Tenant's Market Endures
The St. Louis office market continues to tilt in favor of the tenant as we slowly emerge from the pandemic. Vacancy rates remain high, reaching 18.00% this quarter. This is the highest rate since 2013 when we reached 17.93%. Asking rental rates have remained relatively stable, increasing only 1.5% from the previous year to $22.03 per square foot. Across the country, demand for office space has been trending down as companies debate their future space needs. While many markets have seen dramatic cuts in asking rates in response to the decreased demand, St. Louis has seen less of an impact. Landlords appear to hesitant to reduce rates as many companies are returning to the office in some capacity. Overall absorption remains negative at approximately negative 150,000 square feet (SF). In the suburban markets, Chesterfield and Earth City were hit the hardest posting negative 114,000 SF and 97,000 SF, respectively. St. Louis City and Manchester/270 had the best quarter with total positive absorption of 42,000 SF and 53,000 SF respectively.
More companies are going back to the office as Covid restrictions and mandates have all but been eliminated. Utilization varies as many occupiers transitioned into a hybrid office model. Conditions remain favorable for occupiers as they have many options from which to choose. Sublease space remains an attractive option as availability is at a near all-time high of 1,284,316 SF and rates are 10 - 30% lower than direct deals. However, subleasing is not for everyone as often the remaining lease term is too short or there are minimal dollars available for any tenant improvements. One question that lingers on the minds of many property owners is what to expect in the future as companies implement their return-to-work strategies. For the time being, and likely for the balance of 2022, we expect it to continue to be a tenant’s market.