St. Louis Office Market Remains Flexible Amid COVID-19

Developed by US Capital Development, Forsyth Pointe will include two Class A office towers with more than 20,000 square feet of street-level retail space.

By Brandon Wappelhorst, Sansone Group

In nearly every aspect of our personal and professional lives, 2020 could unequivocally be summarized as certainly uncertain. The rapid onset of the COVID-19 pandemic has taken its toll on the world and has caused significant disruption to everyday life. While likely further down the list of today’s topical issues, the overall effect of COVID-19 on the office market in St. Louis is still to be determined — but it will undoubtedly have an impact.

Brandon Wappelhorst, Sansone Group

Over the last few years, the commercial real estate market in St. Louis, much like the rest of the country, had been riding a wave of economic success. Demand for office space was high and the region was experiencing record-low vacancy rates, increasing rental rates, positive absorption, increased volume of office sale transactions and new buildings coming out of the ground.

Construction of [email protected], a 110,000-square-foot office building in Creve Coeur, began in late 2019 after a lease was signed with lead tenant SM Global. Breaking ground at less than 25 percent pre-leased was indicative of the strength of the office market at the time.

Clayton, the strongest submarket in the St. Louis metro area, also saw the beginnings of a new development come to life. US Capital Development began development of Forsyth Pointe, a block-wide, 450,000-square-foot double office tower, earlier this year with Commerce Bank and Barry Wehmiller as lead tenants. These two projects are expected to deliver at the end of 2020 and 2021, respectively.

Office evolution

Today, the modern office is ever-evolving, but the recent design trends are apparent — open, collaborative, fluid workspaces — all a function of the desire to have a community feel, a space that reflects company culture and provides flexibility. These trends are all essential to attract, recruit and retain high-quality talent.

In addition to the overall appeal of the modern office, many organizations were already starting to allow flexible working arrangements, which has been a request among the increasingly younger workforce. COVID-19 has accelerated this trend, forcing many to a full-time work-from-home status. For many organizations, this period will be an important production litmus test and gauge of the sustainability of remote working. Results are still pending.

As the COVID-19 pandemic took its hold and work from home became the new norm, tenants (and landlords as well) entered a state of uncertainty. They had more questions than answers. How will this affect our productivity? Do we really need office space? Do we need more space to accommodate social distancing? Is it a hybrid scenario? What will our future office look like? With so much uncertainty, the market cooled, active requirements went on hold and many adopted a wait-and-see attitude.

Michelle Rotherham, director of interiors at CannonDesign, notes that the pandemic is only one factor in companies’ evolving office space strategies. “Most of our progressive clients already had flexible policies in place for team members to work away from the office. It has not slowed down our projects that are already under construction,” she says. “However, as a result of the latest widespread work-from-home event, some are being proactive in thinking about how the office will change in the future…not necessarily with less space, but simply why, when and how it is used.”

Current activity

Over six months into the pandemic, activity in the St. Louis office market remains slow. The sublease market has been flooded with tenants looking to shed underutilized space. Tenants are also requesting short-term extensions in order to have more time to sufficiently evaluate their individual situations and determine their long-term real estate strategies.

That said, despite recent challenges, some are moving forward with their pre-COVID plans. The U.S. Department of Agriculture recently signed a new lease to occupy over 163,000 square feet of space at Metropolitan Square Building in downtown St. Louis, relocating from its longtime office in North St. Louis City. Golden Oak Lending recently closed on the purchase of its new corporate headquarters building at 11737 Administration Drive in the Westport submarket. Occupying the entire building at over 30,000 square feet, it almost doubles the footprint of Golden Oak’s current headquarters at Westport Plaza.

The outlook for the office market is still uncertain and there will not be a uniform answer that applies equally to all organizations as they rethink their future real estate needs. We will begin to have more clarity about the long-term effects on the office market in St. Louis in 2021, though we should expect a dip from the record-high occupancy rates we have experienced. While some companies may adopt a complete work-from-home policy, many others will come to realize that the office environment provides much more beyond four walls and a roof. It serves as a business hub to foster community, connection, ideas and innovation, and these factors are essential for long-term growth and prosperity.

Brandon Wappelhorst is executive director of office brokerage services for Sansone Group. This article originally ran in the September 2020 issue of Heartland Real Estate Business magazine.

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