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Brokers Ross and Ryan Murray say interest in industrial spaces has spiked in the last few months, including a 32,000-square-foot facility on Packer Road that recently attracted six buyers.
SBJ photo by Jessica Rosa
Brokers Ross and Ryan Murray say interest in industrial spaces has spiked in the last few months, including a 32,000-square-foot facility on Packer Road that recently attracted six buyers.

E-commerce drives shift in industrial demand

But brokers and developers say it's just a lot of looking right now with limited supply

Posted online

As developers work to ease a longtime demand for local industrial facilities, real estate brokers say the interest from regional and national companies to expand in the Springfield area has accelerated amid the coronavirus pandemic.

Commercial brokers say that as e-commerce soars and consumer buying patterns shift, the need for additional distribution, warehouse and manufacturing facilities will highlight the lack of local supply. It’s a national trend, too, as companies juggle an upheaval in global supply chains with shortages of everyday consumer goods.

“Industrial has become the new, indirect retail with e-commerce becoming so prevalent,” said Ross Murray, president of R.B. Murray Co. “When people are forced to not go to the local electronic stores, they’re buying it online and it’s delivered in the next day. That’s why this sector has seen so much demand compared to other sectors.”

According to commercial real estate data from CoStar Group Inc. (Nasdaq: CSGP), the current industrial development vacancy rate in Springfield is 3.3%. This is up slightly from data provided by the Springfield Area Chamber of Commerce in September 2019 that recorded an industrial vacancy of 2.9%, though still down from 4.9% vacancies in first quarter 2019.

Across the United States, average industrial vacancy neared record lows the first quarter of 2020 at 5.2%, according to Jones Lang LaSalle, a global real estate and investment management research firm. At the same time, the e-commerce industry more than doubled its leasing volume from the previous quarter to 24.9 million square feet.

R.B. Murray Co. has leased or sold 160,000 square feet of industrial space in the last 100 days, said Ross Murray, adding this does not include land deals where buyers are planning to build industrial facilities.

Murray’s brother, Ryan, CEO at the family firm, said several buyers or tenants have moved up timelines to close on deals in the last two months that were planned for later in the year or next year. He declined to disclose the companies because of nondisclosure agreements, but he said many are looking for ways to expand warehouse or distribution operations to keep up with changing consumer demands.

Meanwhile, several developers began working – pre-coronavirus – to ease the demand with projects spread across the region.

“With limited space available, you have a lot of people looking at the same properties,” said Ross Murray. “We have six companies currently vying for the same three units that are available. … People are doing what they can to get these spaces if it suits their needs.”

He said the company’s 11 listings, as of press time, have all generated interest from potential buyers or tenants over the last two months, adding that conversations happen on a daily basis. Their industrial listings are mainly located in the Battlefield Business Park off Kansas Expressway and near the Interstate 44 and U.S. Highway 65 interchange.

Aiding demand
Developer and real estate broker Tom Rankin of Rankin Development LLC and SVN Rankin Co. LLC said he’s continuing to add speculative buildings to his portfolio. Rankin recently completed over $20 million in developments at the Garton Business Park in Republic, according to past Springfield Business Journal reporting.

He’s now planning a 98,000-square-foot spec building on West Kearney Street and intends to have building plans submitted to the city by the end of June. He declined to disclose further details but said the project was planned before COVID-19 began to impact the market.

“I’ve definitely seen the retail and office market slow down, but the industrial market really hasn’t,” Rankin said, adding he had just leased 15,000 square feet in northwest Springfield to an undisclosed client. “Most of the people I’ve had inquire recently are looking for larger spaces, and there isn’t much out here like that.”

Whether some of the companies he’s worked with pull the trigger right now is unknown because of the economic impact of the coronavirus, he said, adding he’s mainly seen interest from national groups.

“The needs are still there, and companies are being cautious about if they want to expand,” he said.

In Strafford, a planned 220-acre industrial park with rail access has gained one tenant so far. According to past SBJ reporting, St. Louis-based occupational footwear company Warson Group Inc. is planning a 160,000-square-foot distribution warehouse on 10 acres at the park to be operational by the end of the year. Rich Kramer, partner of the development group, said they continue to hear from interested companies, though no additional deals have been made. Buyers have the option to build-to-suit or to work with the development group through design-build leaseback agreements, according to past SBJ reporting.

Kramer said he and Bob Kramer, both of Rich Kramer Construction Inc., bought out project partners Titus Williams, John Kramer and Brad Williams on May 15. He declined to disclose the purchase agreement.

“We feel confident enough to buy out the partners that this demand is moving forward,” he said.

Other industrial companies in the area have taken action into their own hands. SMC Packaging Solutions Inc. is wrapping up work on an $18 million expansion of its plant in Partnership Industrial Center, which is set to be fully utilized in June. The expansion, which began in February 2019, includes adding 270,000 square feet and rail siding.

SMC manufactures corrugated packaging, packaging supplies and protective shipping cartons. Company officials said in a statement to SBJ that box demand has increased because of the panic buying of household items amid COVID-19, though whether it will continue is unknown. Officials say their 410,000-square-foot facility will meet the company’s needs for the foreseeable future.

Additionally, Ross Construction Group is finishing up work on a 162,000-square-foot warehouse for SRC Holdings Corp. near Strafford. The facility will be used for one of SRC Holdings’ 10 subsidiaries, according to building permits filed with the city. Company officials did not return requests for comment by press time.

Other sectors
The coronavirus pandemic has seemingly halted most aspects of the market except the industrial sector, experts say.

Local developer Titus Williams said his main concern as a commercial property manager is that his tenants won’t be able to make rent. He thinks some retailers may shut their doors, which could have developers pausing new retail development plans as supply grows.

According to the National Association of Retailers, more than 47,000 retailers across the country temporarily closed in response to the pandemic. As a result, officials project more store closures than the 9,350 retailers that closed last year.

Though it’s too soon to know the full extent of e-commerce growth because of COVID-19, recent Adobe Digital Economy Index data shows that U.S. e-commerce has jumped 49% in April compared with early March, before shelter-in-place restrictions went into order. This includes a 110% boost in daily, online grocery sales between March and April, according to the Adobe Analytics data.

It’s also unknown how local companies that occupy retail or office buildings will address increased consumer demand or adhere to social distancing guidelines, said Ross Murray. He predicts many will likely do so within their current spaces.

“Most people are trying to do that within their existing footprint,” he said of the retail and office sectors. “We haven’t seen a demand for additional square footage yet, but that doesn’t mean it’s not going to happen.”

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