Future Cities
2023 North America Industrial Big Box Review & Outlook: St. Louis
April 4, 2023 5 Minute Read
St. Louis’ location provides quick access to a large portion of the U.S., making it a desirable distribution hub. While tenant demand has slowed, CBRE projects construction will not keep up with demand in upcoming quarters, leading to higher rents and lower vacancies.
Demographics
Nearly 3 million people live within 50 miles of St. Louis but, like many Midwest markets, this is expected to decline by 0.4% over five years. St. Louis’ strength as a big-box market comes from its central location and large population. Occupiers can reach nearly 23 million people and 9 million households within 250 miles of St. Louis.
Figure 1: St. Louis Population Analysis
Source: CBRE Location Intelligence, Q4 2022.
The local warehouse labor force of 38,000 is expected to grow 4% by 2032, according to CBRE Labor Analytics. The average wage for a non-supervisory warehouse worker is $17.76 per hour, 5.1% above the national average.
Figure 2: St. Louis Warehouse & Storage Labor Fundamentals
Source: CBRE Labor Analytics, Q4 2022.
*Median wage (1 year experience); non-supervisory warehouse material handlers.
Location Incentives
Over the past five years, there have been 111 publicly known economic incentives deals totaling over $222 million for an average of $20,551 per new job in metro St. Louis, according to Wavteq.
CBRE’s Location Incentives Group reports that top incentive programs offered in metro St. Louis include the Missouri Works Program, offering payroll rebates and discretionary income tax credits for new jobs. To qualify, at least two full-time jobs must be created with wages exceeding 80% of the average county wage.
Among the top incentive programs offered in neighboring Illinois is the Economic Development for a Growing Economy Program (EDGE), providing nonrefundable, discretionary tax credits for corporate income taxes for up to 10 years. These credits equal up to 50% of new income tax withholdings generated by a project’s new job creation. To qualify, companies with over 100 employees worldwide must invest a minimum of $2.5 million and create new jobs equal to 10% of the company’s total employment. Companies with under 100 employees worldwide must create new jobs equal to 5% of the company’s total employment.
Figure 3: St. Louis Top Incentive Programs
Source: CBRE Location Incentives Group, Q4 2022.
Note: The extent, if any, of state and local incentive offerings depends on location and scope of the operation.
Logistics Driver
The Port of Metropolitan St. Louis encompasses 70 miles and services both sides of the Mississippi River. It is the northernmost ice- and lock-free port on the Mississippi and is served by six Class 1 railroads, seven interstate highways and two international airports. Nearly one-third of the U.S. population is located within 500 miles of the port. St. Louis Lambert International Airport is a growing cargo hub, with total cargo volumes increasing above 5% over the past two years.
The Port of Metropolitan St. Louis is the northernmost ice- and lock-free port on the Mississippi and is served by six Class 1 railroads, seven interstate highways and two international airports.
Capital Markets
Like the broader market, St. Louis sale activity decreased towards the end of 2022. Rapidly rising interest rates led to an approximately 100 bps increase in core cap rates from the mid-4% range to the mid-5% range. User demand and rent growth should remain near 2022 levels as new constructions starts slow. St. Louis is ideally positioned of investment, offering investors attractive pricing to acquire real estate, significant rent growth, and a going-in yield allowing for positive leverage.
Supply & Demand
St. Louis big-box leasing and net absorption returned to 2020 levels, as leasing space to protect inventories slowed. Net absorption declined to 3.8 million sq. ft. Construction completions outpaced net absorption, raising the vacancy 120 bps to 4.2%. This rate remains 130 bps lower than in 2020. St. Louis remains more economical than other markets: first-year base rents finished 2022 at $4.03 PSF per year, a 15.7% year-over-year increase.
After a record year for development, construction starts have slowed. Only 1.2 million sq. ft. is under construction, the lowest of any market on this report. 3PLs represented 40% of 2022 total lease volume. They will remain active lessees due to St. Louis’ central location and lower-cost rents, despite economic uncertainty and competitions from other markets. This 3PL demand and low new first-generation inventory will lower vacancy rates and keep rent growth over double digits in 2023.
Figure 4: Share of 2022 Leasing by Occupier Type
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Figure 5: Lease Transaction Volume by Size Range
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Figure 6: 2022 Construction Completions vs. Overall Net Absorption by Size Range
Source: CBRE Research, 2022.
Figure 7: Direct Vacancy Rate by Size Range
Source: CBRE Research, 2022.
Figure 8: Under Construction & Percentage Preleased
Source: CBRE Research, 2022.
Figure 9: First Year Taking Rents (psf/yr)
Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
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