The St. Louis office market is flourishing as we approach the end of the year. New construction deliveries are at a ten-year high, asking rental rates are at a historic high and vacancy rates are holding steady. While larger tenants are competing over a scarce number of Class A options, some large options do exist. Excitement is growing as construction activity booms in the St. Louis City submarkets. Meanwhile, Clayton delivered Centene Centre, its first new office tower in nine years (since Centene Plaza’s completion in 2010).
The overall vacancy rate of the entire St. Louis market dropped to 13.03%, down slightly from 13.36% from this time last year. Several new spaces will soon be delivered, redistributing some local tenants from existing buildings into the new inventory. PwC is moving its downtown headquarters from the Bank of America Plaza to its new office at Ballpark Village. Centene’s new Class A office tower in Clayton was competed this quarter. The 640,000 square foot (SF) building is fully leased and some tenants are expected to take occupancy before the end of the year. Centene’s new building brings their local footprint to over 1.7 million square feet (MSF).
Direct asking rental rates for the entire region are up nearly one dollar over the past year to an average of $21.05 per square foot (PSF). This a historic high for the region, even higher than the previous, pre-recession peak of $20.59 PSF in 2009. The Chesterfield and Clayton submarkets also hit record high Class A rates at $28.87 PSF and $31.26 PSF, respectively. At only $20.60 PSF, Earth City has the lowest average asking rate. However, the submarket is on a positive trajectory. The current rate of $20.60 PSF is the lowest in the region but higher than the submarket’s five-year average of $19.74 PSF.
Construction activity has been strong in 2019. The market has seen significant deliveries, any projects are still under construction, and even more projects are in the development pipeline. The delivery of Centene Centre accounted for 77% of 832,000 SF total construction completions thus far in 2019. This is the highest level of construction the St. Louis market has seen in one year since 2009. Additionally, there is currently 770,584 SF still under construction. Nearly half of these projects are located in the Midtown submarket. Two redevelopment projects, the City Foundry and the Armory District, are leading this boom of construction and are poised to change the face of the Grand Avenue/I-64 area.
The St. Louis economy looks strong as it heads towards the end of 2019. According to the Federal Reserve, the St. Louis unemployment rate dropped to 3.3% in August from 3.6% earlier this year. The local rate is in line with the national unemployment rate of 3.7%. The U.S. Bureau of Labor Statistics reported that nonfarm employment grew 1.9% for the St. Louis region from August 2018 to August 2019. This growth rate is tied with Nashville and higher than Kansas City (1.8%), Chicago (1.0%), and the nation as a whole (1.4%). However, a slowdown in U.S. Gross Domestic Product (GDP) growth is expected per the monthly national economic forecast conducted by The Wall Street Journal. The forecasted rate for 2019 is 2.2% with economists predicting 1.7% growth for 2020 and 1.9% in 2021. As these figures indicate, market experts are cautious about the national economy in 2020. The Federal Reserve Bank cut interest rates in both July and September of this year as a preemptive move to hold off a potential market downturn and an additional cut may be imminent.
The office market in St. Louis has positive momentum going into the end of 2019 with market indicators advancing steadily. The market excitement is evident by the amount of new ground-up construction around the entire market and specifically in areas of St. Louis City and the suburbs that have not seen large investments in a while. There are a variety of projects at varying points in the development pipeline. The new office building at Ballpark Village is the first Class A office building added to the Downtown CBD submarket since 1989. The Cortex district has two new office buildings proposed including 4210 Duncan Avenue, a 320,000-SF building which is close to breaking ground. Iron Hill is a proposed mixed-use development at the intersection of Grand Boulevard and Chouteau Avenue. Recent office development in the Midtown submarket has been centered purely in the I-64/I-40 corridor and this project will expand this growth to the south. Developers have seen that the St. Louis region can attract top talent and top companies and have committed to improve the office landscape with new, high-tech buildings that are positioning St. Louis be a top-tier office market that can compete with the best.
