Market Overview

Even while its employment and commercial real estate markets are under stress, the St. Louis region has had some good news this quarter. The May 2010 unemployment rate was 9.2% (seasonally adjusted), down from 9.5% in April 2010 and May 2009. In the year ending May 2010, the region lost nearly 8,000 jobs. Only Education and Health Services and Government experienced job increases over the year. Employment in Information, Financial Services and Leisure and Hospitality remained fairly stable. Granite City Steel, almost totally shutdown in 2009, is now at full production, and that the Navy has signed a multi-year agreement for purchasing 124 Boeing F/A-18 Sniper Hornet planes assembled in St. Louis.

Recently, favorable articles have been published on St. Louis, supporting the quality nature of this Midwestern metropolitan area. The Brookings Report defined the St Louis region as a “skilled anchor metro area” like Boston, Philadelphia, Pittsburgh and Milwaukee. A “skilled anchor metro area” is defined as a metro area that is less diverse and slower growing than many other large cities but states that its skilled workforce and strong healthcare and educational institutions will be “strengths in decades to come.“ Property and Portfolio Research ranked St. Louis 15th out of the top 54 US cities for core buyers of office property. An inspiring story on the strength of St. Louis metropolitan area, written in an easy-to-read format by Aaron Renn, appeared in the May 25, 2010 issue of Urbanophile.com.

In the first quarter of 2010, residential sales were up 5.3% from the first quarter 2009 due to the federal home buyer tax credit which has now expired. Foreclosure sales were one of every five residential sales during first quarter 2010. The local median housing price rose 15.1% between first quarters 2009 and 2010 to $116,100. For the same period, the U.S. median housing price decreased -0.7% to $166,199.

Permits for new single family housing rose 35% for January through May 2010 from the same period of 2009. However, the total number of permits remained small with only 1,364 for the Missouri side of the river. After stabilizing during first quarter 2010, home foreclosures appear to have increased during the second quarter 2010.

Multifamily permits increased by 156 permits to 707 permits for January through May 2010. Eighty one percent of the permits were rehab units in the City of St. Louis. The vacancy rate for rental apartments remains high because of the economy and competition from available condominium units. Rental increases are minor. Sales of apartment complexes have continued only where the developments had assumable long-term financing or provide large down payments. The 284-unit Charter House Apartments in St. Louis County sold for $22 million ($77,464/unit), one of only two major sales so far in 2010.

All of the commercial real estate markets are under stress, with little activity in any type of market. Loans need refinancing, and financing remains tight. Tenants are negotiating for lower lease rates and considering longer terms due to the attractive lease rates. New construction is virtually stopped except for a limited number of retail facilities, mostly national chain restaurants and drug stores.

During first quarter 2010, the retail market experienced some improvement, with estimated vacancy declining from 9.0% to 8.7%. The highest vacancy rates are in North St. Louis County and St. Charles County. Quoted rental rates have been declining since early 2009, with average overall estimates ranging from $12.00 to $13.50 per sq. ft. Many concessions and shorter terms are necessary to get a lease signed. Lower asking rents have existing tenants asking for rent reductions.

Sears is closing its store at Northwest Plaza, leaving the regional center without a department store anchor. The city of St. Ann has selected G. J. Grewe, a local developer, to redo the center. A Nordstrom’s Rack will open in Brentwood Square Shopping Center in September. Nordstrom’s second store in the region is now expected to open in the Galleria in September 2011.

The overall industrial vacancy rate ranges from 8-11% depending upon the source. The vacancy rate jumped last year because of the addition of 6 million sq. ft. at the shuttered Chrysler plants and their suppliers. Later this year, Cenvo, Inc. will combine two printing facilities and move into the former 220,000 sq. ft. building of auto-parts supplier Visteon. Various governments will spend $2.325 million in cleaning, positioning and marketing of the shuttered plants.

Industrial sales prices and lease rates have fallen, and new construction has almost stopped. Brokers, however, are reporting that more companies are looking for industrial space. Proctor & Gamble has spent $80 million on upgrading its North St. Louis manufacturing plant over the last two years, and is considering an expansion costing $150 million over the next five years. In addition to its distribution facilities in Gateway Commerce Center, P&G has leased a 502,000 sq. ft. building in Sauget Business Park.

While the St. Louis office market is healthier than many other regions of the country, demand has not improved enough to compensate for the excess supply available. Vacancies are up, rental rates down. Large blocks of office spaces are available in the suburban and downtown markets. Financing remains tight. No major building is underway except the first Centene Plaza building which will open this summer with 96% of its 485,250 sq. ft. leased.

Tenants are taking advantage of deals in the marketplace or renegotiating existing leases with different rate and terms. Tenants are occasionally using lower lease rates to move to better quality buildings. Owners are giving concessions, mostly free rent, and trying to meet tenant demands for higher improvement allowances.

Total available office space rose to 13.3 million sq. ft., or 17.2% of inventory during second quarter 2010, up from 16.9% at first quarter 2010 and 16.3% of inventory at year-end 2009. Overall absorption through the first two quarters of 2010 was a negative (508,600) sq. ft. All submarkets experienced negative overall absorption except Midtown. No new deliveries were added to inventory during the first half of 2010. Average asking rent for all properties was $17.94 per sq. ft., continuing a decline that began at second quarter 2008. On the positive side, a number of companies are currently looking for 50,000 sq. ft. or more of space to lease.

Class A availability rose to 17.1% or 6.0 million sq. ft. during second quarter 2010. Absorption for Class A properties in 2010 is currently a negative (301,900) sq. ft. The Downtown Class A availability rate increased to 19.3% or 2.0 million sq. ft. at second quarter 2010 from 18.9% at first quarter 2010. Availability in the suburban markets increased to 16.1% or 4.0 million sq. ft. at second quarter 2010 from 15.9% at first quarter 2010. Overall average Class A asking rents declined to $21.44 per sq. ft. at second quarter 2010, from $21.59 per sq. ft. at first quarter 2010, down from over $22.00 per sq. ft. at first quarter 2009 and most of 2008.

Class A sublease space rose during first quarter 2010, increasing to 949,000 sq. ft., or 15.7% of all available Class A space. The largest amounts of available Class A sublease space are in South County (334,700 sq. ft.), West County (136,400 sq. ft.), Central Business District (108,900 sq. ft.) and St. Charles County (104,300 sq. ft.) submarkets. Available sublease space could actually be higher as some companies appear to be retaining underutilized space while awaiting economic recovery.

The availability rate for Class B office space rose during the second quarter 2010 to 18.1% or 5.0 million sq. ft. Absorption through second quarter 2010 was a negative (95,400) sq. ft. Class B asking average rent declined to $17.15 per sq. ft. at second quarter 2010 from $17.51 per sq. ft. at first quarter 2010. 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 slightly to 15.9% or 2.3 million sq. ft. at second quarter 2010 from 15.7% at first quarter 2010. Absorption during the first half of 2010 was a negative (111,300) sq. ft. The CBD has the most Class C space available with 1.3 million sq. ft. The average asking rental rate for Class C space had hovered in the mid to upper $16.00 per sq. ft. during 2008, but has since declined to $15.23 per sq. ft. at second quarter 2010.

With the national credit crunch, the investment office market has slowed, but more purchases are anticipated with coming defaults and foreclosure. The 1.2 million sq. ft. Railway Exchange building, home to Macy’s downtown, is under contract to local developers. The largest real estate transaction expected in 2010 is Monsanto’s purchase of the 1.3 million sq. ft., 210-acre Chesterfield Village Research Center from Pfizer for $435 million.

Construction on the new toll-free, four-lane, bridge north of Downtown St. Louis has begun, and the bridge should be completed by 2014. Other large public and private projects in Missouri include millions being spent by Metropolitan Sewer District (MSD) and Missouri American Water Company on aging infrastructure and Webster and Washing Universities and medical centers in new buildings. Specific projects include the $102 million on the new National Archives and Records Administration military personnel facilities and the $130.5 million expansion at the St. Louis Art Museum. After a year’s delay, Shriners Hospital for Children plans to start construction in late 2010 on its new hospital in the Central West End of St. Louis city. The existing building in Frontenac will be sold when the new facility is completed.

Lambert St. Louis International Airport has established a $1.7 million airline incentive program to attract replacement airlines for cuts by American Airlines made in April 2010. Enjoying such incentives, Alaska Airlines will add daily service to Seattle beginning in September. Lambert will close two seldom used concourses and spend $50 million to modernize the other concourses, terminals and ticket counters.

High-speed rail between St. Louis and Chicago will get $1.1 billion boost in federal stimulus funding for planning. Another $31 million will upgrade passenger service between St. Louis and Kansas City.

While the economy has negatively affected river traffic, the Port of St. Louis is getting prepared for the future. In Illinois, Tri City Regional Port District received $6 million in stimulus funds to expand the port. In Missouri, the City of St. Louis received $15.6 million (and added another $3.9 million) to replace the south dock at the municipal river terminal. The North St. Louis port redevelopment area received a $600,000 grant (along with $200,000 from the city) to decrease the port’s vulnerability to flooding and to attract new businesses.

In Illinois, work continues the Conoco and EnCana’s Conoco Phillips $4 billion Wood River refinery expansion, Albingoa Bioenergy’s $200 million ethanol production facility, and the $2.9 billion Prairie State Energy synthetic natural gas plant about 40 miles southeast of St. Louis. About $160 million of construction is expected to be completed at Scott Air Force Base in 2010. USTRANSCOM (US Transportation Command) recently moved into a new three-story, 240,000 sq. ft. building at the base. A one-fourth cent sales tax is being collected in Madison, St. Clair and Monroe counties to pay for mandatory flood insurance in the Missouri Bottoms. A 100-year flood levee is expected to cost $160-170 million.

Market Highlights

• The overall availability rate continued its rising trend during second quarter 2010 and is now 17.2% up from 16.9% at first quarter 2010.
• Overall average asking rents fell again during second quarter 2010 to $17.94 per sq. ft. from $18.23 per sq. ft. at first quarter 2010.
• Overall absorption at the end of second quarter 2010 was negative (508,600) sq. ft. compared to negative (259,500) sq. ft. at the end of first quarter 2010. Class A absorption ended second quarter 2010 at negative (301,900) sq. ft.
• Class A average asking rents fell again during second quarter 2010 to $21.44 per sq. ft. compared to $21.59 at first quarter 2010. The Clayton submarket has the highest average rental rate at $25.16 per sq. ft. with the West County submarket at $22.88 per sq. ft.
• Class A sublease space fell slightly during second quarter 2010 to 949,000 sq. ft. or 15.7% of available inventory.
• Major transactions this quarter included Stinson Morrison Hecker’s 46,500 sq. ft. lease in the Clayton submarket and Missouri State Public Defenders’ 17,900 sq. ft. lease in the CBD submarket.

Market by Market Review

Central Business District

Total Inventory: 25.5 mil. sq. ft.
No. of Buildings: 198
Average Asking Class A Rent: $17.87
Average Asking Class B Rent: $14.09
Availability Rate: 22.9%
Available Space: 5.8 mil. sq. ft.
New Deliveries: 0 sq. ft.
Net Absorption (YTD): (95,200) sq. ft.

Like spring, new projects are popping out all over Downtown St. Louis. Financing has been achieved for several buildings long in the planning stage. The Laurel, a rehab of the former Dillard’s department store, into 205 apartments; and a 212-room Embassy Suites hotel and inside parking for 320 vehicles, will be underway shortly. The sky bridge over Washington Avenue from St. Louis Centre has already been demolished. Work has started on the $31 million renovation of the St. Louis Centre, the former downtown retail mall, into 705 parking spaces and up to 100,000 of ground floor retail space. Renovation of 600 Washington (formerly One City Centre) building is also underway, and tenants are moving in. Roberts Tower, a $70 million, 25 -story, 55-condominium building, has placed a “coming soon” banner on the building.

West of Tucker Boulevard, activity is also picking up. Work has also begun on Park Pacific, a rehab of the Union Pacific building into 232 apartments, 45,000 of sq. ft. of office space and 33,000 sq. ft. of ground floor retail. The Cass-designed Central Public Library has been closed until 2012 for a $75 million renovation and addition. Confluence Preparatory Academy will open in the library-owned Farm Credit Bank building nearby. Work should begin shortly on the $74 million renovation of Kiel Opera House into Peabody Opera House, an entertainment/sports/art venue.

Other developments planned include the $1.6 million rehab of a factory into the downtown campus of Patricia Stevens College, the conversion of 1224 Washington and 1111 Olive into office space (X101NK is expanding into 1111 Olive), and the power updating of San Francisco-based Digital Realty Trust’s space at 210 N. Tucker for a data call center. The 1300 Market building (former Municipal Courts building), and the Railway Exchange building are planned as office and retail rehab. The Railway Exchange work includes reducing the size of Macy’s department store to three floors (about the size of its new stores), with the remainder of the 1.2 million building being office. Smaller projects include the rehab of the PD George building and 1900 Washington into apartments. Just south of the downtown core, Chouteau Landing is proposed for rehab office space.

Work on the proposed $376 million first phase of the multi-use Ballpark Village remains stalled, waiting for the financial markets to improve. 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.

The CBD has some large contiguous spaces readily available in Metropolitan Square, 600 Washington, 1010 Market, 500 N. Broadway, Laclede Gas, and 700 Market. An additional 120,000 sq. ft. on four floors will be available when Armstrong Teasdale relocates from Metropolitan Square to the Centene building in Clayton this year.

Several downtown buildings are on the market including 500 Broadway, 535 and 505 Washington, and the vacant former General American Life building at 700 Market. The.0.5 million sq. ft. vacant Jefferson Arms was acquired at foreclosure.

Mills Properties purchased the 911-units in five buildings at City View apartments (formerly Plaza Square). The company plans to rehab three of the buildings and sell the other two buildings, probably for senior housing. The complex opened in the early 1960s.

Overall availability of Downtown space has increased to 5.8 million sq. ft. or 22.9% of inventory from 4.6 million sq. ft. or 17.5% of total inventory at first quarter 2009. Overall absorption for first half of 2010 was a negative (95,200) sq. ft. Available Class A space is now 2.0 million sq. ft. or 19.3% of available space, up from 18.9% at first quarter 2010. Available Class A sublease space is now 108,900 sq. ft. and only 5.5% of available Class A space, down from 8.6% at year-end 2009. Continuing a very short trend, Class A space had positive absorption of 20,600 sq. ft. during first half of 2010 after positive absorption of 36,200 sq. ft. in 2009. Average asking rent for Class A space remained stable during the year at near $18.00 per sq. ft. and is now $17.87 per sq. ft.

Currently, available Class B space totals 2.5 million sq. ft. or 29.1% of inventory. Absorption for the first half 2010 was a negative (54,100) sq. ft. Another 1.3 million sq. ft. or 20.3% of Class C space is available. Class C space absorption was a negative (61,600) sq. ft. for the first half of 2010. Average asking rent for Class B space declined to $14.09 per sq. ft. at second quarter 2010 from $15.00 per sq. ft. at first quarter 2010. Class C space average asking rent decreased further to $12.19 per sq. ft. Rents in the CBD are the lowest in the region and the best bargain for tenants in the market.

North of Downtown, Paul McKee and North Side Regeneration continue to work on its plan for 4.5 million sq. ft. of new commercial buildings and 10,000 new homes north of Downtown. Infrastructure, parks and other amenities would be added over the next 15 years on roughly 500 acres. The city has authorized $390 million in tax-based financing, but a judge recently ruled that the authorization took the TIF beyond current limits. A decision has yet to be reached whether to appeal the ruling or to rework the city’s statute.

Midtown

Total Inventory: 1.2 mil. sq. ft.
No. of Buildings: 19
Average Asking Class A Rent: $21.50
Average Asking Class B Rent: $12.42
Availability Rate: 6.0%
Available Space: 0.1 mil. sq. ft.
New Deliveries: 0 sq. ft.
Net Absorption (YTD): 23,100 sq. ft.

This small submarket has the lowest availability rate of all the submarkets. Total available space is only 69,400 sq. ft. or 6.0% of total inventory. Available Class A space is only 32,200 sq. ft., none of which is sublease space. Class A average asking rents were stable during 2009 and the first half of 2010. Average asking rental rates of the 28,000 sq. ft. Class B space available decreased to $12.42 per sq. ft. at second quarter 2010 from $13.97 per sq. ft. at first quarter 2010, reflecting the quality of the space now available.

The Beaux Arts building in Grand Center is being converted into the first charter visual and performing arts school in Missouri. St. Louis University is building a recreational complex south of Chouteau. The development will be home to the University’s field teams. Also at Grand and Chouteau, the former Peverly Dairy buildings on ten acres will be converted to loft apartments. West on Forest Park Parkway, BJC Healthcare is completing a new $75 million headquarters. Washington University’s Genome Center is building a 15,000 sq. ft. data center.

CLAYTON

Total Inventory: 9.4 mil. sq. ft.
No. of Buildings: 118
Average Asking Class A Rent: $25.16
Average Asking Class B Rent: $20.30
Availability Rate: 16.2%
Available Space: 1.5 mil. sq. ft.
New Deliveries: 0 sq. ft.
Net Absorption (YTD): (162,100) sq. ft.

Although the overall availability rate increased in the second quarter of 2010 to 16.2% from 15.1% at first quarter 2010, the Clayton submarket is considered stable. Large vacancies are generally leased quickly. Currently, only three buildings have 25,000 sq. ft. or more of contiguous space. Office buildings in the submarket are popular with institutional investors.

The only new major office building development in the region is the first building of Centene Plaza which will open shortly with 96% occupancy. Asking rent is $32.50 per sq. ft.

The current amount of total available space is 1.5 million square feet. Absorption for the first quarter 2010 was a negative (162,100) sq. ft. Overall average asking rent continued to decline slightly during the first half of 2010 to $21.15 per sq. ft. from $21.81 per sq. ft. at year-end 2009.

During second quarter 2010, average asking rent for Class A space remained relatively stable at $25.16 per sq. ft. Class B average asking rent decreased to $20.30 per sq. ft. at second quarter 2010 from $21.43 per sq. ft. at year-end 2009. In the small Class C market, average asking rent was $18.00 per sq. ft. at second quarter 2010, the highest since second quarter 2009.

Class A availability is currently 16.1%, with 0.8 million sq. ft. available. Available sublease Class A space was almost stable at 66,800 sq. ft. or 8.2% of total Class A space. Absorption for first half 2010 was a negative (74,600) sq. ft. The availability rate for Class B space jumped to over 0.5 million sq. ft. or 18.9% during the second quarter of 2010 from 16.3% or 0.5 million sq. ft. at first quarter 2010. Absorption for first half of 2010 was a negative (72,900) sq. ft. Only 160,300 sq. ft. of Class C space is available in the submarket or 11.2% of inventory. A negative (14,600) sq. ft. was absorbed in first half 2010.

A number of other office developments have been discussed, but none will be underway until financial markets improve and significant pre-leasing occurs. A second 10-story building is planned for Centene Plaza at some later date. The development arm of Sikeston-based Montgomery Bank and St. Louis County had announced plans for a 25-30 story mixed-use building. The $568 million mixed-use development for Brown Group has also been placed on hold as has a building by Koman Properties and Apex Oil. A vacant commercial site, also in “Downtown” Clayton is being marketed for $2.75 million. (A new master plan for the business section of Clayton has proposed using “Downtown” rather than “Central Business District or CBD” as the term better reflects the diverse nature of the area). Also in Downtown Clayton, the ground for a Westin Hotel has been foreclosed, and the project is considered dead at this time.

Outside Downtown Clayton, Gateway Real Estate Partners reportedly has a 3.3 acre tract (formerly a Schnucks supermarket) under contract at Hanley and Clayton Roads, but no further information has been given. Plans include a hotel, office space, stores and a parking garage.

Creve Coeur/Westport

Total Inventory: 10.5 mil. sq. ft.
No. of Buildings: 132
Average Asking Class A Rent: $22.16
Average Asking Class B Rent: $17.77
Availability Rate: 15.6%
Available Space: 1.7 mil. sq. ft.
New Deliveries: 0 mil. sq. ft.
Net Absorption (YTD): (7,400) sq. ft.

The Creve Coeur/Westport office submarket has experienced ups-and-downs over the last couple years, but the market basically is flat. The overall availability rate has been in the mid-15% ever since third quarter 2009 when it was 17.1%. Overall available space remains over 1.6 million sq. ft. Absorption through second half 2010 was a negative (7,400) sq. ft.

During the first quarter, the average asking rental rate for Class A space fell to $22.16 per sq. ft. from $22.26 per sq. ft. at first quarter 2010. Average asking rent for Class B space rose slightly in the second quarter 2010 to $17.77 from $17.64 per sq. ft. at first quarter 2010. Class C average asking rent declined to $14.39 per sq. ft. at second quarter 2010 from $14.42 per sq. ft. at first quarter 2010.

The amount of available Class A has been over 0.8 million sq. ft. since year-end 2009. Year-to-date Class A absorption is now a negative (35,500) sq. ft. The availability rate at second quarter 2010 was 14.5%. Available sublease Class A space rose to 98,200 sq. ft. or 11.6% of Class A available space. Class B absorption was a negative (5,300) sq. ft. for the first half of 2010. Available Class B space is 0.6 million sq. ft. or 15.7% of total inventory, about the same as all of 2009. Little change occurred in the Class C available space during second quarter 2010. Currently, there is 223,900 sq. ft. available with 22.5% availability rate.

St. Louis County is spending $5.1 million to finance a conversion of a 47,000 sq. ft. building in Corporate Square into a biotech incubator called Helix Center. Several speculative buildings have been announced for the submarket, but none are under construction.

North County

Total Inventory: 9.6 mil. sq. ft.
No. of Buildings: 111
Average Asking Class A Rent: $19.82
Average Asking Class B Rent: $16.99
Availability Rate: 13.0%
Available Space: 1.2 mil. sq. ft.
New Deliveries: 0 sq. ft.
Net Absorption (YTD): (42,300) sq. ft.

Access to interstates and highways and availability of large acreages (and large parking lots) has made the North County submarket successful. In the future, the extension of Highway 141 from I-64/Highway should improve traffic and attract additional businesses to the submarket. Another industrial park is being added to the multiple choices in the submarket. Block Hawley Commercial Real Estate Services is developing a $75 million industrial and office park in the southwest quadrant of I-370 and Highway 367.

During second quarter 2010, overall available space declined slightly to 1.2 million sq. ft. or 13.0% of inventory. Overall absorption for year-to-date was a negative (42,300) sq. ft.

The average asking rent for Class A space remained stable during the first half of 2010 at $19.82 per sq. ft. For the second quarter 2010, Class B average asking rent rose to $16.99 per sq. ft. from $16.88 per sq. ft. at first quarter 2010 and from $15.97 per sq. ft. at year-end 2009. With limited availability, Class C average asking rent continues to decrease and is now $15.30 per sq. ft. Rents in the North County submarket are the least expensive of the suburban markets.

Available Class A space totals 0.6 million sq. ft. or 21.2% of inventory, 15.7% or 99,800 sq. of which is sublease space. Absorption for Class A space for first half of 2010 was a negative (85,300) sq. ft., having no change from first quarter 2010. The Class B space was the more active market. Absorption for half of 2010 for Class B space was 47,500 sq. ft. About 0.3 million sq. ft. or 7.6% of Class B space is available. With only 263,700 sq. ft. of Class C space is available; Class C absorption was a negative (4,500) sq. ft. during the first half of 2010.

A $60 million, 221,000 sq. ft. high-volume prescription fulfillment center is under construction in NorthPark for Express Scripts. No other build-to-suit or speculative office buildings are now under construction.  

south County

Total Inventory: 8.4 mil. sq. ft.
No. of Buildings: 155
Average Asking Class A Rent: $21.85
Average Asking Class B Rent: $18.60
Availability Rate: 14.3%
Available Space: 1.2 mil. sq. ft.
New Deliveries: 0
Net Absorption (YTD): (34,400) sq. ft.

Once noted for its high occupancies and low turnover, the South County submarket’s office and industrial sectors are experiencing problems. Anheuser-Busch InBev and Maritz have sublease space on the market. The closing of the Chrysler plants and its suppliers put nearly 6 million sq. ft. of industrial space on the market. Overall available office space rose in 2009 to 1.2 million sq. ft., and availability remains at 14.3% of total inventory. Overall net absorption for the first half of 2010 was a negative (34,400) sq. ft.

Over 0.6 million sq. ft. of Class A space is currently available, 334,700 sq. ft. or 51.6% of which is sublease space. Average asking price for Class A space has decreased slightly during 2010 to $21.85 per sq. ft. from $22.09 per sq. ft. at year-end 2009. As of second quarter 2010, available Class B space is nearly 0.4 million sq. ft. and 10.2% of inventory. Average asking rent for Class B space continued its overall decline to $18.60 per sq. ft. at second quarter 2010 from $18.95 per sq. ft. at first quarter 2010. Available Class C space is minor in the submarket but increased during second quarter 2010 to 196,200 sq. ft. or 9.5% of inventory. Average asking rent for Class C space was stable at $16.30 per sq. ft. at second quarter 2010. Absorption for year-to-date 2010 was a negative (57,000) sq. ft. for Class B space and a negative (57,500) sq. ft. for Class C space.

Panera Bread Co. will move its 365 corporate employees to 90,000 sublease space of Anheuser-Busch InBev, vacating smaller spaces in Richmond Heights and Brentwood.

West County

Total Inventory: 8.3 mil. sq. ft.
No. of Buildings: 128
Average Asking Class A Rent: $22.88
Average Asking Class B Rent: $20.09
Availability Rate: 15.7%
Available Space: 1.3 mil. sq. ft.
New Deliveries: 0 sq. ft.
Net Absorption (YTD): (174,200) sq. ft.

In second quarter 2010, the West County submarket experienced a larger increase in availability than in first quarter 2010 and during any period in 2009. At second quarter 2010, 1.3 million sq. ft. is available or 15.7% of inventory, up from 1.2 million sq. ft. and 14.2% at first quarter 2010. Year-to-date overall absorption was a negative (174,200) sq. ft., up from a negative (43,300) sq. ft. at first quarter 2010.

Available Class A space is almost 0.9 million sq. ft. or 16.7% of total inventory, up from 0.8 million sq. ft. or 15.8% at first quarter 2010. Available sublease space is now 136,400 sq. ft. or 15.8%, down 17,000 sq. ft. from first quarter 2010. Class A absorption during year-to-date 2010 was a negative (110,000) sq. ft. Average asking rent for Class A space remained stable at $22.88 at second quarter 2010.

Year-to-date 2010 absorption for Class B and Class C space was a negative (57,300) sq. ft. and (6,900) sq. ft., respectively. Available Class B space is now 0.4 million sq. ft., while available Class C space is only 46,900 sq. ft. Average asking rent for Class B space remained stable at $20.09 per sq. ft. during second quarter 2010. The average asking rent for the small amount of Class C space fell to $16.43 per sq. ft. after being above $18 per sq. ft. since second quarter 2009.

Speculative office space appears to awaiting improvements in economic conditions including Sachs Properties’ second building of 150,000 sq. ft., Central Square II, in Chesterfield Village. 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. Louis County Library Foundation is designing a 60,000 sq. ft. Family History Center for West County. The library will be one of only five free-standing genealogical libraries in the nation. Monsanto has purchased Chesterfield Village Research Center from Pfizer for $435 million and plans $65 million in updates and additions. Pfizer will lease space for 500 employees at the Center.

st. Charles

Total Inventory: 4.5 mil. sq. ft.
No. of Buildings: 66
Average Asking Class A Rent: $20.27
Average Asking Class B Rent: $16.95
Availability Rate: 11.4%
Available Space: 0.5 mil. sq. ft.
New Deliveries: 0 sq. ft.
Net Absorption (YTD): (16,000) sq. ft.

The St. Charles office market changed somewhat during the second quarter of 2010 although the submarket is basically stable. Overall year-to-date absorption decreased to a negative (16,000) sq. ft. At second quarter 2010, overall availability was 0.5 million sq. ft. or 11.4% of inventory, up from 10.9% at first quarter 2010. Available Class A space is now 201,000 sq. ft. or 7.8% of inventory. Sublease space rose to 104,300 sq. ft. or 51.9% of available Class A space. Class A absorption for first quarter 2010 was 8,200 sq. ft. The Class A average asking rent decreased to $20.27 per sq. ft. at second quarter 2010 from $21.19 per sq. ft. at year-end 2009.

Class B availability increased to 225,200 sq. ft. or 16.5%, up from 15.1% of inventory at first quarter 2010. Absorption for first quarter 2010 was a negative (24,600) sq. ft. The Class B average asking rent continued to decline and is now $16.95 per sq. ft. Class C available space is only 88,100 sq. ft. Absorption year-to-date for Class C space was only 345 sq. ft. Average asking rent for Class C space declined to $13.32 per sq. ft. from $13.57 per sq. ft. at first quarter 2010.

Several speculative buildings have been announced, but none are under construction. All of these projects are on hold. The city of St. Charles has backed $40 million in bonds for the proposed $385 million Streets of St. Charles development. Ground work for the project started this summer. The initial building includes 293,000 sq. ft. of commercial and retail space on the first floor and 196 residential units on the second floor. Federal funds are unlikely at present for the proposed $1.3 million Harbor San Carlos development. Both developments would include retail, residential, hotels and possibly office space.

The City of O’Fallon is one of four locations worldwide to get a new Research and Development program by MasterCard Worldwide. The program will be located at the company’s Global Task & Operations headquarters. O’Fallon has approved a $24 million in bonds and a 50% tax break over 10 years for a 10,000 sq. ft. data center for Centene. In addition, O’Fallon is seeking approval from the St. Charles County Road Board to build a service road south of I-60/Highway 40 from Highway DD westward. The road would then service what the city is calling O’Fallon Renewable Energy Research & Development Park. THF Properties currently owns the property.

Major Office Acquisitions

To view historical building sales information, please visit St. Louis market transactions.

Significant Leasing Activity