Office X Missouri

No boom, but St. Louis office market remains steady

No boom, but St. Louis office market remains steady,ph01
The Cortex Innovation Community remains a big draw for tech and start-up companies.

Steady. That might be the best word to describe the St. Louis office market in 2018, according to Tim Lawlor, vice president of commercial brokerage with Balke Brown Transwestern in St. Louis.

Lawlor is a veteran of the St. Louis office market, so he knows the big trends here. And today? He sees an office market that while not slumping isn’t booming, either.

Lawlor will address this during REjournals’ and Midwest Real Estate News’ first annual St. Louis Commercial Real Estate Summit, which will be held Oct. 19 at the Hilton St. Louis Frontenac in Frontenac, Missouri.

To hear Lawlor, and a host of other St. Louis CRE pros, click here to register.

“’Steady’ is the right word to use,” Lawlor said. “Lease rates are stable and rising. I think businesses are cautiously optimistic about the economy and are planning accordingly. And I think the underlying fundamental that will keep the office sector going is the strong job market. Hiring is strong and continues to grow, and that will only help the office sector.”

The latest numbers from Gershman Commercial Real Estate back up Lawlor’s assessment. According to Gershman’s third quarter office market report, the overall office vacancy rate in the St. Louis market has remained mostly unchanged this year.

This rate stood at 11 percent at the end of the third quarter of this year, 11.2 percent at the end of the second quarter and 11.1 percent at the end of the first. As has been the case for several years, the Clayton submarket was the strongest office performer, with an overall vacancy rate of 4.3 percent as of the third quarter, according to Gershman’s numbers.

Gershman reported, too, that there was a positive 93,724 square feet of office space absorbed at the end of the third quarter. That’s not much of a change from the net absorption of 100,677 square feet at the end of the second quarter.

Despite the steady nature of the market, tenants did fill up some large blocks of space. Club Ready occupied 15,859 square feet at 1415 N. Outer Forty Road in Chesterfield, Missouri, while Reel Impact moved into 14,042 square feet at 1335 Straussner Drive in Brentwood, Missouri.

Gershman also found that the average quoted asking rental rate in the St. Louis office market did increase, ending the third quarter at $20.96 a square foot. That is a slight bump from the average of $20.85 a square foot at the end of the second quarter of the year.

Even though the numbers paint the picture of a market that has been rather static throughout the year, Lawlor said that the St. Louis office market is evolving in some major ways.

For one thing, a growing number of companies in the St. Louis market are shifting away from the work-at-home model, Lawlor said. He said that several businesses that experimented with letting a large share of their workforce work from remote locations are now changing tactics and requiring more of their employees to return to the office.

“They have seen that the work-from-home model reduced productivity lower than what was anticipated,” Lawlor said.

A growing number of businesses instead are moving toward shared office suites that are designed to foster collaboration, Lawlor said. These companies are often looking for new, more modern office space to lease on a long-term basis.

Once they find space that offers them the bare bones, they can then build it out to better suit the needs of their workers.

“To make this work, they ideally need to find second-generation space that has a lot of office build-out in place already that they can use,” Lawlor said.

In many markets across the country, the CBD is the hotter part of the office sector as more companies seek to open downtown space. That isn’t the case, though, in St. Louis. Lawlor said that the downtown urban core has been static when it comes to office activity. In the St. Louis market, it’s the suburban office submarkets that are seeing the most leasing and sales activity.

One big success story in the St. Louis office district, though, is the Cortex Innovation Community, a hub for tech and bioscience companies in St. Louis. Cortex continues to attract start-ups to the St. Louis market.

“The Cortex district is a very bright spot in the city of St. Louis,” Lawlor said. “It’s a hub, a true innovation community. We continue to see several tech companies moving into that submarket. They are trying to capture the young people who are living in the city area.”

Of the suburban markets, Lawlor said that Clayton, Missouri, remains a major draw for office tenants. In fact, Lawlor says, most of the large blocks of office space in Clayton have pretty much all evaporated. Lawlor said he could count only one block of office space of more than 30,000 square feet that is currently available in this submarket.

To hear more from Lawlor and CRE pros representing all the commercial sectors in St. Louis, be sure to register for the Oct. 19 St. Louis Commercial Real Estate Summit today.