Dynamic St. Louis Multifamily Real Estate Market Is on a Roll
The greater St. Louis metropolitan statistical area (MSA) includes the city of St. Louis, St. Louis County, Franklin, Jefferson, Lincoln, Warren and St. Charles County, as well as various counties in Illinois collectively known as the Metro East. The MSA ranks as the 21st largest in the country with a population of approximately 2.8 million residents and features many Fortune 500 and Fortune 1000 companies. St. Louis has a very diverse economy with the largest categories of employment base in transportation, utilities, education, healthcare, defense and professional/business services.
The per capita income for approximately 1.5 million workers in the MSA is approximately $60,000 per year. With an unemployment rate of 3.6 percent, the MSA has had almost 11 quarters of sub-4 percent unemployment.
In 2019 alone, payrolls across the MSA expanded 1.7 percent with a net gain of 23,100 jobs created. Of these, 1,500 jobs alone were created with the 2019 completion of Amazon’s first Missouri fulfillment center in St.
Peters, which is a western suburb of St. Louis.
Other major job creators include the 295-acre redevelopment project called Fenton Logistics Park in Fenton, which is at the forefront of transforming the logistics and manufacturing industries with 2.5 million square feet of distribution/e-fulfillment and industrial space for up to 3,000 employees. The Fenton project, as well as many others, including Ballpark Village, City Foundry, Union Station, Cortex, National Geospatial Agency’s $2 billion headquarters and St. Louis University’s new $550 million hospital campus, have resulted in supporting nearly $8 billion in development throughout the greater metro area.
New multifamily deliveries occurred throughout the greater metro area but were most prevalent in the St. Louis City submarket where more than 600 units were added. One of the most notable high-rises in St. Louis City is One Cardinal Way, a 297-unit, 29-story tower that is part of the St. Louis Cardinals’ $260 million expansion of Ballpark Village.
Another highly anticipated delivery in the St. Louis City submarket is 100 Above the Park. This project includes 316 units and was designed by world-renowned architect, Studio Grand, and is adjacent to BJC Health campus. Both properties are expected to deliver in early 2020.
The West County submarket of St. Louis, specifically Chesterfield, has experienced substantial job growth with RGA’s expansion, Pfizer’s recently opened $236 million research facility and Bunge’s relocation of its headquarters to Chesterfield from New York, as well as many others. It is no wonder that with job growth such as this, Chesterfield is experiencing substantial population growth.
The first new multifamily development in Chesterfield in 30+ years, Watermark at Chesterfield Village, recently delivered. Watermark at Chesterfield Village features 345 units and is currently in the lease-up stage. Two other multifamily developments in Chesterfield also recently broke ground — Aventura at Wild Horse Creek and the Pearl at Wild Horse Creek, which will add another 350 units combined and a hotel.
Taken as a whole, the greater metropolitan market contains approximately 162,000 rentable units in its inventory with an effective rental rate of $950 per unit per month and an occupancy rate of 95.3 percent. The $950 per unit per month rental rate average represents a 3.6 percent increase from a year earlier and the 95.3 percent occupancy rate represents a 90 basis point increase from a year earlier.
With these strong statistics, it is no wonder that we are seeing the amount of construction and planned new projects underway.
The investment market has been quite active and robust in St. Louis throughout 2019. St. Louis is home to a diverse group of buyers, both institutional as well as regional and local. Over the past 12 months, there has been approximately $700 million in investment activity throughout St. Louis.
Notable sales include the 608-unit Finn Apartments sold to Timberland Partners for approximately $46.2 million as well as the 174-unit residences at Forest Park sold to Emerald Equity Group at a cost of approximately $30 million.
The most notable sale that occurred in the greater metropolitan market was the sale of The Orion Apartments, along with Whole Foods on the ground floor, located in the city of St. Louis’ Central West End submarket. With a sales price of $345,000 per unit brokered by Andrea Kendrick and Ken Aston of Berkadia, this transaction represents a record price per unit for the MSA.
Average cap rates for Class A and B properties have been approximately 6 and 6.5 percent respectively. These cap rates show that buyers are choosing Midwest markets in order to buy stable assets at 25 basis points better compared to coastal markets and primary inland markets such as Dallas, Chicago and Atlanta.
Although it is an overused phrase, it is no less accurate that St. Louis does not experience the highs and lows of primary markets throughout the country and therefore remain a very good hedge for buyers who have a national footprint to their holdings. The Midwest market has and continues to be a very conservative development community, hence resulting in the very strong metrics that we are currently experiencing.
We are anticipating another strong year for multifamily in St. Louis with projected unemployment remaining below 4 percent, moderate population growth and an overall multifamily vacancy rate of 5 percent. With many new projects slated to be developed in 2020, good times are ahead for the St. Louis multifamily market.
— By Tim Sansone, Principal, Sansone Group. This article originally appeared in the January 2020 issue of Heartland Real Estate Business magazine.