Office Market - the Good and the Bad
The St. Louis office market struggled on the leasing front this past year posting another quarter of negative absorption and the highest vacancy rate since the second quarter in 2013. For the year, the CBD submarket has the second highest vacancy rate, 24.6%, and the second largest negative absorption with negative 55,903 square feet (SF). This was due, in large part, to a downsizing of US Bank, which sold their building at 505 North 7th Street and vacated 61,272 SF.
This quarter was not all bad for the office market, however, as sales activity was at its highest level since Q2 of 2015. The year ended with a robust 3.9 million square feet (MSF) of office sales, despite the uncertainty of future demand resulting from the on-going pandemic. Class A sales led the way with 1.8 MSF of sales and an average sales price of around $158 per square foot (PSF).
Although many companies have returned to the office, many continue to debate and experiment with the return-to-work and work-from-home hybrid models. This is the primary cause of the large number of sublease opportunities currently available in the market. With nearly 1 MSF of space available for sublease, there are many opportunities for tenants to take advantage of favorable economics offered by sublandlords. As the new year begins, we will continue to see higher than average vacancy rates and lowering rental rates, creating a market that is tilted in favor of the tenant for the foreseeable future until the negative impact of the pandemic slows down.