SNAPSHOT, APRIL 2004

St. Louis Industrial Market

Mark Branstetter, Vice President, Colliers Turley Martin Tucker

According to Mark Branstetter, a vice president with Colliers Turley Martin Tucker’s St. Louis office, the St. Louis industrial market is poised to perform well this year. For example, demand for manufacturing space is picking up for the first time since 2001. Investors and businesses are interested in 5,000-square-foot to 35,000-square-foot spaces, which is a segment of the market that has not been overbuilt. “Defense spending and a medical industry focused on the needs of aging baby boomers should fuel interest in manufacturing space,” he says.

The bulk market is also improving as positive absorption pushes down vacancy rates. While there is still pressure on landlords to offer concessions, rental rates for bulk buildings are inching up. “Rates have stabilized during the past year, and we are beginning to see signs of rental increases,” Branstetter notes. “Consequently, speculative construction may begin in the next 18 to 24 months as developers see opportunities appear.”

The southern Illinois side of the market is establishing itself as a base for regional distribution centers and services, Branstetter says. St. Louis-based TRiSTAR Business Communities’ Gateway Commerce Center, a 2,300-acre business park located in Madison County, has experienced the most activity.

Last year, construction in the park totaled more than 1.3 million square feet, including a 1.26 million-square-foot UniLever Distribution Center. According to Branstetter, another 1.1 million square feet of space is under construction for Hershey Foods, and Buske is completing a 420,000-square-foot bulk distribution building in the park. Also, TRiSTAR has announced plans to build a 500,000-square-foot speculative bulk warehouse, the first speculative building to be built in the center. Lanter Company, a full-service logistics company that provides contract and public warehousing, has built its third bulk distribution center at Gateway Commerce Center. Dial and Procter & Gamble already operate facilities in the park.

Gateway Commerce Center offers a number of advantages. According to Branstetter, the area receives incentives from the state of Illinois and local jurisdictions that help reduce building lease rates by 60 cents to $1 per square foot. Additionally, major improvements to Interstates 255 and 270 provide easy access to the park. It also has abundant land that is inexpensive and relatively flat, which makes it easy to develop.

“Gateway Commerce Center elevates the area’s standing as a viable regional distribution center,” Branstetter says. “While still trailing other cities, such as Chicago and Indianapolis, Gateway’s location in the Heartland, its tax incentives and easy access to the area’s major interstates make St. Louis more competitive in attracting large users of regional distribution space.”

The Missouri side of the market is also seeing bulk distribution activity. More than 900,000 square feet of new construction was completed last year on the Missouri side. Much of this space was for 14 warehouse/office buildings and six service centers, according to Branstetter. Additionally, Minneapolis-based Welsh Development Company is developing Broadway Pointe, a 125,000-square-foot distribution facility located south of the central business district.

Broadway Pointe offers access to Interstate 55/70, which connects the state’s two major metropolitan areas — Kansas City and St. Louis — and continues westward to Interstates 44 and 64. “These new buildings are very unique to the city of St. Louis because of their newer amenities,” Branstetter says. “Broadway Pointe will have higher clear ceiling heights, better maneuverability for trucks and for goods on one level, and amenities such as sprinklers and parking. Currently, the city has older stock with many industrial buildings that are functionally obsolete. The majority of these buildings remain occupied because rent is a bargain.

“Last year on the Missouri side of the area, occupancy levels increased the most in 4 years, with net absorption at more than 1 million square feet,” Branstetter says. “This side of the river continues to serve more local distribution needs.”

The investment market has also seen a wealth of investment activity in the area, Branstetter says. Boston-based TA Associates purchased a 270,000-square-foot bulk facility in Earth City, Missouri, and sold a portfolio of six properties to St. Louis-based Cornerstone Equities.

In late January, Chicago-based First Industrial Realty Trust purchased a six-building portfolio, totaling 812,000 square feet, from the California Public Employees Retirement System for $31 million. “These investment sales demonstrate that St. Louis is perceived as a stable market with reasonable prices and anticipated good returns on investment,” Branstetter says.

The industrial market in St. Louis should continue to see activity in the future for a number of reasons. For example, the area is a major center for defense manufacturers and related suppliers. “The presence of Boeing’s military operations, and its pending contracts, bode well for manufacturing in this sector,” Branstetter says.

Additionally, there is a burgeoning life sciences and biotech sector in the area. Some space has been or will be built to serve this sector. Developers of major healthcare systems, university research centers, medical supply facilities and retirement centers provide a strong base for sustained interest in medical manufacturing, and they feed development in the biotech industries.

Finally, the Big Three automakers (General Motors, DaimlerChrysler and Ford) have a major presence in the area. “Many of their suppliers find it advantageous to locate manufacturing or distribution facilities near these plants to service them,” Branstetter explains. “Just-in-time inventory continues to be a critical factor in developing strong ties to auto manufacturers.”

There are a number of areas in the St. Louis market that should experience growth in the next few years. Southern Illinois is a hot spot with Gateway Commerce Center, state and local tax incentives, easy access to improved interstates, and abundant and inexpensive land.

North St. Louis County also holds promise because it is strategically located near Lambert International Airport, Branstetter says. Local, state and federal governmental agencies, as well as area political and business leaders, plan to build business parks on the land that was vacated when the airport authority bought out homes and businesses to make room for a runway expansion.

Also, St. Charles County is one of the few areas with available land and the newest stock of industrial buildings in the St. Louis area west of the Mississippi River.

According to Branstetter, rental rates in the area range (per square foot) from $2.75 to $3.50 for bulk space, from $3.25 to $3.75 for office/warehouse space and from $8 to $9.50 for service center space. Vacancy rates in the area are 12.5 percent for bulk space, 6.1 percent of office/warehouse space and 15.3 percent for service center space.



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