The outlook for commercial real estate in the industrial market is expected to remain strong for St. Louis even with supply chain and interest rate challenges that continue to pain the overall economy, according to presenters at MetroWire Media’s first-ever St. Louis Industrial Summit, held on June 2 at The Hall at Olive + Oak.
Panelists providing insights into current and future opportunities included Ben Haas, regional investment officer, EQT Exeter; Ryan Marshall, development associate, NorthPoint Development; Adam Jansen, project director, Brinkmann Constructors; and Dan Lesinski, senior managing director, Newmark Zimmer; with Mary Lamie, executive vice president, Multi Modal Enterprises, Bi-State Development, and head of the St. Louis Regional Freightway, serving as moderator.
The CRE industrial sector has strong support through partnerships throughout and beyond the region in generating greater awareness of St. Louis as a resource for the industrial market, according to Lamie.
“Commercial real estate continues to meet the needs of industrial-grade owners in modern bulk and manufacturing with record-level construction and speculative development projects that are indicative of the strength of our region,” Lamie said.
The current 2 percent vacancy rate for the industrial sector shows that, “although there still may be some concerns (about the greater economy), there continues to be strong tenant demand and I expect a strong market (in 2022),” Haas said.
“The pandemic bolstered trends that were already in motion, especially office users shifting to remote; and e-commerce and online shopping as a preferred buying option for consumers,” said Haas.
From the perspective of the construction side of industrial CRE, Jansen said he expects to see a lot of activity from both the East and West Coasts creating more business for the St. Louis region thanks to its valuable central position.
“The multi-modal resources — rail, truck, river and air — of St. Louis make it attractive to a wide range of businesses and industrial uses,” Lamie said.
“Companies are locating, relocating or staying in St. Louis because of its central location and easy access,” said Marshall.
The other key factor in attracting industrial clients is the area’s pool of comparatively inexpensive labor.
“We have a dense population to deal from,” Marshall said.
With EQT Exeter’s 42 buildings and hundreds of tenants in the St. Louis region, Haas agreed that infrastructure and labor access are major attractions, but that “to bring in more companies, we need to see population growth,” he said. He expects the demand for e-commerce and third-party logistics space will continue to grow.
In response to recent demand for ever-larger industrial space, “We are in the process of identifying properties that are vacant and can be ready and available for new users,” Lamie said. “The demand is there for large locations at 800 to 1,200 acres, but they aren’t developed yet.”
“Our region is working on finding innovative solutions to manage the supply chain to improve transportation on the river and reduce truck traffic on the highways.”
Replacing the Merchant Bridge trusses will “knock such efforts out of the park” by making it possible for trains to move materials much faster.
“We are consuming much more than we’re producing, so we want to grow manufacturing businesses in our region,” Lamie said.
Presenters agreed that availability and costs of construction materials are still major concerns. Roofing, for instance, has increased 15 percent each quarter in the past couple of years. Two identical buildings in a Hazelwood, Mo. project are good examples: Steel for the first building was $5/SF in 2019, then went to $13/SF in 2021.
“We would be happy if it were that price now,” said Marshall.
“On the West Coast, it now can take a year to get deck and roofing materials,” Jansen said. “There’s always something — first it was steel, now we’re expecting issues with oil. No one knows what the next problems will be, so it’s hard to plan.”
Labor on the coasts is also a continuing issue.
“There’s no one to unload ships,” said Marshall.
In response to such limitations, presenters said they are seeing more companies start to move from “just in time” to “just in case” inventory strategy by purchasing more space than they need at the moment .
As it relates to new construction, with the supply chain constraints and delays in receiving construction materials, “We’re putting in building elements a lot sooner than in the past,” said Haas (referring to more recent new construction projects).
Pre-ordering and pre-leasing are becoming more common as well.
“At NorthPoint, we’re pre-ordering materials as soon as, and even before, a deal is finalized,” Marshall said.
Interest rates are another potential pain point for industrial commercial real estate projects, presenters agreed.
“The immediate effect is that developers and landlords have to put so much into projects that rents are going up 30 cents/square foot and annual bumps that used to be 2 to 3 percent are increasing to 3.25 to 3.5 percent,” said Lesinski.
“It’s an interesting time. We will need some yield on deals and cap rates, but industrial has been so strong that there hasn’t been a real effect quite yet.”
When asked to look into their crystal balls and predict the near future, panelists agreed that “Everyone’s putting up buildings,” as Marshall said; however, “Landlords and developers will start seeing an increase in smaller, local clients.”
In response to future areas of growth and development, Haas predicted that the “Highway 141 corridor could be completely built out five years from now.” Haas said that he would love to see plans for a new Container-on-Vessel port in Jefferson County Port Authority reach fruition because it could be a “big factor to make St. Louis unique and attract new companies.”
Regarding the future of industrial buildings, Haas expects e-commerce to continue to grow as a preferred buying option for consumers and expects that sustainability features, automation, and new technology - such as self-driving vehicles - to increase and be more present at industrial facilities.
“We will see more from the global perspective. We’re also looking for the breaking point between how much suppliers can charge for materials before we stop building,” Jansen said.
“2022 is shaping up to be a banner year in St. Louis,” said Marshall.
“For the next five to ten years, speculative developers will have to be more creative. Functionally obsolete buildings will be scrapped and repurposed. The outer areas will look more attractive because there won’t be any ‘dirt’ left to build on closer in. The market will continue to move west,” Marshall said.
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Check out MWM’s 2022 STL Industrial Summit photo album here.
Stay tuned for the next MWM STL event - 2022 Healthcare & Senior Living Summit - which will take place in Q3. If you are interested in hosting, sponsoring or being on the panel, please email lisa@metrowiremedia.com.