There’s a split in the St. Louis office market: Vacancies are down and rents are rising in the suburbs, especially in the tight Clayton submarket. But in the CBD? Activity is slower as that sector continues to lag behind its suburban counterparts.
Brandon Wappelhorst, an office specialist with St. Louis’ Sansone Group, said that the overall office market in the St. Louis area remains healthy.
That’s especially true for Clayton, a city that borders St. Louis and is home to the busiest slice of the area’s office market.
“The suburban market is at historically low vacancy rates,” Wappelhorst said. “The market is especially tight in Clayton. We are seeing a lack of supply there, while rents continue to increase. In the suburbs overall, we are experiencing a lack of supply and increasing rental rates.”
The CBD, though, is lagging behind. There is interest in this market, but activity is slower. Wappelhorst said that the office vacancy rate in the St. Louis CBD stands at about 20 percent.
This isn’t unusual. The St. Louis CBD has long lagged behind the area’s suburban office markets. Parking is a challenge in downtown St. Louis. Suburban office parks are also easier for most local workers to reach.
“At the end of the day, people like that easy accessibility they get with the suburbs,” Wappelhorst said. “They like to work close to where they live. The majority of people here live in the suburbs. That’s why the suburban office markets are doing so well.”
Wappelhorst, though, said that even though the CBD office market isn’t as busy as the suburban version, there has still been a recent uptick in activity in downtown St. Louis. Much of this activity consists of companies moving between buildings. There still isn’t much of an influx of people moving from the suburbs to downtown buildings.
“In a lot of markets, you think of the downtown areas as the strongest hub of the office sector,” Wappelhorst said. “But that’s not the case in St. Louis. We have a secondary downtown market, while the suburban office market is stronger.”
As in most markets around the country, brokers and developers in St. Louis are reacting to changes in how companies are using office space. Companies today are reducing the amount of office space per employee, and many are eliminating large, private offices.
This means that many companies need less office space than they once did.
“Companies, whether they are relocating or renewing a lease, are definitely diving in and looking at their workplace strategy,” Wappelhorst said. “Everyone is searching for efficiencies. If they can get by with less space, that certainly helps their bottom line.”
This can prove challenging for landlords, Wappelhorst said. Landlords prefer to see their tenants expanding, looking for more space, not less.
“The good news is that companies are expanding from a headcount perspective,” Wappelhorst said. “The bad news? Sometimes they will reconfigure their space so they can expand their headcounts without expanding their physical space. Companies that are studying their workplace strategies can often accommodate a higher headcount in the same footprint. That is great for a company, but not so good for landlords.”
Wappelhorst said that he only expects this trend to gain in popularity.
“Everyone is looking to be more efficient,” he said. “The trend now is toward more open, collaborative workspaces. Companies are still going to have private offices. But the shift is to a more open, collaborative working environment.”
Companies today are fighting to attract the most talented workers. Younger workers often have different expectations of their work environments. Companies that don’t react to this, that don’t change their workspaces, will struggle to bring in the best workers, Wappelhorst said.
“These workers want something more than just the traditional 9-to-5 day,” Wappelhorst said. “They want something that gives them flexibility and energy and excitement. They don’t want to just sit at a work station for eight hours a day. They want a space that is open and collaborative where they can both plug-in and unplug. They want flexibility in their day.”