St. Louis Ind. Market Set for Big Expansion

ST. LOUIS—The industrial sector in St. Louis is set to have another historic year, with 2.3 million square feet of space currently under construction, and several additional large speculative buildings planned for the Metro East, North County and St. Charles County submarkets, according to a new report from DTZ. And although absorption was slower in the first quarter of 2015 as compared to the first quarter of 2014, experts say this was hardly a surprise.

“It was impossible to keep up with the absorption we had in 2014,” DTZ managing director Ed Lampitt tells GlobeSt.com. The market got off to a strong start in 2014. And the rest of the year was also quite vibrant. The region saw 1.35 million square feet of positive absorption in the fourth quarter alone, bringing the 2014 total to 5.3 million square feet – the highest annual absorption figure recorded for the St. Louis area. In the first quarter of 2015, the market experienced 290,000 square feet of absorption. “That's a great number and a great start to the year.”

The current metro industrial vacancy rate is at 6.4% or about 80 bps lower than the historical average of 7.2%, according to DTZ. And for class A facilities the rate has sunk below 5%, Lampitt says. Furthermore, in several submarkets the class A rate has hit zero. “So we are getting very close to the bottom.”

The amount of space under construction or planned compares very favorably with the level seen in 2005 and 2006, he adds. Absorption should continue at a healthy level for the rest of 2015, and the vacancy rate could start to rise by the end of the year. For example, the 2.3 million square feet under construction includes Gateway 673, a 673,000 square-foot distribution building at Gateway Commerce Center in Metro East which, as reported in GlobeSt.com, TriStar Properties just leased to Saddle Creek Corp.,a 3PL firm.

Developers have several other buildings in the final planning stages, including Duke's 500,000 square-foot speculative building in St. Charles County and TriStar Properties' second speculative building at Gateway, this one with 717,000 square feet and the first building in Gateway constructed east of I-255. “We could see a few others by the end of the year,” Lampitt says, “and once these buildings hit the market in the fourth quarter we should see a slight jump in the vacancy rate.”

Much of the growth in the St. Louis region is due to a rising demand for modern distribution buildings like the TriStar projects at Gateway. Bulk distribution accounts for 70% of the space under construction and over 90% of the proposed space. It accounted for 139,000 square feet of absorption in the first quarter, shrinking the vacancy rate in these buildings to just 4.3%, down from 4.8% at the end of 2014.

“This is part of a national trend,” Lampitt adds. The wave of new development hit the coastal markets several years ago, but has now arrived in Tier 2 markets like St. Louis, Nashville and Cincinnati. “We're seeing a rise in speculative development across the country.”