The St. Louis market, long known for its diverse economy, has been slow to extricate itself from the downturn. The retail real estate brokerage business has been mostly dormant for the past 2 years, particularly the tenant representation side, as scant few national retailers dared to brave the murky expansion waters.
Rental rates in the market decreased slightly from third quarter 2010, ending at $12.51 per square foot. However, rates have held up better in some submarkets, including West St. Louis County, where they are $20-plus per square foot. Prime properties at hard corners are holding their own, but second-tier properties have taken a pretty hard hit with rents down into the mid- to high-single digits. When the recession started, many landlords granted rent reductions almost uniformly to tenants and will have to live with their decisions for a while, but other owners held fort and demanded to see sales reports as proof.
This resilient region of nearly 3 million people is starting to show new signs of life heading into spring 2011. The market has seen slight improvements in retail vacancy rates, which dropped from 8.4 percent in third quarter 2010 to 8.1 percent in fourth quarter 2010, according to CoStar. The market also saw positive absorption in fourth-quarter 2010, filling a net 341,568 square feet of retail space, and that momentum seems to be carrying forward. Dollar stores and auto parts retailers like Family Dollar, Dollar Tree, Dollar General, Advance Auto Parts, AutoZone and O’Reilly Auto Parts are actively expanding and filling a number of vacant spaces. Shopping center owners also have been busy cleaning up and repositioning their aging centers in the past year to entice new tenants.
We’re seeing some pent-up demand for new retail product, albeit mostly for discounters such as T.J.Maxx, Marshalls, Big Lots and Ross Dress For Less, who are mostly filling a growing number of big box spaces vacated by Linens ‘n Things, Circuit City and other national chains that vanished during the downturn. Nordstrom Rack even opened its first St. Louis-area location last fall in Brentwood, on the site of a former Circuit City.
Not all new retail leases getting signed are value-oriented. A full-size Nordstrom department store is under construction at the St. Louis Galleria mall on a former Lord & Taylor site. The approximately 140,000-square-foot store, originally pegged for a fall 2010 opening, now plans a fall 2011 debut. The Nordstrom deal may help kick off Phase II of the mall’s expansion. Iowa-based Von Maur, one of the oldest department store chains in the U.S., opened at The Meadows at Lake Saint Louis lifestyle center in September. The 124,000-square-foot, two-level store is Von Maur’s first in Missouri. Fashion accessories retailer Charming Charlie also entered the St. Louis market in 2010 with a store at Chesterfield Mall.
In addition to a full-size store planned for High Ridge just south of the city, Walmart is experimenting with its small-format store footprints here and is trying to shoehorn itself into urban infill locations in Ellisville, Bridgeton, Florissant, Shrewsbury and has even shown some interest in midtown. They are exploring every available city and county subsidy, including tax-increment financing programs (TIFs) and other incentives.
Des Peres is among the most active submarkets in the area. Locally based Dierbergs grocery, which has about 25 locations in the St. Louis area, continues to expand and is developing a new freestanding store located on Manchester Road at Lindemann Road, just east of I-270 in Des Peres. The region's first Golfsmith store plans a spring opening in Des Peres on Manchester Avenue in a 25,000-square-foot space, along with arts-and-crafts retailer Michaels who plans to share the building. The space was formerly occupied by Schnucks grocery, which recently relocated. Competitor Golf Discount, which last year closed three of its five area superstores after falling into receivership, plans to return in 2011 with a smaller-format store, also slated for Manchester Avenue
Very little new retail construction is slated for 2011.The redevelopment of several prominent buildings downtown to feature significant ground-floor retail space are now off — casualties of the recession. Another casualty downtown was a niche grocery store at Olive and 10th streets, City Gourmet, which closed in October. It bowed to competition from Schnucks Markets’ new full-service Culinaria concept that opened only a block away.
Some obsolete retail buildings are being repurposed, including Crestwood Mall, the area’s first regional mall, which suffered the losses of Macy’s and Dillard’s in recent years. It has been transformed into Crestwood Court, where artists and cultural groups hold classes, perform, dance, exhibit and sell art. And, the 24-year-old St. Louis Centre shopping mall at 515 N. 6th St. downtown is being redeveloped into a parking structure with street-level retail, after years of sitting vacant.
The market is seeing spotty local growth in the restaurant industry as fast-casual eateries do very little in the market. Darden Restaurants has opened a few locations, including an Olive Garden in Wentzville. After paring back its store count a few years ago, Starbucks is opening new locations again. 54th Street Grill & Bar has added a couple eateries, taking its Missouri store count to seven, while Nashville-based BrickTop’s Restaurant, an American-cuisine chain, plans a 7,500-square-foot restaurant in Frontenac at the Plaza Frontenac Shopping Center on Lindbergh Boulevard this year. The casual Stadium Sports Bar & Grill is replacing the high-end SLeeK Steakhouse in Lumiere Place near the Edward Jones Dome downtown.
In the fast food arena, Chick-fil-A has been active, opening a store at the Arnold Park shopping center in Arnold in 2010, and a second store in Des Peres in early February on Manchester. Later this spring a third store is slated to open at Highway 94 and Mid Rivers Mall Drive in St. Peters. Five Guys Burgers and Fries and Panda Express are also seeking multiple sites in the market.
While the regional unemployment rate of 9.5 percent is in line with the national average, retailers shouldn’t be lured into a false sense of complacency until some of the market’s job losses are recouped. Consumer confidence is obviously on the rise and merchants were buoyed by surprisingly solid Christmas sales results, which certainly portend slightly better conditions for the St. Louis retail market for the near future.
— William S. Boudoures is an X Team International partner and president of Wm. Boudoures Co. in St. Louis, Mo.