Pain points for the CRE industry continue to include rising interest rates, high materials costs, labor and land shortage, extreme weather and risk management, even as business looks favorable, according to presenters at a recent CCIM-St. Louis luncheon focusing on “West County Expansion,” particularly in St. Charles County.
Panelists included Matt Bukhshtaber, vice-chair, CBRE|Capital Markets; Adam Glosier, principal broker, Scout Realty Group; and Matt Hrubes, senior vice president, CBRE|Advisory & Transaction Services and CCIM board member.
St. Charles County is Missouri’s fastest-growing area, occupying 6.2 percent of the state’s economy with a 406,000 population and growing, a labor force of 300,000 employees, lease rates at $5.23/SF and a 1.8 percent vacancy rate that is “dangerously low,” according to Hrubes. Homebuilding is at a steady increase, which will mean more demand for commercial projects and properties.
“Traditionally, this is the top construction area, but we need more projects to support that population and growth: more deals, more land for business parks, more malls, more development. The future of industrial growth is that rates are going to increase and we’ll have to compete with incentives. The tough part is to find land,” Hrubes said.
One attraction of West County is the convenient highway and rail access. Projects currently underway include Commerce Park West and the Cubes at Wentzville.
According to Glosier, developers of retaining projects like a car wash or urban care center are “sitting on money” because St. Charles County has “less overall competition and more disposable income, as well as fewer people per square mile so there’s more grass (land) and it’s easier to get land under contract.”
New retail in the area includes Dierberg’s in Lake St. Louis, Wentzville Bend, Frankie Martin’s Garden and RiverPointe.
Challenges in developing RiverPointe included negotiating with 36 property owners, many of whom didn’t want to sell, Glosier said.
“The only way to do (this project) was for the city to do it — to own the land.”
The project also was unusual in that the commercial developers were involved for more than ten years with no guarantees that it would be completed. A key attraction is that the Katy Trail wraps around the project, which includes returning Banger Island to being an island, with a lake as a wetland and an open water pool.
In multifamily development, “we have seen about 10 years of unbelievable momentum, with 15.4% growth in St. Charles County — it’s the tightest real estate market in the St. Louis region, with 10.4% rent growth and 32% in only four years,” Bukhshtaber said.
Contributing factors include jobs, home values, and average household incomes — all the elements that CRE developers look for. “I’m of the belief that there’s still plenty of runway to grow even more.”
Much of the current demand is for luxury projects for people in upper-class employment, Bukhshtaber noted, with 2,091 units currently under construction in the county.
“Developers are blowing through the usual numbers at higher rent rates, with projects leased before they’re even built. The lifestyle is unbelievable and will only advance.” Designs are what he called as close to single-family homes as possible, with high-end amenities responding to demand.
With $1.6 billion in manufacturing transactions in 2021, it’s clear that this area is “as recession-proof as you can get,” he added. “People will always need a place to call home, so it’s as safe an asset as you can get. Capital loves St. Louis and loves St. Charles County. What could derail this trend is inflation and its effect on the workforce, an oversupply of new construction and overall construction costs, but I think the pipeline will absorb it all.”
Bukhshtaber confirmed colleagues’ opinion that “the tough part is finding land.”
He predicted more renters as interest rates go up and homebuying becomes more difficult. All sectors will probably cool down a bit, but ”2021 was a record year, and I believe that trend will continue,” Bukhshtaber concluded. “The market is still great and the fundamentals are still great.”
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Feature photo (left to right): Matt Bukhshtaber, Adam Glosier and Matt Hrubes at CCIM-STL “West County Expansion” program. Photo credit: MWM STL.