HEARTLAND SNAPSHOT, AUGUST 2008

St. Louis Office Market

Despite the current economic downturn, the St. Louis office market remains steady. Demand for office space in the region is down compared to last year, but still positive, with approximately 178,485 square feet of direct absorption through the first half of the year. Vacancy rates remain historically low, currently measuring about 14.67 percent across all classes of office buildings. The market remains healthy due in part to the lack of speculative construction during the past few years, as developers showed caution.

With large blocks of quality office space scarce, several developers have recently tried to gain a head start on an economic rebound by beginning construction on a purely speculative basis, and have experienced a relatively healthy amount of success. Duke Realty Corporation has capitalized on the growth of Monsanto by leasing to the agricultural company the entire Lakeside Crossing One office building prior to its completion. Monsanto leased all 128,000 square feet at the development, which is a short distance from the company’s world headquarters campus. Subsequently, the company has fully leased the sister building, Lakeside Crossing Two, which marks the completion of development at this Duke Realty site.

Lester Miller is developing 825 Maryville, an 80,000-square-foot office building that is located along Interstate 64/Highway 40 in western St. Louis County.

Local entrepreneur Lester Miller recently started construction on a speculative 80,000-square-foot office building on ground that he purchased along Interstate 64/Highway 40 at the Maryville exit. Miller has been rewarded for taking the gamble, and has signed local insurance company J.W. Terrill for 35,430 square feet. However, with the current credit crisis and difficulty in obtaining financing, it is unlikely that developers will be starting any new speculative projects.

Any uncertainty in the market revolves around the decisions of several key law firm tenants in the market for space: Thompson Coburn, 250,000 square feet; Armstrong Teasdale, 150,000 square feet; Husch Blackwell Sanders, 250,000 square feet; Lewis Rice & Fingersh, 100,000 square feet; and Polsinelli Shalton Flanigan Suelthaus, 90,000 square feet. All of these firms are weighing their options of locating in downtown St. Louis versus the Clayton, Missouri, submarket. A decision to locate in Clayton in most cases would require the construction of a new building.

Brown Shoe Company is redeveloping its campus in Clayton, Missouri, into a multi-tenant office park in which it will establish its international headquarters.

Several Clayton projects are being contemplated, and a commitment from one of these law firms would certainly push one of the projects forward. Healthcare giant Centene has assembled the necessary parcels and received approvals for its new headquarters project in Clayton, which will contain a portion of speculative office space. Likewise, Brown Shoe Company has committed to maintaining its headquarters in Clayton, through the construction of a new multi-use campus on the west side of the city.

Downtown St. Louis presents several options for the law firms, most notably, a renewal in their current downtown space or relocation to the proposed Ballpark Village development, which is a joint venture between Major League Baseball’s St. Louis Cardinals and Baltimore-based Cordish Cos.

With average asking rates dropping in the second quarter to $18.39 per square foot, it appears to be a good time for office users to seek out new space.

— Jeff Kaiser is vice president in the St. Louis office of CB Richard Ellis.

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