The office market in St. Louis has remained very active over the past year. With very little speculative development, the St. Louis County vacancy rate for Class A office space has experienced little change but remains at a historic low of 11.1 percent. Demand remains for large blocks of space in the more desirable submarkets such as Clayton and West County, as there are limited options for existing space. This has created an opportunity for new, proposed office developments gaining securing commitments from large occupiers.
Most, if not all, proposed multi-tenant office developments around St. Louis County are contingent upon significant leasing commitments before construction can commence. A few key trends have played a major role in why developers now have the ability to attract large tenants to new developments.
Daniel Freeland, Gershman Commercial Real Estate
Tenants searching for office space in excess of 25,000 square feet have been struggling to find contiguous and efficient options. Rental rates are at all-time highs, with some of the top-tier buildings achieving rents well over $30 per square foot. Lastly, tenants are using office space differently than before and new office developments are providing more efficient floor plates with multiple on-site amenities that tenants highly value today.
Project examples
Centene II, an approximately 650,000-square-foot office development located in Clayton that is expected to deliver later this year, is proof of these trends. Although Centene Corp. plans to occupy most of the building, Bank of America and other tenants committed to preleasing, occupying approximately 150,000 square feet, well before completion of the building.
Also in Clayton, US Capital Development, led by Jim Koman, plans to develop a 166,000-square-foot Class A office building on the corner of Brentwood and Forsyth boulevards. US Capital Development and its affiliate company, Elm Tree Funds, will occupy a portion of the building, but have stated they have also secured additional commitment from a large, long-term Clayton-based tenant. The project is currently under review by the city of Clayton, awaiting approvals.
Currently, multiple proposed office developments in West County also seem to be gaining interest from several large office tenants, with some expected to break ground in the very near future. Chapman Ventures recently broke ground on a 160,000-square-foot office building, Edge@BRDG, adjacent to the Danforth Center. Benson Hill Biosystems will be the anchor tenant and occupy most of the building.
Chapman Ventures is also proposing a 110,000-square-foot Class A office development, Edge@West, which is slated to be designed for creative and technology-driven companies that value on-site amenities in Creve Coeur, about 15 miles west of St. Louis. The development will be contingent upon finding an anchor tenant, but there has been considerable interest from many prospective tenants.
Timing for these developments is working in the developer’s favor with little vacancy, historically inflated rental rates and a strong economy reflecting job growth in the region. Despite this uptick in development activity, with approximately 18 million square feet of existing Class A office space in St. Louis County, the addition of 1 million square feet to the Class A office footprint is not expected to create a surplus of space.
Downtown activity
Let’s not forget about St. Louis City’s achievement in office development. The Cortex District is thriving with the recently delivered 4220 Duncan, a 180,000-square-foot, fully occupied office building anchored by Microsoft, Aon, BJC HealthCare and others. Koman Group is promoting Cortex K, a 120,000-square-foot office building with the hopes of breaking ground this year.
Directly east of Cortex, The Armory Building and City Foundry add approximately 184,000 square feet and 200,000 square feet respectively to the office market. Both are expected to have commitments before delivery.
Downtown, Offices at Ballpark Village will provide 120,000 square feet of Class A office space, and is already more than 60 percent preleased with commitments from PwC and Fox Sports Midwest. In total, these St. Louis City developments total over 1 million square feet of new, innovative Class A options that are receiving great commitment and consideration from enticing tenants, enhancing our market overall.
— By Daniel Freeland, Vice President, Gershman Commercial Real Estate. This article originally appeared in the September 2019 issue of Heartland Real Estate Business magazine.