When Jay Holland, senior managing director and office specialist with the St. Louis office of Cassidy Turley, looks at St. Louis’ office market, he sees plenty of positive news. It’s true that the office sector has lagged behind others in St. Louis’ CRE recovery. But last year was a good one for the market. And Holland hopes for more positive office activity this year and next.
Midwest Real Estate News: It’s a big question, but how healthy is the office sector today in the St. Louis market? Jay Holland: We have seen significant improvement in this market. Last year, we saw 800,000 square feet of absorption in the office market. When it comes to employment, we are getting back down to an area that is close to pre-recession levels. That has helped, too. It was a very robust 2013 for this market.
MREN: What impact has the strong office market of 2013 had on the office sector today? Holland: It has reduced the availability of large blocks of contiguous space. Where are those large blocks of space? What options do tenants have? One of the key points we make to our tenants is that it’s not so much about crushing it on the economics. It’s more about securing space so that their real estate aligns with their business goals. Our advice to clients at this juncture is that the market is moving the other way. If they need space, it’s best to get it now. Let’s make that deal.
MREN: Do clients understand this? Holland: They do. We have the data and the research to back up our claims. We track deal volume religiously. We can show them, here is the activity. Here are the companies looking for space in these markets. Our clients are appreciative of our insight and counsel.
MREN: How tight is the local office market today? Holland: In downtown St. Louis, if you need 40,000 square feet, you can find space in nine different buildings. If you want to go out to the Chesterfield (a suburb of St. Louis) corridor, you have just two Class-A options owned by the same landlord. Some of the landlords in our market want to hold out for a minimum of full-floor deals. That’s an indication of the bullishness of office landlords in our market. They are driving their pricing and rent growth by focusing on larger deals.
MREN: What about spec construction? Do you see any new office spec building in the near future? Holland: Since the Great Recession, there’s been no new building in the office sector. Before that time, there wasn’t much spec construction, either. The banks had already made lending more stringent. They wanted significant pre-leasing commitments with credit tenants. It brought the pipeline of new development projects to a halt. There could be some spec in the future, but I don’t see much.
MREN: Do you see any new construction activity taking place in the St. Louis office market in the next year or so? Holland: The largest office users are considering build-to-suits. That is driving the delivery of new product today.
MREN: What makes St. Louis a good place for office users to set up shop? Holland: It is a very conducive market to do business in. It’s an easy market to do business in. It’s a very commuter-friendly marketplace. You can be anywhere in 20 minutes. Commuting is a lot easier here than in some of the mega markets. Our growth has always been “steady as she goes,” too. That helps. And we have a responsive government. Our taxes are relatively low. That helps drive business. What does hurt us is the lack of a hub airport. That is something that plagues a lot of the smaller markets.
MREN: I know it’s not easy to predict the future, but do you see the office market continuing its recovery in the coming months and into next year? Holland: We might not see the level of activity that we saw in 2013. That was a high number. It’s difficult to duplicate. But there is still strong demand for Class-A office space in particular. There should be continued rent growth, too. Vacancy is likely to tick down a little bit this year. There is a lot of deal activity in the pipeline now. If we can get to 500,000 square feet to 600,000 square feet of absorption this year coupled with rent growth that will mean that 2014 was a good year for office.