Metro East industrial market thrives despite COVID-19

This aerial photo courtesy of Contegra Construction Co. shows twin buildings constructed this past year for World Wide Technology in Edwardsville.

On the heels of record setting industrial activity in 2019, the Metro East industrial submarket that includes Madison and St. Clair Counties in Illinois is poised for another strong year in 2020, even as COVID-19 puts a damper on other sectors of the real estate market.

While the submarket ended the first quarter of 2020 with a slight increase in vacant space on the market, the level of industrial sector activity queued up for the rest of the year indicates it will continue to be a hotspot for investment and construction in the months to come. The overall positive trend extends the construction boom occurring in the St. Louis region since 2015.

Data compiled by Colliers International indicates the Metro East has added nearly 9.5 million square feet of industrial space since 2015, which represents 38 percent of the entire St. Louis market activity. For the last two years, it has been the dominant construction market with 35 percent of the activity in 2018 and 56 percent of total market construction in 2019, with an impressive 3.5 million square feet of construction deliveries.

Activity in 2019 included two new buildings totaling more than 2 million square feet added for World Wide Technology, which represented the largest lease in the history of the St. Louis industrial sector. The company later announced it was also renewing leases for its current Madison County locations totaling an additional 1.2 million square feet.

Fast forward to spring 2020 and the good news continues with word that a well-known e-commerce giant is about to sign leases for two additional facilities in the St. Louis region, with the potential that one or both will be in the Metro East. Should that e-commerce giant be Amazon, the new locations will bring the company’s total footprint in the St. Louis market to nearly 4 million square feet, and up to 67 percent could be in Southwestern Illinois.

Primed for further e-commerce growth

Steve Zuber, CCIM, SIOR, Principal with O’Fallon, Ill.-based BarberMurphy, specializes in industrial real estate in downstate Illinois, and he believes a positive outcome of COVID-19 is likely to be continued growth in those types of warehouse shipping facilities. Furthermore, he says the Metro East submarket is primed and ready for that growth.

“Our availability of existing warehouses, land and developers ready to jump on projects is our strong suit,” said Zuber. “I’ve been talking with colleagues at Contegra Construction, TriStar and NorthPoint Development, and we all think the industrial market will come back stronger than ever after this.”

Within the modern bulk market, the Metro East region already has the highest level of buildings with more than 500,000 square feet of space available for growth. It currently has more than 80 percent of the market options. As the value of online shopping and quick delivery continues to increase, the Metro East market is strongly positioned in that sector.

“While specific changes ahead may be hard to predict, the market stands ready to support a potential reshuffling of the global supply chain,” said Mary Lamie, executive vice president of Multi-Modal Enterprises for Bi-State Development, which oversees the St. Louis Regional Freightway as one of its enterprises.

Lamie points to how COVID-19 has exposed the nation’s reliance on globalization and its weaknesses as evidenced by how the supply chain struggled to keep up with the demand for masks, gowns and other protective gear health care workers need during the pandemic. This, along with continued panic buying and sheltering–in-place supply buying, will likely result in a move toward more localized supply chains, propelling additional growth in the nation’s industrial market.

“This Southwestern Illinois submarket has the most active modern bulk warehouse space in the entire market, with availability that freight and logistics companies will need for potential expansions and relocations, and our available capacity is supported by one of the most efficient multimodal freight hubs in the nation,” said Lamie.

Infrastructure investment supports future growth

With the importance of the American supply chain in the spotlight – specifically the need to expedite COVID-related medical and cleaning supplies — the role of the freight industry in keeping America moving is also top of mind; and the world class freight network in the St. Louis region provides another compelling reason to think some of the anticipated industrial sector growth will occur here.

The region’s commitment to continuing to invest in its freight network plays a key role in accommodating that growth. Lamie says, based on their tracking, more than $1 billion in critical infrastructure projects are moving forward across the St. Louis region, including the $222 million rehabilitation of the Merchants Rail Bridge, the joint project by the Missouri and Illinois Departments of Transportation to complete more than $800 million in improvements along the I-270 corridor, as well as $33 million allocated by the state of Illinois for the Dupo Interchange at I-255 and Davis Street Ferry Road, and $81 million in state funding for the relocation of Illinois Route 3. And those are just a few of the projects proceeding at this challenging time.

“It’s very encouraging to see public and private funding advancing some of the region’s highest priority projects,” Lamie said. “Such investment is essential to the continued growth of the St. Louis region as a global freight hub and helps to ensure we maintain our vital role in supporting the nation’s supply chain.”

This story is part of a special section dedicated to the St. Louis Regional Freightway that appears in the May issue of the Illinois Business Journal, which covers the business of Southwestern Illinois. Go to Current Edition archives for the entire section.

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