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Downtown St. Louis has Good Quarter, but Questions Remain

ST. LOUIS—Its 1Q performance was at least equal to some suburban submarkets, but several major tenants are set to leave.

By Brian J. Rogal | brianjrogal | | Updated on April 15, 2016

 

stl-hardees Hardee’s recently announced it would move its headquarters from downtown St. Louis to Nashville.
ST. LOUIS—The St. Louis job market has not only healed from the recession, it is now considered one of the best in the country, and that means its office market should continue improving in 2016, with lower vacancy rates and increasing rental rates. That was the conclusion of the latest market report on the region’s office sector by Cushman & Wakefield . The local unemployment rate decreased to 4.7%, by the end of the first quarter, down from 6.9% in March of 2014 and the lowest rate since September 2001, according to the Federal Reserve . And the St. Louis region now falls in the top 12 of the 100 largest metro areas surveyed. The suburban submarkets usually outperform the St. Louis CBD, but in the first quarter at least, the downtown held its own. It experienced 48,000 square feet of positive absorption, and the vacancy rate fell to 19.2%, down from 21.9% one year ago. And class A vacancy decreased to 16.3%, the lowest it has been in eight years. Still, “at this point it would be a stretch to call it a turning point as there are still some challenges that the downtown submarket will have to face, namely the loss of Hardee’s headquarters, the looming expiration of the AT&T’s lease for 1.4 million square feet that is not going to be renewed and the effects of the Peabody bankruptcy as they continue to shed jobs,” James W. Mosby , executive managing director of C&W in St. Louis, tells GlobeSt.com.   “These are more recent challenges but when coupled with the historical issues of an earnings tax along with the lack of and high cost of parking it is likely that downtown could take a step backward in the future,” he adds. The St. Louis office market overall recorded 170,000 square feet of positive net absorption in the first quarter. And in the past year, vacancy rates fell from 14.8% to 13.2%, the lowest rate since 2008. Furthermore, C&W is tracking an additional 130,000 square feet of positive net absorption for the rest of 2016.   The suburb of Clayton is one of the top submarkets in the region, and in the first quarter its vacancy rate decreased to 9.3%, the lowest point since the fourth quarter of 2000. Class A office space in the town is in very high demand, and that vacancy rate just sank below 7% for the first time since 2008, ending the first quarter of 2016 at 6.4%. West County experienced 57,000 square feet of positive absorption in the first quarter of 2016, pushing its vacancy rate to 12.7%, down from 14.2% one year ago. Positive absorption will continue next quarter with Centene’s move into an additional 62,000 square feet at 1350 Timberlake Manor, C&W says. There are some reasons to be optimistic about the downtown. C&W expects, for example, that the CBD will experience positive absorption next quarter due to Nestle’s expansion into 65,000 square feet at 100 N. Broadway. And according to Mosby, “ downtown is the only submarket that can offer any significant blocks of class A space. It is conceivable that a tenant may be forced to consider downtown because of the lack of supply in the county and assuming they can get past the historical issues.”  

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