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Downtown Clayton set for an office building boom
(St. Louis Post-Dispatch (KRT) Via Thomson Dialog NewsEdge) Dec. 30--A shortage of office space in downtown Clayton might not be a concern much longer with several projects under construction and others on the drawing board.
And that has some real estate experts concerned about the opposite problem, a glut that could send vacancy rates up and lease rates down.
Planned projects include a $100 million, 25- to 30-story high-rise office tower by Webster Groves-based Montgomery Development LP.
The $150 million Trianon by Chicago-based Orchard Development Group will feature 30,000 square feet of office space, and Conrad Properties Corp. plans to add more than 75,000 square feet at North Meramec and Pershing avenues.
Centene, a Clayton-based health care management company, was planning to build a 700,000-square-foot headquarters and mixed-use development on a vacant site on nearly an entire block along Hanley Road between Forsyth Boulevard and Carondelet Avenue.
But Centene abandoned the project after deciding to move to downtown St. Louis instead. Commercial brokers expect the property to eventually house more than half a million square feet of office space.
At least two other projects with significant office space haven't been made public yet, say people close to the deals. Absorbing all of that space probably can't be done solely by area businesses, experts say. It will take tenants moving from outside the region.
"You are looking at potentially 600,000 to 700,000 square feet of new office space at a minimum," said Tripp Hardin, principal with Clayton-based CB Richard Ellis. "Probably a million depending on what happens with Centene's site."
Clayton has less than 4 million square feet of Class A -- or top tier -- office space. And while there is a demand for new office space, Hardin said, "I don't think there is enough demand for all of them, not in a condensed period of time."
Indeed, the planned projects would represent a huge spike for downtown Clayton.
Since 2002, a little more than 104,000 square feet of additional office space has been leased -- or absorbed, said Mike Wolken, a principal at Coldwell Banker Commercial. While it can be argued the absorption rate is low because of the lack of space, Wolken called it "pretty underwhelming" compared to other office markets.
"Clayton is not Atlanta or Dallas or New York," Wolken said. "Those cities have great (in-)migration of major corporations. Comparatively, Clayton is a third-tier city."
So far this year, the market has absorbed 51,300 square feet of Class A space, according to a report by St. Louis-based EVS Realty Advisors Inc. There is just under 500,000 square feet of space available, the report states.
Research by Coldwell Banker Commercial puts the vacancy rate for Class A at 8.6 percent. A rate lower than 10 percent indicates a strong market. A spate of new buildings coming on the market could change the vacancy equation quickly, experts say.
"The worst thing that could happen is three of these coming on the market at the same time," said Lynn Schenck, senior vice president of brokerage services for CB Richard Ellis.
Clayton needs more office space, but not that much.
"The average tenant size in Clayton is not huge," Schenck said.
There is a need for large contiguous blocks of space for some users -- 30,000 square feet and above -- Schenck said, but there aren't many of them. Greater land availability in the outer-ring suburbs means larger buildings, she said, and that's where large companies prefer to go.
"The (far-flung) suburbs also offer free parking," Schenck said.
If more than 200,000 square feet of space is added in a short time, Hardin said, leasing would slow and rents and occupancy could drop.
Downtown Clayton experienced those effects in 2001, the last time Class A office space was added to the market.
The vacancy rate spiked from 5 percent at the end of 2000 to 14.8 percent at the end of 2001, and it stayed in the double-digits until the middle of 2006, according to a research report from Coldwell Banker. Lease rates also fell by more than a dollar a square foot from $27.88 to $26.79. The space was leased, though slowly.
While experts suggest some developers might try to move forward with office projects before lining up tenants in advance, large-scale projects won't move without significant pre-leases.
Chris Fox, managing director of Clayton-based Gateway Commercial, estimated that developers of large projects would try to get about 50 percent of a project leased before starting work.
Some may pull the trigger with only 30 percent, Fox said. But none will move on a speculative basis, building now and hoping leases will come later.
All or most of the planned projects will likely get built, Schenck said, but only if Clayton gains significant tenants from other parts of the St. Louis area and from outside the metro region.
"If everyone builds a building, it will be a mess. There are tenants running around but they won't fill entire buildings," Wolken said.
rtstclair@post-dispatch.com -- 314-340-8206
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Copyright (c) 2007, St. Louis Post-Dispatch
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