feet of net absorption, an all-time high fourth-quarter absorption.
Factors influencing industrial’s growth
No one will be surprised to learn that e-commerce and its closely related sectors of third-party logistics (3PLs), and logistics and distribution contributed much to industrial’s overall leasing demand in across the U.S. in 2017. Here locally, 3PLs and logistics and distribution contributed to 38 percent of total leasing.
Land availability in St. Louis is certainly another appealing factor for the industrial market. The region has plenty of it to accommodate large-size warehouse development being sought by big users. Developers are responding to the need at big developments such as Gateway Commerce Center and Lakeview Commerce Center in Edwardsville. Two buildings totaling more than 1.4 million-square-feet are set to deliver there this year. Both the Metro East and North County still have ample space for new development despite having absorbed almost three million feet of space in 2017.
The investment of new capital in the market is also fueling growth. In 2017, investment sales reached nearly $800 million. Newcomer L&B Realty Advisors made its first purchase in St. Louis, acquiring two fully leased buildings in Gateway Commerce Center. Both buildings were developed on a speculative basis. Other new investors to the region include Sealy (925,000 square foot portfolio) and Transwestern Investment Group (two million square foot portfolio).
David Branding, managing director and leader of St. Louis’ industrial real estate and supply chain and logistics platform said, “New Investors and developers have found St. Louis to be a safe bet for returns and a market very capable of producing the amount of tenant demand required to fuel new investment and construction. Investors who hadn’t before considered St. Louis are now bringing substantial amounts of new capital to the region, while developers are meeting demand for warehouse space upwards of two million square feet sought by big users. As more tenants come to the area, so does more capital and opportunities for everyone in the Metro.”
What’s next for St. Louis?
While most construction last year was on a speculative basis, several notable owner-user projects will deliver in 2018. Davidson Surface/Air, True Manufacturing, and MiTek all have projects under construction totaling almost 1.5 million square feet. These projects and others in the pipeline indicate the market isn’t showing any signs of slowing. As consumer patterns continue to shift even more towards online buying, we can expect demand for e-commerce warehouse space to continue to surge.