HEARTLAND SNAPSHOT, MAY 2011

St. Louis Office & Industrial Market

The sluggish pace of recovery has continued for another quarter in St. Louis, but some bright spots can be found in both the office and industrial markets.  Although tenants are still behaving cautiously as the overall economic recovery continues to gain strength, increased consumer demand is expected to spur activity and job growth in both the industrial and office sectors.

Office Market

The St. Louis office market remained stalled in the first quarter of 2011. The overall vacancy rate grew to 20.2 percent from 17.3 percent during the past year.  Correspondingly, year-to-date leasing activity was nearly 15 percent lower than a year ago. The St. Louis City submarket continues to struggle with an overall vacancy rate of 32.3 percent, the highest of all submarkets in the metro area. However, recent talks between the St. Louis City and St. Louis County governments to merge economic development efforts offer potential growth opportunities for downtown.  The long-laid plans for new projects, such as Ballpark Village and the proposed makeover of the Arch grounds, may also spark construction activity, job growth and help to revitalize the market.

Industrial Market

Overall vacancy in the St. Louis industrial market appears to have stabilized, but leasing and sales activity are still below historic levels. The industrial market ended the first quarter of 2011 with an overall vacancy rate of 8.4 percent, which is the same as the first quarter of 2010 and only slightly higher than the 8.3 percent rate in the first quarter of 2009. This rate is still greater than the 5-year average of 7.7 percent. Predictably, there were no construction deliveries this quarter and only 144,558 square feet delivered in 2010, compared to the 5-year average of 388,717 square feet.

The Missouri House gave first round approval to the Aerotropolis bill, which would provide $480 million in tax credits to help turn Lambert Airport and the St. Louis region into an international trade hub.  If passed, the increased international trade would greatly benefit the area.  It could put currently vacant industrial space to use and allow unused acreage to be developed.

2011-2012 Outlook

The St. Louis market is gingerly entering the recovery phase of the economic cycle, but the market still appears pensive. The U.S. Bureau of Labor Statistics has projected that 2011 will see close to 3 percent growth in GDP and Moody’s forecasts that St. Louis employment will grow at an estimated rate of 2.3 percent during the next 4 years.  Market growth will stimulate an increase in demand for both office and industrial space as companies react to the rising demand for goods.  As companies grow more confident, activity is expected to increase and the lack of new construction in past years will help to ensure that currently available inventory will be absorbed.  This positive absorption is expected to put upward pressure on asking rental rates. This, coupled with continued stability in the financial markets, should spur a rise in investment activity later in 2011 and in 2012.

— Allison Gray is a research specialist with Cushman & Wakefield/Gateway Commercial in St. Louis.

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