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Helped
by low interest rates, retail is doing very well in the
growing areas of Ill., west St. Louis County and St. Charles
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WHAT'S HOT
WHAT'S NOT
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ST. LOUIS
COMMERCIAL PROPERTY MARKET: IT AIN'T WHAT IT USED TO BE, BUT IT
COULD BE WORSE.
BY PETER DOWNS
The good news for St. Louis property managers is that they aren’t
in Chicago. The bad news is they can’t turn the clock back three
years.
Speaking at the Society of Industrial and Office Realtors (SIOR)
19th annual Metro Market Forecast, Colliers Turley Martin Tucker
Senior Vice President Scott Bazoian said the good news for the St.
Louis office market from 2002 was that St. Louis is not Chicago,
where 7.5 million square feet of office space no one wanted was
returned to the market to go begging for tenants. In St. Louis,
tenants actually picked up another 64,000 square feet of office
space over what they leased in 2001.
The bad news is that the additional 64,000 square feet of office
space tenants leased in 2002 was almost nothing compared to the
639,000 square feet of additional space they absorbed the year before.
It shows that growth in St. Louis has come to an abrubt halt.
“The majority of tenants are just treading water: they are not expanding
or downsizing,” Cindy Noory says. Noory is general manager for Kestrel
Management, the in-house management office for the partnership that
owns the Millennium Center building downtown.
Credit St. Louis’ robust education and health care markets for holding
the demand for office space steady. “The majority of construction
and expansion of space is in health care and education,” says Diane
McLean, vice president of building services at Trammell Crow Company,
referring to both new construction and renovation of existing space.
SCOTT
BAZOIAN
senior vice president, Colliers Turley Martin Tucker
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St. Luke’s Hospital is taking a speculative office building that
was vacant in Winghaven. St. John’s Mercy is taking Safeco’s former
115,000-square-foot regional administrative center. Webster University’s
thirst for space is fueling the proposal to renovate the Old Post
Office in downtown St. Louis. Across the river in Illinois, Robert
Bowman, president of Terra Properties, reports that he recently
leased an 80,000-square-foot former telecom facility to a health
care company. The two pending requests for space he has are from
health and educational institutions.
With office vacancy rates hovering between 14 and 18 percent, depending
on whose estimates you use, the absence of overall growth in demand
means property managers with too much space are chasing too few
tenants. That is putting downward pressure on rents.
“The market right now is so tight that deals are few and far between,”
Noory says. “It is extremely competitive. Landlords are back to
giving free rent and a lot of concessions to maintain their tenant
base or lure new tenants. We just lost a tenant we were trying to
renew, because we couldn’t compete with the final pricing offered
to them.”
ROBERT
BOWMAN
president,
Terra Properties
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At the same time, Noory lured a law firm back downtown from Clayton,
and, she says, “We’ve seen an increase in showings during the first
quarter. That’s a good sign.”
Although building owners will look at almost any deal now, McLean
says, “they are more prudent in examining prospective tenants’ financials,
and less apt to take the risk with new startups.” A lot also depends
on an owner’s goals, she adds. An owner who needs cash flow will
probably accept a bigger cut in lease rates than one who is willing
to sit out the recession and wait for rates to come back up.
The situation for industrial properties is similar. Vacancy rates
are lower than the national average, Philip Hulse, principal of
Summit Development Group told the SIOR audience, but they are 50
percent higher than three years ago. With too much space, the pressure
will remain on property managers to reduce lease rates and offer
such incentives as free rent.
The thing that saved many industrial property owners was a falling
interest rate, Hulse adds. “It allowed owners to refinance, improve
cash flow, and to underwrite more aggressive deals.”
That hasn’t helped apartment building owners, however. Low interest
rates have been the bane of apartment owners and property managers,
Herbert Baumann, president of Baumann Property Company tells St.
Louis Commerce. “The more affluent markets in St. Louis are
experiencing greater vacancies than they’ve seen in the last 12
years, strictly because of the home buying phenomena. That’s where
all the move out movement has gone,” he says.
ROBERT
WALPERT
president,
Walpert Properties
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Perhaps the strongest performing sector is the retail sector, helped
by low interest rates. Retail is doing very well in the growing
areas of Illinois, west St. Louis County and St. Charles, Bowman
says. “In Highland [Illinois] it is very hot. A Wal-Mart Super Center
[that opened in 2002] brought everyone in. There are two strip malls
going up in front of it and a third is planned, and they are filling
at rental rates we’ve never seen in this town.”
There also are two major retail projects in the works in St. Louis
County. The Mills Co. is nearing completion of a $250 million retail
and entertainment complex in Hazelwood, called St. Louis Mills.
It is scheduled to open in October 2003 with space for 12 anchor
stores, 200 specialty shops, theme restaurants, and entertainment.
In the county’s central corridor, plans are proceeding for a new
retail development at Brentwood Boulevard and I-64, across from
the Galleria.
With the continued growth in home sales and new home construction,
retailers supplying home building supplies and home furnishings
are doing well, Bowman says.
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Webster
University’s thirst for space is fueling the proposal
to renovate the Old Post Office in downtown St. Louis.
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Retail also appears strong in old urban markets, however. Seven
new retail developments are under construction in St. Louis city
and East St. Louis, and four are under construction in north St.
Louis County.
Robert Walpert, president of Walpert Properties, told the SIOR gathering
that the vacancy rate in shopping centers throughout the metropolitan
area has remained stable at 7 to 8 percent for the last two years.
Such Big Box retailers as Wal-Mart and Costco are expanding, and
supermarkets are expanding.
Dollar stores, such as Deal$, Dollar General, and Dollar Tree, are
expanding even more rapidly. They’ve left the malls for larger spaces
in strip malls and, Walpert says, seem to be doing quite well. Casual
theme restaurants also are expanding aggressively.
With so many types of stores seeking to grow their chains, Thomas
Stern finds the retail market is just fine. Stern is president of
Solon Gershman Inc., which manages 24 strip shopping centers in
the metropolitan area, mostly in west and north St. Louis County
and in St. Charles County. He reports that occupancy at the centers
Solon Gershman manages is in the mid-’90s, “not far off from our
norm, if at all.”
Yet, not unlike the office sector, health care providers are buoying
the fortunes of strip centers. Stern says many of Solon Gershman’s
tenants are service providers. Along with traditional service providers
such as restaurants and auto repair centers, doctors and dentists
have joined the mix.
Peter Downs is a St. Louis-based freelance writer.
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