Apartment conditions in St. Louis will soften this year due to job losses and localized oversupply; however, some submarkets in the metro area will record a relatively strong performance. The local labor market is projected to be weighed down by the manufacturing sector and the trade, transportation and utilities segment, resulting in approximately 12,000 job cuts in 2009, which will ease apartment demand.
Vacancy is projected to climb 100 basis points this year to 8.6 percent, the highest rate since early 2006. As a result, owners will reduce rents in an effort to maintain occupancy levels. The average asking rent is forecast to end the year at $722 per month, a contraction of 1 percent, following a 1.7 percent advance in 2008.
In the near term, fundamentals will firm in the Airport/Interstate 70 and Clayton/Mid-County submarkets, as their proximity to arterial routes will continue to generate healthy tenant demand. As such, vacancy is forecast to retreat approximately 60 basis points to 9.5 percent this year in the Airport/I-70 submarket, while vacancy in the Clayton/Mid-County area is expected to fall roughly 30 basis points to 7 percent. Class A properties near interstates 270 and 170 are projected to outperform as a result of limited stock additions and heightened leasing interest.
Elsewhere, ongoing redevelopment and gentrification efforts have been slow to take shape downtown. However, apartment developers remain fairly active in the area, as approximately 80 percent of the 510 units slated to come online throughout metro St. Louis are scheduled to come online in the North City submarket. The redevelopment of the Union Pacific building was originally planned to include 98 condos and 57 apartments, but has been revamped in light of the slumping housing market to feature 193 apartments, which represents an emerging trend that will likely continue throughout the year. The Union Pacific endeavor, which will be the largest project to come online in the St. Louis metro area this year, is on pace for completion in the fourth quarter. Despite the housing downturn, condominium construction is proceeding at a brisk pace in the submarket. Approximately 350 for-sale units are slated for completion in the submarket this year, which represents 55 percent of the metro area’s total projected for-sale deliveries.
Looking ahead, anticipated employment growth along the Interstate 55 corridor has developers targeting the South City submarket with nearly 550 apartment units in the planning pipeline. The area is relatively underserved, with just 6 percent of the metro area stock, and has a median household income level that is 11 percent below the metro average, which will bolster apartment demand.
— Stephen Maulden is the regional manager of the St. Louis office of Marcus & Millichap Real Estate Invest-
ment Services.