The St. Louis office market continues to see a relatively slow pace of activity. As the economic downturn hit the market slightly later than the rest of the country, the recovery is also delayed, and companies continue to be cautious, with renewals dominating the leasing market.
As of the end of the third quarter, the market-wide vacancy rate was 16.3 percent, slightly lower than second-quarter figures. The vacancy rate has stayed steady between 15.5 and 16.5 percent for the past 5 quarters.
Firms continue to employ the blend-and-extend strategy of extending leases before the expiration date and locking in a lower lease rate at the same time. While asking rates have remained relatively steady, effective rates are lower than 2 or 3 years ago, and concessions, including free rent, are still being used by landlords to entice potential tenants in most submarkets.
Much of the activity within the marketplace is being seen at smaller sizes, between 3,000 and 5,000 square feet, with a dearth of large tenants in the market. Exceptions to this include Panera Bread, which recently leased 71,130 square feet at 3630 South Geyer Road. Recently, the St. Louis office market was dominated by the moves of several large law firms, including Thompson Coburn, Lewis Rice and Armstrong Teasdale. With those moves completed, it is hard to predict the next large wave of transactions to impact the market. St. Louis is currently attracting few new companies to the market, so office landlords are seeing musical chairs from existing companies interested in exploring options in the market.
Average asking lease rates ended the third quarter at $18.61 per square foot, full-service, slightly higher than second-quarter figures but representing a decline from late 2008, when average asking rates were above $19.00 per square foot. The current Class A asking rate is higher, with the popular Clayton submarket asking $27.90 per square foot on average for top-tier space. On the opposite end of the spectrum, the excessive availability of Class A space in downtown, where the Class A vacancy rate is 21.5 percent, has depressed the asking rate for such space to an average of $18.45 per square foot.
The lack of overall velocity in the market isn’t to say that there’s nothing positive happening. Clayton continues to be a popular location for companies, with Class A vacancy hovering at 10 percent and few, if any, large blocks of space available. A new headquarters building for Centene Corporation was recently completed in Clayton, and that building preleased in excess of 90 percent of its 400,000 square feet of office space before completion. Large corporations such as AT&T Services Inc. continue to occupy space in the St. Louis area, with the telecommunications giant recently signing a 140,000-square-foot lease in the Corporate Woods park in Earth City.
With the exception of the Centene building, there has been little new construction in the St. Louis market aside from a few build-to-suit projects for companies such as Elsevier, Edward Jones and Monsanto. Discussions on Ballpark Village, a mixed-use project to be located adjacent to Busch Stadium, have begun once again, though there are no concrete plans yet. Express Scripts, one of the area’s largest employers, is searching sites for yet another build-to-suit project to join Phase I and II of its headquarters adjacent to the University of Missouri-St. Louis and a specialty high velocity filling pharmaceutical facility built earlier this year.
The sales market has been predictably slow, but activity has been increasing, with a few opportunities in the investment and sale/leaseback market. Earlier in the year, KBS Realty Advisors expanded its footprint in the Clayton submarket by buying the Pierre Laclede Center, a two-building, well-leased office complex totaling nearly 600,000 square feet.
— Mark Palmer is senior vice president at CB Richard Ellis’ St. Louis office.