SAUGET 鈥 In October, Alfredo Gutierrez closed on a deal that he had never seen in his 30 years in commercial real estate.
The founder of SparrowHawk, a Houston-based investor of industrial properties, worked out a bargain where a tenant agreed to move out of his company鈥檚 Sauget warehouse months early to allow a new company to move in. It was a win for both: The outgoing firm, medical supply company Medline, could end its lease early, save money and move to its newer facility sooner. The other tenant, color maker Sensient Technologies Corp., could finally land 300,000 square feet in a real estate market that has never been hotter.
鈥淚t was surprising, to be honest with you,鈥 Gutierrez said. 鈥淵ou have to have everybody working together, the stars aligning, so to speak.鈥
The deal underscores just how coveted industrial property continues to be in the 最新杏吧原创 metro area as e-commerce grows and companies seek to shore up supply chains impacted by the bottlenecks at ports. Rents are booming. Brokers are cutting more deals than ever before. And developers can鈥檛 build space fast enough.
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In the third quarter of 2021, the vacancy rate for industrial properties in the region was 3.9%, down a full percentage point from the same period in 2019. Average annual rent has risen from $4.32 to $4.91 per square foot as well, according to commercial real estate firm JLL鈥檚 最新杏吧原创 office. On a 300,000 square foot warehouse, that could add up to $177,000 more for landlords.
鈥淚n 最新杏吧原创, we鈥檝e never seen this kind of velocity,鈥 said JLL Executive Vice President Pat Reilly, who represented SparrowHawk along with JLL鈥檚 Dave Branding. 鈥淭here is unprecedented activity at every level.鈥
Milwaukee-based Sensient Technologies Corp. 鈥 once known as Warner Jenkinson Co. 鈥 needed a warehouse that was close to its north 最新杏吧原创 facility that has housed its food coloring plant since 1905. The manufacturer of colors, flavors and fragrances prefers to build its own warehouses, but the rising cost of construction materials made it cost-prohibitive this time around.
SparrowHawk鈥檚 Sauget property, about 8 miles away, offered more space than Sensient initially needed and it came with a unique hitch: The warehouse was occupied by medical supply manufacturer Medline, and Sensient would need to work with Medline on timing. With limited options and time, Sensient moved quickly on the deal after about a month of negotiations. Medline agreed to terminate its lease, which was to expire in July, and move out before year鈥檚 end to its new facility in St. Peters.
鈥淪parrowHawk put together a nice deal to help us grow into the building,鈥 said Matt Bartoe, general manager of Food Colors North America. 鈥淲orking hand-in-hand directly with Medline really has not been an issue.鈥
Investors are cashing in on the hot market, too. Clayton-based private equity firm ElmTree Funds invested in $4 billion worth of industrial deals across the U.S. spanning 47 properties, including a few locally. It expects to deploy an additional $3 billion over the next year, said founder and CEO Jim Koman.
鈥淚t鈥檚 the most competitive market we鈥檝e ever seen,鈥 he said.
The demand, as well as higher costs to build space, has jacked rent up for some tenants. Rent for some Class A industrial space in the 最新杏吧原创 region has spiked 20%, said Cushman & Wakefield Senior Director Matt Eastin, who represented Sensient in its deal.
There鈥檚 some relief in sight, though most brokers don鈥檛 expect it to last long. About 6 million square feet of new warehouses is slated to be built in the region over the next 12-18 months, nearly hitting the record delivery of 7.5 million square feet in 2019. Five years ago, 4 million square feet of new property was more typical here, Eastin said.
鈥淭he market has been on fire,鈥 Eastin said. 鈥淚f there鈥檚 any takeaway from 2021, it鈥檚 that we didn鈥檛 have enough supply.鈥
