A Conversation With ... Ross Murray

Let’s start with a big picture on national developer interest. What types of properties are interested in coming into our market? And as we are now almost reaching that point of a half-million population metro area, does that allow us to tap into more?
It does. When you hit that 500,000 (population) threshold, it generally can grab the attention of some [users or] people that maybe historically have elected to wait, sit on the sidelines. Especially on the retail side. That’s not necessarily as important on the industrial side or the office side, although it gets the attention of people. The more dense bodies and the more population growth that they see, that’s more opportunities for them. And generally speaking, it starts with a need. So if you’re a restaurant looking to potentially operate in Springfield, bring a new concept to Springfield or you’re in Springfield and you want to expand, the more the population grows, then there’s opportunities to create more sites, do more developments, which bends the ear of the development community. Per CoStar, which is the reporting system that most people track the vacancy and absorption levels with, the office vacancy rate is 4.2% with Springfield MSA. Our retail is sub-3%, which is extremely healthy, very tight. Our industrial is sub-2%. So it speaks to the development community as well as the end-user community that we have a lack of inventory, but the demand continues to make us strong. That is a really positive sign for not only just Springfield but for the region. Our region has seen, post-pandemic, a tremendous amount of economic impact. Although in the development world on the spec development has slowed down over the last 12 to 16 months with the interest rate environment that we’ve been living in that’s higher than the last 10 to 12 years we’ve been experiencing, what we’ve seen is redevelopment of existing buildings that they can go through much faster. We are working with probably half a dozen different developers now on every sector. But trying to find the existing inventory is challenging due to the [lack of] vacancy.

In SBJ’s annual survey of business leaders, Economic Growth Survey, 40% of them said that they want to expand their office space in the market in the next five years. Interest rates are unlikely to go down meaningfully, and it likely won’t be cheaper to build. How are we going fill that need for more spaces?
I don’t see the construction inflation really changing a whole lot. But if the need is there, it’s up to that business owner to make the decision. Do I either forego the opportunity to expand or do I go ahead and jump on and build that building or lease another building, take more space? The majority of people are, mainly on the owner-occupant not the developer side, going ahead and moving forward, especially on the industrial world. Over the next 24 to 36 months, you’re going to see a gigantic amount of interest for onshoring of remanufacturing, distribution because of the world that we’ve experienced post-pandemic with everything from employees to (global challenges). I think the current political environment is trying to bring that back to the United States.

We’ve reported on the increased pressure, especially on small businesses, on the cost of leasing office and retail space. For some, it’s pricing them out of being able to do business. Can you talk about the trends with the cost of real estate?
There’s a direct correlation between construction of the shell buildings, the infill buildings, as well as the operational expenses that pertain to office space or any space, for that matter. As the landlords or developers build buildings, infill spaces and their cost of operational costs goes up, specifically real estate taxes, property insurance, which is a big one, and then just the expenses. In order for it to work financially for landlords and tenants, they have a number that they have to expect on a return; otherwise they can’t afford the opportunity to lease [or purchase] space. And therefore lies the challenge: What’s the rent, what’s the cost and does it work? And it’s ultimately up to that particular business if they can potentially absorb those expenses. The environment in our industry is not landlords are trying to be overly aggressive. These are fixed costs. I don’t see it going down drastically enough over the next 24 to 36 months.

What increase are you seeing year over year for that cost of real estate?
You are anywhere between 2% and 3.5%-4% depending upon what column that’s falling under. The Fed likes to see inflation at 2%. And we’re seeing those generally annualized, whereas before we would see those on a lease fixed for the first three to four or five years. Now we’re seeing them annualized either year one or year two just because of the inflationary metric that’s involved, and that’s not a developer or landlord trying to profit off that. That’s just dollar in, dollar out. When they go through the reconciliation each year, the itemized operational expenses, those are just real numbers.

What are some of the hot areas for development or redevelopment within our community?
On the industrial side, Strafford. We work for Rich Kramer, who’s built the new Strafford Rail Park out near John Deere. There has been 925,000 square feet of new buildings that we’ve leased or sold out there since 2020. The buildings that are out there are full. We have more that will be coming out of the ground. Republic, we’ve kind of seeing the same thing with what Amazon’s done or Lew’s Fishing. We’ve seen a surge in those two communities since 2020 for last-mile delivery. Springfield has also seen a tremendous amount of growth, but Springfield is somewhat challenged on fully entitled sites that are ready to go for those type of users – although we’re working on some now that will be announced hopefully in the next 18 to 24 months. In retail, we’ve seen a ton on the southwest side of town in around Springfield Plaza, which is on the skirts of Republic where the next Target is going. Then we’ve seen a ton around Costco, around 65 and Chestnut Expressway to Sunshine and 65, Battlefield and 65. There’s a ton of energy and momentum going on those sides of town.

What’s needed to get access to that next level of retail, like a Trader Joe’s or Whole Foods for instance?
The demand is there. The market’s still probably a little bit too premature. I think you’ll see Republic and Springfield and Nixa and Ozark, over a long period of time, we’re going to absorb into one region. To have a chance to successfully get those type of users that we’ve not been able to achieve, we have to focus as a region to lure those people in and prove to them that we have the disposable income, the sustainable growth, the future growth, the employment base that’s here to pick up on the radar. They have always identified southwest Missouri as an opportunity, but it’s when can we get there? They are looking at all these other first-tier markets first, where they can generate the Kansas Citys of the world where they’ve got a multimillion population MSA and disposable income of $150,000, which we can’t compete with yet. We have to prove to them from a region that we can support those type of numbers in order to really get on the radar. If we’re going to see the next level of retail and restaurants and economic growth, somewhere in the southeast side of town, we have 600 acres that we have been handling for 25 years with the Childress family at 60/65. We’ve got some momentum on that development now. If we’re going to unlock the key to the next level of this city, that particular corridor is an opportunity. That takes almost generations of time. That’s a large-scale, mixed-use development, so you’d have a whole host of different uses out there. Infrastructure has to be worked out, which we’ve got a plan that we’re working on for that; that obviously takes time and money and effort. And we’ve got the property’s already zoned. It’s going to take a little bit more time, I’m not able to divulge on the details, but we’ve got some traction now. You can’t just have one group or retailer. We have to have political help. We have to have the community help, the developers’ help, retailers’ help. We have to have a complete plan in place.

And now you’ve looped in City Utilities in support of redevelopment efforts in that area, in connection with its acreage around the decommissioned power plant and Lake Springfield.
You’ve got a unique opportunity there where you’ve got two landowners with close to 1,200 acres of future opportunities for our community. Those two properties would be an ideal opportunity to really unlock the key to the city for development.