St. Louis Office Market Accelerates

ST. LOUIS—As reported in GlobeSt.com, the real estate markets in this region have been in a recovery mode for some time, and according to a new report from JLL, the office market has hit an important milestone. Six years after reaching a peak in May 2008, office employment finally returned to its pre-recession level in the third quarter.

“It's been especially strong in the last 12 to 18 months,” Blaise Tomazic, a St. Louis-based senior research analyst with JLL, tells GlobeSt.com. The data show that professional and business services, which represent 45% of office employment, increased by 19,800 jobs since January 2013. And combined with financial activities these two sectors have made up for shrinking government employment in the region. The regional office market added 7,000 white-collar jobs in just the last six months.

As a result, the region's office vacancy rate shrank from 17.9% two years ago to 16.5%. And in 2013, net absorption hit 293,792-square-feet. So far this year, net absorption was 209,093-square-feet.

Much of the recent activity has been in the suburbs, Tomazic adds, such as Clayton, Chesterfield and other municipalities in the western counties. In the past four years, tenants have steadily occupied the large, class A spaces throughout the suburbs. In 2011, for example, 16 spaces with more than 25,000-square-feet were available. But the number of similar spaces available shrunk to just nine in the last quarter.

St. Louis has not seen much new construction, but there is the possibility that the demand for class A space in the suburbs could spark some new development, Tomazic says. According to JLL's research, 38 tenants that need more than 25,000-square-feet will be hunting for space in the next 12 months. “The strong activity could even attract developers to move forward on new construction projects; one is already being marketed in West County and several sites in Clayton may attract interest.”

Still, several large corporations in the region have announced that they are vacating significant amounts of space, says Dave Biales, a vice president for leasing with JLL, and “it's going to put a temporary hold on any plans developers may have to build spec.” Reinsurance Group of America, for example, a Fortune 500 company that leases space in Chesterfield, will soon consolidate and expand into a new two-building, 405,000-square-foot campus now under construction several miles to the west. “Until RGA's vacated space is filled, you would be taking a huge risk.”