Q&A: Why 2020 could be another banner year for industrial market despite a slowdown
October 23, 2019


By Steph Kukuljan – Reporter, St. Louis Business Journal

St. Louis’ industrial real estate market has been on a tear.

According to the most recent research from CBRE, the third quarter of 2019 marked the 23rd consecutive quarter of positive net absorption — meaning more space was occupied than vacated.

But how long can the region continue on this pace? The Business Journal asked three commercial real estate brokers who focus on the industrial market for their thoughts.

The second interview in the series is with Jake Corrigan, executive director of industrial services for Sansone Group, who said 2020 will be a year to watch.

How would you describe the industrial market in St. Louis over the past year?

Healthy but slowing down. The first two quarters picked up right where we left off last year with strong absorption and record levels of new construction. However, there has been a slowdown in large tenants active in the market. Owner/users in the 10,000-square-foot to 50,000-square-foot range remain very active, yet the lack of inventory has led to many hanging on the sidelines waiting for a correction. We should see a rush of inventory after the cannabis manufacturing and cultivation licenses are granted later in the year. As part of their applications, all participants had to secure real estate. Roughly 85% of the industrial real estate that is tied to medical cannabis will be back on the market in January of 2020.

What’s leading the charge?

Low interest rates, favorable financing and a healthy economy have worked in tandem to create the frenzy we have seen over the past two to three years. As cap rates have compressed on the coasts, we have seen both institutional buyers and developers flock to the St. Louis market in order to achieve more favorable returns. However, uncertainty with global trade wars and Fed rate decisions have forced investors to take a harder look at deals and question investment decisions more recently.

Where or what is the next big opportunity in the industrial market?

E-commerce numbers remain strong and no end is in sight. With that in mind, there are geographical certainties that place St. Louis in the crosshairs of the logistical map. As more traditional big box retailers transition to online service, the distribution market should keep trending up for the foreseeable future. Rumblings in Jefferson City to fully legalize cannabis in Missouri are real. With Illinois turning to full recreational, we should see Missouri follow closely thereafter. Bills are currently being drafted to get this initiative on the ballot for the next election. Should this happen, you will see a second green wave that will dwarf the first and another mad dash on industrial real estate across the state.

How long can St. Louis’ building boom continue?

While St. Louis has seen record levels of industrial construction, we still remain a conservative market. We should see a slowdown in speculative construction in 2020 as the large, 250,000-square-foot-plus tenants in the market have decreased over the second and third quarters. Build-to-suit deals represented roughly 60% of new construction last year. Expect that number to be closer to 80% in 2020. Assuming interest rates remain favorable and nothing earth shattering occurs in the economy, we expect 2020 to be another above average year.

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