Market Overview

Beyond the economy, the St. Louis region is enjoying a pleasant summer. The weather has provided sufficient rain and cool days. The highly anticipated $30 million Citygarden has opened to public acclaim and the City of St. Louis spruced up for baseball’s 2009 All-Star Game.

Like the nation, the good economic news is not close to outweighing the bad news. The St. Louis region is basically tracking the nation as a whole. The May 2009 unemployment rate was 9.0% (unadjusted for seasonal discrepancies). However, education, healthcare services and government have experienced job growth over the past year. Manufacturing has lost 12.3% of its jobs over the quarter, principally in the automobile industry. The Chrysler plants in Fenton closed permanently this summer and the General Motors plant in Wentzville is operating only one production shift. Some workers have, however, returned to Granite City Steel this quarter.

Median price and existing home sales in the St. Louis region generally follow national trends. Housing sales are beginning to improve with May 2009 the third straight month of increased sales. However, according to the National Association of Realtors, the local median housing price fell 16.9% between first quarters 2008 and 2009 to $100,900. For the same period, the U.S. median housing price decreased 13.8% to $169,000. The decline appears to be faster for the region over this period because the region’s decrease was less than the prior year. The PMI Group’s U. S. Market Risk Index indicates that the risk of more price decreases in the St. Louis area actually decreased slightly during the second quarter of 2009.

Permits for new single family housing were down only 11% in June 2009 from June 2008. . Permits through June 2009 totaled 1,357, off from the peak of 4,249 for the same period in 2006. Large quantities of residential lots remain vacant because of developers’ financial problems. In St. Charles County, the estimate of lot inventory is currently six years. Foreclosures jumped slightly over last year with one of every 23 St. Louis borrowers (4.3%) at least 90 days behind on mortgage payments in May. Still, this is better than the U.S. as a whole where 6.5% are 90-plus days delinquent with payments.

Multifamily permits declined 46.3 % for the year through May 2009 when compared to the same period in 2008. Because of the economy, demand is weak for high-end apartment units and strong for moderately priced units (under $600 a month). Likewise, rental rate increases have slowed due to the weak economy and additional inventory from for-sale condominiums, a market that is barely moving. Sales of apartment complexes have continued where the developments had assumable long term financing or provide large down payments.

The commercial real estate markets are a lagging indicator of the national economy, and definitely are immersed in the recession. The retail market continues to weaken with consumers still not ready to spend. The St. Louis regional retail vacancy rate is near 11%. St. Charles County appears to be the most overbuilt area. The average rate for retail space has declined to just over $12 per sq. ft. with many concessions and shorter lease periods. Minimal construction is occurring and those locations are struggling to find tenants.

Macy’s has announced that tits downtown St. Louis store will be reduced from seven stories to three stories, about the same square footage of its newly built stores. The bankruptcy of the Chicago-based General Growth Properties, owner of the Galleria, is not expected to affect shoppers at this time. The new Nordstrom at the Galleria, however, has now been delayed until 2011.

The industrial market is also in trouble as companies pull back. As the vacancy rate has increased to nearly 13%, sale prices and lease rates have fallen. New construction has almost stopped. Leasing has slowed, even in Illinois where large distribution facilities are located. In the South County submarket, the closing of the Chrysler plants has caused suppliers to vacate over one million sq. ft., with more sublease space expected to be placed on the market. On the positive side, Milwaukee-based Fiserv, maker of credit and debit cards, is consolidating plants and a Boston office into a single warehouse in Hazelwood. The lease is the largest in St. Louis County in two years.

The office market has its own set of problems. There are few large spaces available, financing is tight and no major speculative buildings are under construction. Vacancy is increasing. More sublease space is coming on the market as firms downsize. Rents generally are declining. Rent abatement, tenant improvement allowances and higher brokerage commissions have returned to the marketplace as owners try to keep tenants.

The two suburban Class A buildings with large spaces include the 175,000 sq. ft. Meridian 4 in Brentwood where BJC Learning Center recently leased 60,000 sq. ft. The first building in the 481,000 sq. ft. Centene should open in late 2010 with 200,000 sq. ft. utilized by Centene Corp. and 125,000 sq. ft. by Armstrong Teasdale, a law firm moving from Downtown St. Louis.

At second quarter 2009, total available office space was 11.2 million sq. ft., 14.6% of inventory, up from 10.5 million sq. ft. at first quarter 2009. Year-to-date overall absorption was a negative (841,800) sq. ft. All submarkets experienced negative absorption except North County, West County and St. Charles. Of these three, only St. Charles County experienced substantial absorption. So far this year, new deliveries total 275,300 sq. ft. in mostly Class B space. Average asking rent for all properties was $18.32 per sq. ft., continuing its decline since second quarter 2008.

The Class A market declined during the second quarter 2009. The overall availability for Class A office space rose to 16.2% at second quarter from 14.7% at first quarter, and available space increased to 5.4 million sq. ft. from 4.9 million sq. ft. The Downtown Class A availability rate increased to 20.8% at second quarter 2009 or 2.1 million sq. ft. Availability in the suburban markets increased to 14.2% from 12.3% during first quarter of 2009. Absorption for Class A properties was a negative (566,700) sq. ft. Available Class A suburban space is nearly 3.3 million sq. ft.

Class A sublease space almost doubled during the second quarter of 2009, increasing to 822,000 sq. ft. or 15.1% from 453,600 sq. ft. of all available Class A space. The largest amount of available Class A sublease space is in South County (262,900 sq. ft.), the CBD (150,200 sq. ft.), West County (130,600 sq. ft.), and St. Charles County (101,500 sq. ft). Average Class A asking rents continued to decrease, dropping to $21.53 per sq. ft. from $22.04 per sq. ft. during second quarter of 2009.

The availability rate for Class B office space rose to 13.3% during the second quarter from 12.7% during the first quarter 2009. Total available Class B space is now 3.7 million sq. ft. Absorption for year-to-date 2009 was a negative (146,600) sq. ft., with four submarkets experiencing negative absorption. Asking average rent per sq. ft. was $17.76 per sq. ft. at second quarter 2009, down slightly from first quarter’s $17.85 per sq. ft. Average asking rent had been $18.00 per sq. ft. or better from third quarter 2007 to year-end 2008.

The availability rate for Class C space increased to 13.4% during second quarter 2009 from 12.7% at first quarter 2009. Available Class C space is 2.1 million sq. ft. Absorption during the first quarter of 2009 was a negative (128,500) sq. ft. The CBD has the most Class C space available with 1.2 million sq. ft. The average asking rental rate for Class C space has hovered in the mid to upper $16 per sq. ft. for the past year, but declined during the second quarter to $15.68 per sq. ft.

With the national credit crunch, investment office sales have virtually stopped. No major purchases were made in the St. Louis region during second quarter 2009, except a small Class B building in the CBD.

The five-mile section of I-64, east of I-170 into the City of St. Louis, is progressing quickly and is to reopen by year-end 2009. Funding for the new toll-free, four-lane, $640-million-bridge north of Downtown St. Louis is considered secure, and construction expected to begin in 2010.

Other large public and private projects in Missouri include $662 million in Metropolitan Sewer District (MSD) upgrades, $102 million on the new National Archives and Records Administration military personnel facilities, a half billion dollars on medical center facilities, and $100 million on hotel renovations.

Construction has begun on the first phase of Pinnacle’s $375 million River City Casino and Hotel complex in South St. Louis County. Work has also started on iron ore facilities in the cities of Sullivan and Crystal City. The billion dollar Holcum cement plant will open this summer in northern St. Genevieve County.

On the downside, two major companies headquartered in St. Louis, Charter Communication and Smurfit-Stone Container Corp. have filed for Chapter 11 bankruptcy and both are expected to reappear out of bankruptcy soon. The public transportation system, MetroLink, has restored cuts on several bus routes after receiving $12 million from the state.

Investments in Madison and St. Clair counties in Illinois are strong. Work continued on Scott Air Force Base’s $137 million makeover, the Conoco and EnCana’s Conoco Phillips $3.6 billion Wood River refinery expansion, and the $2.9 billion Prairie State Energy synthetic natural gas plant about 40 miles southeast of St. Louis. Sunoco’s new coke-making facility will begin supplying the steel mill in the fourth quarter of 2009 in Granite City. The $1.5 billion Future Gen near-zero emissions power plant in Mattoon is on-hold.

Market Highlights

• The overall availability rate rose one percentage point during the quarter to 14.6%, 1.3% higher than one year ago.
• Overall average asking rents fell during the quarter to $18.32 per sq. ft., from $18.85 per sq. ft. at the end of first quarter 2009.
• Overall absorption at the end of second quarter 2009 was negative (842,000) sq. ft. compared to 206,000 sq. ft. one year prior. Class A absorption ended the quarter at negative (567,000) sq. ft., Class B absorption was negative (147,000) sq. ft. and Class C was negative (128,000) sq. ft.
• Class A average asking rents fell $0.51 per sq. ft. over the quarter down to $21.53 per sq. ft., almost a dollar less than one year prior.
• Class A sublease space rose 5.9% during second quarter 2009 to 822,000 sq. ft. or 15.1% of inventory.O
• Major transactions this quarter include Scottrade’s 85,000-sq.-ft. lease in the West County submarket and Polsinelli Shughart’s 39,000-sq.-ft. lease in the CBD submarket.

Market by Market Review

Central Business District

Total Inventory: 26.4 mil. sq. ft.
No. of Buildings: 201
Average Asking Class A Rent: $17.86
Average Asking Class B Rent: $15.59
Availability Rate: 17.5%
Available Space: 4.6 mil. sq. ft.
New Deliveries: 0 sq. ft.
Net Absorption (YTD): (108,700) sq. ft.

The most exciting events this quarter were the opening of the widely-acclaimed $30 million Citygarden by the Gateway Foundation on two blocks along the Gateway Mall (Market Street, bordered by 8th and 10th Streets). This interactive sculpture garden has become a destination for many people as well as a welcoming spot for Downtown workers and baseball enthusiasts attending Cardinal games and the 2009 All -Star Game.

Roberts Tower, a $70 million condominium building, is under construction. The 20,000 sq. ft. Schnucks Culinara, a supermarket, will open this summer. The Edward Jones Dome, home of the St. Louis Rams, is getting $30 million in upgrade, and a new $16 million parking garage and 10,000 sq. ft. of retail space is underway at Tucker Boulevard and Clark Avenue.

SCP Worldwide, owner of the St. Louis Blues, Scottrade Center and adjoining opera house, hopes to start work this summer on a $74 million renovation of Kiel Opera House into an entertainment venue. The Public Library has announced plans for a $70 million renovation of its nearly 100-year old Central building. An underused office building, owned by the Library and across the street, has been leased to Confluence Preparatory High School, a charter school expected to grow to 900 students in three years. In addition, Heisman Properties was selected to renovate the Municipal Courts building (now known as 1300 Market) into 160,000 sq. ft. of office and retail space.

Work on the proposed $550 million, multi-use Ballpark Village is limited to a softball field and parking lot during 2009. Final approval for the bonds is still needed and is expected by August. The developer, Cordish Company and the Baseball Cardinals, have said that they will delay the sale of over $100 million in bonds for the first phase until the municipal bond market improves. Posinelli Shughart, a law firm, has announced plans to consolidate its St. Louis office in the Deloitte building instead of waiting for Balllpark Village.
.
Pacific Railroad, repositioned into “Park Pacific,“ a mixed-use development of apartments, retail space, parking and 88,000 sq. ft. of office space, the Laurel (former Dillard’s department store), Cupples Station 9, Syndicate Trust and the Farm & Home buildings have been delayed while awaiting financing.

Macy’s has announced plans to reduce the size of its Downtown store from seven stories to three stories. The company has the 22-story, 1.1 million sq. ft. Railway Exchange building on the market while keeping the department store open. Also on the market are the 555 Washington and 505 Washington buildings. The St. Louis Centre retail mall has been shuttered, and the adjoining One City Centre office tower is nearly vacant although discussions are occurring with a law firm regarding space in the building.

The CBD is the only submarket with large contiguous spaces readily available in One City Centre and the former General American building. Additional spaces will be available when Husch Blackwell Sander and Armstrong Teasdale move from Downtown.

The office market in the CBD remained stalled through the first half of 2009. Current overall availability is 4.6 million sq. ft. or 17.5% of total inventory. Year-to-date absorption is a negative (108,800) sq. ft. Available Class A rose to 2.1 million sq. ft. or 20.8% at second quarter 2009 because of additional sublease space. Available Class A sublease space nearly doubled during the second quarter of 2009 to 150,200 sq. ft. or 7.1% of available Class A space. Class A space experienced negative absorption of (105,700) sq. ft. for the first half of 2009. Average asking rent for Class A space declined to $17.86 per sq. ft. at second quarter 2009 from $18.12 per sq. ft. at first quarter 2009.

After a good year in 2008, available Class B space remained at 1.3 million sq. ft. or 15.2% of inventory as of second quarter 2009. Absorption ended the second quarter at negative (27,300) sq. ft. Another 1.2 million sq. ft. or 15.8% of Class C space is available. The only positive absorption in the CBD this quarter was in Class C space where 24,300 sq. ft. was absorbed during the first half of 2009. Average asking rent for Class B and Class C space rose slightly to $15.59 per sq. ft. and $14.04 per sq. ft. respectively. Rents in the CBD are the lowest in the region.

North of Downtown, Paul McKee has presented plans for 4.5 million sq. ft. of new office buildings and stores and 10,000 new homes. Streets, sewers, power grids, parks and other amenities would be added over the next 15 years on roughly 500 acres. McKee owns much of the land needed and will require millions of dollars from the city for financing. In addition, Laclede Power, a signature building north of Downtown empty since 1970, has been cleaned and a small park constructed between the building and the river. The city hopes that the building can now be converted into retail, residential and office space.

Midtown

Total Inventory: 1.2 mil. sq. ft.
No. of Buildings: 19
Average Asking Class A Rent: $23.63
Average Asking Class B Rent: $15.20
Availability Rate: 7.7%
Available Space: 0.1 mil. sq. ft.
New Deliveries: 0 sq. ft.
Net Absorption (YTD): (4,000) sq. ft.

This small submarket has the lowest availability rate still despite its overall availability rate increasing to 7.7% at second quarter 2009 from 3.9% at first quarter 2009, still the lowest in the region. Total available space is only 88,500 sq. ft. Available Class A space is 39,500 sq. ft., none is sublease space. All average asking rents in the submarket declined during the second quarter of 2009 with Class A space decreasing to $23.63 per sq. ft. from $24.94 per sq. ft. at first quarter 2009.

Two buildings, 64,000 sq. ft. and 59,000 sq. ft., are nearing completion at the Highlands Plaza across from Forest Park. Much of the space has been pre-leased to Renaissance Financial and Korte Construction.

Roberts Indigo Hotel at Lindell Boulevard at Euclid and the Moonrise Hotel in the Delmar Loop opened this summer.

CLAYTON

Total Inventory: 9.0 mil. sq. ft.
No. of Buildings: 117
Average Asking Class A Rent: $24.30
Average Asking Class B Rent: $19.86
Availability Rate: 13.2%
Available Space: 1.2 mil. sq. ft.
New Deliveries: 0 sq. ft.
Net Absorption (YTD): (192,000) sq. ft.

Even though the availability rate increased and absorption was negative through second quarter 2009, the Clayton submarket has strong fundamentals. The submarket is healthy and continues to be a good place to work. Rents are basically flat or declining somewhat. The availability rate rose from 11.5% at first quarter 2009 to 13.2% at second quarter. Overall absorption for the year-to-date was a negative (192,000) sq. ft.

Class A availability is currently 11.9%, with 0.5 million sq. ft. of Class A space available. Available sublease Class A space almost doubled during second quarter 2009 to 48,000 sq. ft. or 8.9% of total Class A space. Absorption for the first two quarters of 2009 was a negative (50,900) sq. ft. The average asking rental rate for Class A space declined to $24.30 per sq. ft. from $25.38 the previous quarter. Asking rent for the new Centene building is said to be $32.50 per sq. ft.

The availability rate for Class B space rose again during the second quarter of 2009 to 17.0% or 0.5 million sq. ft. Absorption during the first half of 2009 was a negative (113,900) sq. ft. Average asking rent rose slightly to $19.86 per sq. ft. at second quarter 2009 from $19.62 per sq. ft. at first quarter 2009. Only 130,700 sq. ft. of Class C space is available in the submarket, with a negative (27,300) sq. ft. absorbed during first half of 2009. The average asking rental rate for Class C space declined from $18.59 per sq. ft. at first quarter 2009 to $18.27 per sq. ft. at second quarter 2009.

The first building in Centene Plaza is well underway. The 481,000 sq. ft. of office space will be mostly occupied by Centene Corp. and Armstrong Teasdale, a law firm. No announcement has been made of tenants for the 28,125 sq. ft. of retail space. A second 10-story building at Carondelet Avenue and Hanley Road is planned for later. Nearing completion is the 175,000 sq. ft. Meridian 4, south of the city of Clayton at the I-64 per Highway 40 and Hanley Road interchange in Brentwood where BJC Learning Center has leased 60,000 sq. ft.

A number of other office developments are being discussed, but are not committed at this time. The development arm of Sikeston-based Montgomery Bank and St. Louis County had announced plans for a $100 million, 25-30 story mixed-use building, but the project is delayed until financial markets improve and significant pre-leasing occurs. The $568 million mixed-use development for Brown Group has also been placed on hold. RJ York has signed with Westin Hotels for a 245 room hotel with 16,000 sq. ft. of meeting space and 20,000 sq. ft. of retail space at the corner of Central and Maryland Avenue. Construction is awaiting financing but the developer hopes to begin construction by late spring 2010.

The prospects for two other projects have not been announced. Apex Oil Co. and Koman Properties had proposed a 300,000 sq. ft. mixed-use building, Shaw Park Pointe, on Forsyth near Apex Oil’s headquarters. Conrad Properties planned two buildings, one with 130 luxury apartment units and one with 75-80,000 sq. ft. of office space, on the north side of the Clayton CBD.

Gateway Real Estate Partners has a 3.3 acre tract (formerly Schnucks supermarket) under contract at Hanley and Clayton Roads, Plans currently include 227,000 sq. ft. of retail and office space and a 200-room hotel. The developers are currently working on financing, and hope construction could start in June 2010.

Clayton on the Park, a $210 million conversion from a hotel and apartment building into a senior residence, has closed because of limited sales.

The market for luxury condominiums in Clayton has slowed considerably, and it is unknown if approved developments that include condominiums will be built. The Trianon, a mixed-use development, including a six- story, 175-unit upscale apartment building, a 26-story condo development and 30,000 sq. ft. of retail space, was planned for Forsyth Boulevard in both University City and Clayton by Chicago-based Orchard Development. Carondelet Village, a mixed-use village of retail, residential and a hotel would also include 110,000 sq. ft. of boutique office space. All are waiting for financing to be secured.

Several hotels and additional retail facilities are under construction or planned across from the Galleria in Richmond Heights. The Boulevard, a mixed-use development, will add a 70,000 sq. ft. Dick’s Sporting Goods in 125,000 sq. ft. of retail space, 35,000 sq. ft. of office space and a hotel. Construction is expected to start in November 2009, and be completed by spring 2010. 

Creve Coeur/Westport

Total Inventory: 9.5 mil. sq. ft.
No. of Buildings: 131
Average Asking Class A Rent: $22.32
Average Asking Class B Rent: $17.71
Availability Rate: 16.3%
Available Space: 1.5 mil. sq. ft.
New Deliveries: 165,000
Net Absorption (YTD): (292,200) sq. ft.

During the first half of 2009, the availability rate increased from 13.5% at year-end 2008 to 16.3% at second quarter 2009. Available space is over 1.5 million
sq. ft. Absorption in first half of 2009 was a negative (292,200), the second worst in the region. During the quarter, the average asking rental rate activity was mixed, Class A declined slightly, Class B increased slightly and Class C dropped over $2 per sq. ft. to $14.21 per sq. ft.

During the second quarter of 2009, the amount of available Class A jumped above 0.7 million sq. ft. with absorption a negative (186,700) sq. ft. The availability rate increased from 13.7% at first quarter 2009 to 15.9% at second quarter 2009. Available sublease Class A space rose to 40,700 sq. ft. or 5.4% of Class A available space during the second quarter. Class B space absorption was a negative (125,500) sq. ft. in the first half of 2009. Available Class B space is nearly 0.6 million sq. ft. or 15.2% of total inventory, about the same as in the first quarter. Class C available space is limited in the submarket but did increase to 241,400 sq. ft. or 22.7% at second quarter 2009.

Several speculative buildings for the submarket, the 210,000 sq. ft. CityPlace VII, the 100,000 sq. ft. CityPlace North and an 80,000 sq. ft. office per retail project on Olive Boulevard, just west of I-270, have been announced, but none are under construction.

North County

Total Inventory: 9.6 mil. sq. ft.
No. of Buildings: 111
Average Asking Class A Rent: $17.88
Average Asking Class B Rent: $16.37
Availability Rate: 12.5%
Available Space: 1.2 mil. sq. ft.
New Deliveries: 0 sq. ft.
Net Absorption (YTD): 9,000 sq. ft.

During the second quarter of 2009, the North County submarket improved slightly. The submarket appears stable but with some vitality. Available space is now 1.2 million sq. ft. or 12.5% of inventory. Absorption for the year-to-date is 9,100 sq. ft.

The Missouri Department of Transportation’s approval of funding for Highway 141 to I-70 should also help the market, providing an “outer beltway” from Arnold in Jefferson County to Highway 370 in North St. Louis County.

Available Class A space now totals nearly 0.6 million sq. ft. or 18.5%, 15.4% or 85,200 sq. ft. of which is sublease space. Absorption for Class A space in first quarter 2009 was 13,400 sq. ft. Average asking rent continued to decline, however, to $17.88 per sq. ft. at second quarter 2009 from $18.94 per sq. ft. at first quarter 2009.

Absorption for first quarter 2009 for Class B space was 5,400 sq. ft. About 0.4 million sq. ft. or 8.6% of Class B space is available. Class C space absorption was a negative (9,700) sq. ft. during first half of 2009. Class B average asking rent decreased slightly to $16.37 per sq. ft. Only 255,800 sq. ft. of Class C space is available; Class C average asking rent dropped to $14.70 per sq. ft. at second quarter 2009 from $17.01 per sq. ft. at first quarter 2009.

Build-to-suit developments are popular in the submarket. Express Scripts has a $30 million, 180,000 sq. ft. building under construction near its headquarters at NorthPark and is considering a third building. With Express Scripts’ recent acquisition of WellPoint’s Next RX subsidiaries, that growth may be sooner than later. Duke Realty has three buildings underway, a 127,000 sq. ft. and a 116,000 sq. ft. building at Lakeside Crossing for Monsanto and a 146,000 sq. ft. building at Riverport for Elsevier, the publisher of science and health information.

Edward D. Jones has completed the first of three office buildings and a parking garage totaling 817,000 sq. ft. at its Maryland Heights campus. The second building of 372,000 sq. ft. should be finished by September 2009. Essence Healthcare, an HMO, is consolidating two offices and moving its headquarters to a vacant 100, 400 sq. ft. building at 13900 Riverport Drive.

No speculative office buildings are now under construction although McEagle Properties and Clayco Construction have announced a 150,000 sq. ft. speculative office building, NorthPark High Performance Office building.

South County

Total Inventory: 8.4 mil. sq. ft.
No. of Buildings: 155
Average Asking Class A Rent: $22.02
Average Asking Class B Rent: $19.41
Availability Rate: 12.3%
Available Space: 1.0 mil. sq. ft.
New Deliveries: 0
Net Absorption (YTD): (410,400) sq. ft.

The South County office submarket is being hit hard in both the office and industrial sectors. Anheuser-Busch InBev is subleasing 150,000 sq. ft. at its Sunset Hills campus, with the potential for several thousand square feet of space to be vacated. Maritz is also marketing 68,400 sq. ft. at its campus. Closing of the Chrysler plants and its suppliers is putting over a million sq. ft. of industrial space on the market in addition to the plant buildings themselves.

Available office space rose in the second quarter 2009 to over 1.0 million sq. ft. or 12.3% from 0.7 million sq. ft. or 8.2% of total inventory. Absorption for the first half of 2009 was a negative (410,400) sq. ft., with negative absorption in all classes of space.

Over 0.5 million sq. ft. of Class A space is currently available, 262,900 sq. ft. or 48.1% of which is sublease space. Average asking price for Class A space rose slightly during the second quarter to $22.02 per sq. ft. from $21.89 per sq. ft. at first quarter 2009.

Available Class B space has been climbing since year-end 2008. It is nearly 0.4 million sq. ft. or 10.1% of inventory. Average asking rent had risen to $19.96 per sq. ft., but declined to $19.41 per sq. ft. during the second quarter of 2009. Available Class C space is minor in the submarket. Only 126,800 sq. ft. is available. Average asking rent has declined to $16.71 per sq. ft. at second quarter 2009 from $17.34 per sq. ft. at first quarter 2009.

In the Manchester per I-270 area, Edward D. Jones has a 225,000 sq. ft. expansion to its headquarters under construction. No speculative office space is under construction. The first phase of Pinnacle’s $375 milllion River City casino and hotel complex is underway.

West County

Total Inventory: 8.3 mil. sq. ft.
No. of Buildings: 128
Average Asking Class A Rent: $23.14
Average Asking Class B Rent: $20.05
Availability Rate: 12.7%
Available Space: 1.1 mil. sq. ft.
New Deliveries: 63,700 sq. ft.
Net Absorption (YTD): 37,400 sq. ft.

The West County submarket has experienced improvement even with additional Class A sublease space on the market. The overall availability rate continues to decline to 12.7% at second quarter 2009 from 13.1% at first quarter 2009. Available space remains near 1.1 million sq. ft. Overall absorption during first quarter 2009 was 37,400 sq. ft.

Available Class A space is now 0.7 million sq. ft., 18.4% or 130,600 sq. ft. of which is sublease space. Class A absorption during the first half of 2009 was 19,300 sq. ft. Average asking rent for Class A space increased from $23.00 per sq. ft. at year-end 2008 to $23.67 per sq. ft. at first quarter 2009 but declined again during the second quarter 2009 to $23.14 per sq. ft.

Year-to-date absorption was positive for Class B space at 19,000 sq. ft. but negative for Class C space at (900) sq. ft. Available Class B space is 0.3 million sq. ft., while available Class C space is only 17,900 sq. ft. Average asking rent for Class B space declined from $20.33 per sq. ft. at first quarter to $20.05 per sq. ft. at second quarter 2009. The average asking rent for the small amount of Class C space dropped from $19.76 per sq. ft. at first quarter to $17.80 per sq. ft. for second quarter 2009.

Sachs Properties had planned a second building of 150,000 sq. ft. in Chesterfield Village for late 2008, but the building has yet to be started. Opus Northwest announced a two-building, 340,000 sq. ft. speculative office building on Conway Road, but the building is now on-hold. Additional buildings have been announced for the former County jail site and in business parks near the Spirit of St. Louis Airport in the Chesterfield Valley. Several large acreages (75-130 acres) have been approved for mixed-use development in the Valley, including office, retail and industrial space.

St. Charles

Total Inventory: 4.5 mil. sq. ft.
No. of Buildings: 66
Average Asking Class A Rent: $21.06
Average Asking Class B Rent: $17.88
Availability Rate: 10.2%
Available Space: 0.5 mil. sq. ft.
New Deliveries: 46,500 sq. ft.
Net Absorption (YTD): 119,100 sq. ft.

After concerns in the small St. Charles County submarket in 2008, the first half of 2009 has brought improvement. Overall absorption was 119,100 sq. ft., the best in the region. The overall availability rate declined to 10.2% at second quarter 2009 from 10.5% at first quarter 2009.

Available Class A space is now 174,800 sq. ft. or 6.8%, 59.8% or 104,500 sq. ft. is sublease space. Year-to-date absorption was 81,900 sq. ft. The average asking rent rose to $21.06 per sq. ft. over the quarter from $20.63 per sq. ft. at first quarter 2009 because of the quality of the space.

Class B availability also decreased during first quarter 2009, to 13.0% or 181,200 sq. ft. from 16.1% or 224,600 sq. ft.  Absorption in the first half of 2009 was 47,400 sq. ft. The Class B average asking rent dropped from $18.22 per sq. ft. at year-end 2008 to $18.00 per sq. ft. during the first quarter 2009 to $17.88 per sq. ft. at second quarter 2009. Class C available space is only 108,900 sq. ft. Absorption in the first quarter was a negative (10,200) sq. ft. Average asking rent for Class C space rose to $14.30 per sq. ft. during the first quarter 2009 but declined to $13.81 per sq. ft. at second quarter 2009.

BJC Healthcare is building a $30 million, 40,000 sq. ft. data center as part of its campus at Progress West Health Center in O’Fallon. McEagle Properties has announced a 75,000 sq. ft. speculative office building in Winghaven, its 1,200 acre office per residential and retail development. A 60,000 sq. ft. building, Wall Street II, has been announced for St. Charles. Neither building is under construction. The 124,000 sq. ft. Van Maur Department Store is now being constructed at The Meadows in Lake Saint Louis.

Peoria-based Cullinan Properties, the developer of the Streets of St. Charles (former Noah’s Ark site), says that construction will begin this spring on phase one. Plans for the development include 140,000 sq. ft. of retail, theater and restaurant space, 100,000 sq. ft. of office space, 125,000 sq. ft. of hotel and 250,000 sq. ft. of residential space.

Major Office Acquisitions

Significant Leasing Activity