As senior vice president at Colliers International, Jim Loft has 18 years of real estate experience and had been involved with numerous office leasing transactions featuring prominent local companies. At Colliers, which had 2017 transaction volume of $268 million, Loft is seeing suburban office sites snatched up at high rates even though corporate headquarters are leaving the area.
We asked him about the state of the local office market and what’s to come this year.
What’s the current state of the office market? It’s strong. Statistically, the vacancy for suburban Class A office space is as low as it’s been in 15 plus years. We haven’t seen a stronger leasing market in recent history.
What segments are riding high? The suburban Class A markets are particularly strong. At the end of 2017 in Clayton, there was 4 percent vacancy, in Westport it was less than 5 percent, and in Chesterfield, Class A office was just under 6 percent vacancy. All very strong numbers. Clayton and Westport have seen a big improvement over the previous year with Clayton vacancy rate down 3 percentage points and Westport down 8 percentage points. In the city, we are seeing more of a transition in what people are looking for.
How will that change over the course of the year? We will continue to see a tight market in suburban Class A office space. Any available large blocks of space will be highly sought after.
Is new construction on the way? The two multi-tenant office projects under construction are Centene’s expansion in Clayton and Ballpark Village downtown. Both developments signal a trend throughout the region. Users are focusing on amenity-based, mixed-use developments. Other proposed mixed-use developments include phase two of The Boulevard and the next phase of Streets of St. Charles. They may both move forward, but will likely require significant leasing in advance. We aren’t seeing much speculation, but I expect that demand will be there. Both are planned as mixed-use environments including hotel, retail and residential. Traditional existing office spaces are rethinking as well adding tenant-based amenities. 555 Maryville and 101 South Hanley both just added amenities including fitness areas, tenant lounges and meeting space.
What’s holding back the St. Louis region from making big gains? Loss of some corporate headquarters, Scottrade most recently released 300,000 square feet in the 270/Manchester area. We also lost the Hardee’s headquarters and Peabody Energy has downsized their office footprint. That has been balanced by important growth in local companies including Centene, World Wide Technology and Charter Communication.
Where in the region are you seeing the most growth? Midtown — Wexford Science and Technology is developing a new building there with 180,000 square feet of multi tenant space. The success of Cortex is pushing redevelopment momentum in the area.
What have been local drivers in the office industry? There has been significant growth in tech jobs, which is driving activity in the city. Users want creative, amenity-driven, mixed-use developments. The Lawrence Group is redeveloping the City Foundry and Green Street is redeveloping the Armory.
Are you seeing any trends? Suburban is strong, and in the city, it’s about transition to new and creative spaces. There has been a lot of leasing volume in city, but we are not seeing changes in vacancy rates because so much of the leasing activity is taking place in new construction or redevelopment of property that wasn’t previously in the office inventory.