Urban renewal. It’s a hot topic in just about every American city as people debate the pros and cons of revitalizing metropolitan spaces. Will new businesses and development wipe out hard-earned character and history? Can developers drive economic development that benefits an entire city? How can cities respond to the needs of modern business and the needs of modern residents at the same time?
This last question is having a significant impact on commercial real estate right here in St. Louis. With job gains in the healthcare, business and technology sectors as well as higher demand on office properties, mixed-use developments and highly amenitized urban apartments, our Midwestern city is transforming from an industrial hub to a modern, tech-savvy metro.
St. Louis added nearly 6,000 jobs just in the past month alone, following an employment trend that has economists predicting a national growth of nearly two percent over the course of the next year. Local authorities, financial investors and the city’s skilled workforce built a vibrant startup community that drew in more than $72 million in venture capital in the third quarter of 2017 alone, according to data from PitchBook and the National Venture Capital Association.
Developers are tapping into renewal opportunities like these, creating spaces that can serve St. Louis’ dynamic startup scene while attracting educated and trained citizens. The latter group is key, as recent reports indicate that the demand for key tech skills can drive companies to locate in markets with the highest concentration of quality talent.
The high-tech industry was responsible for nearly 20 percent of nationwide leasing activity last year - the largest share of any industry. And this hustle for prime space in desirable communities is driving office rents up and vacancy rates down. While rent growth is most significant in large tech markets like San Francisco, the decrease in vacancy is present across large and small markets, including our own Midwestern hubs.
In fact, the St. Louis office market realized its 11th consecutive quarter of decreasing vacancy at the end of 2017, with numbers down by 130 basis points over the past year, dropping from 11 to 9.7 percent. Total net absorption in the same quarter measured 459,527 square feet, with year-to-date absorption measuring 1 million square feet. Possibly the most telling stat regarding recent vacancy reports is that there have been no significant deliveries to the market. A door is opening for developers willing to take on renewal projects.
Following in the footsteps of office and mixed use development, hospitality properties must adapt to the demands of urban renewal as well. Historic buildings in downtown St. Louis will soon reopen as boutique, upscale hotels. What’s more, Loews Hotels & Co. will establish its first St. Louis property as part of the $260 million Ballpark Village expansion set to open in 2019.
Even with more than 3,300 units under construction in St. Louis, demand for well-located, urban residential stock will remain healthy. And, just as with office spaces, the opportunities to capitalize on renewal trends are ripe for willing and savvy developers.
To learn more about the spaces primed for revitalization and development, and the trends within Midwestern cities, reach out to the commercial real estate professionals at Intelica. We can help you evaluate properties, navigate the complexities of urban renewal projects and ensure a healthy, profitable addition to your portfolio.