It's official! Spec building in St. Louis has been removed from the endangered species list. Five spec office buildings are just completed or under way, and four spec industrial buildings are going up or leasing with more in the planning stage.
Occupancies for offices, industrial, apartments and retail are bringing the smiles back to landlords' faces. The bulk of current construction activity, however, is government-driven, according to Daniel E. Frisbee, senior vice president of Fru-Con Construction Corp., St. Louis.
The problem child in the market is the downtown office market with an overall vacancy of 28.2%, nearly four times that of its suburban counterpart, according to Keith Zeff, vice president/information services at St. Louis-based Colliers Turley Martin.
"The good news is that a lot of companies are looking for space downtown including Anheuser Busch, Boatmen's Bank and Sherwood Medical," Turley Martin vice chairman Clarence Turley says.
"Of course everything is in correlation to last year, which can only be characterized as a disaster with a negative absorption of 729,000 sq. ft. while this year a modest positive absorption is expected," David Morse, a Turley Martin leasing agent, says.
Zeff says that '95 was the worst year ever for downtown. "However, we're showing 90,000 sq. ft. of positive absorption for the first six months of the year."
Lease rates remain firm with concessions just about completely dried up, according to Morse.
"Market activity downtown is on the upswing," Don H. Woehle, a vice president at St. Louis-based Nooney Krombach, says, "and I believe we will be seeing buildings reaching 90% and above occupancies by year end."
Suburban office stays strong
The suburban office market is tight with all sectors hovering around 95% occupancy except north St. Louis County, which has an 83.4% occupancy, according to Nooney Krombach.
Suburban office rates have been increasing from 8% to 15% with diminishing tenant finish allowance, says Dave Bridges of Follman Properties * Oncor International, St. Louis. "In some cases, tenants are paying as much as 40% to 100% of remodeling costs."
Nearly 100% of the 800,000 sq. ft. of office space in Sachs Properties 1,500-acre Chesterfield Village mixed-use development is occupied, according to Kathy Higgins, president. "Right now, we have 564 sq. ft. of office space available. Our current 99.99% occupancy is the highest in the history of Chesterfield Village," she says.
Sachs plans to start construction on Chesterfield Ridge Center, a 140,000 sq. ft., six-story office building. "We are confident that this will be leased by spring 1997," Higgins says.
Owen Development plans to build a 41,000 sq. ft. spec office building. This will be the first such venture in 10 years for the Clayton area.
Bakewell Corp. is developing a 112,200 sq. ft., two-building complex called Grandview Office Park. Thomas I. Bannister, Bakewell president and COO, says that the first building is 100% leased, and lease proposals have been submitted for 67,400 sq. ft. of space in the second building.
Also, Perkinson Realty has started construction of a 90,000 sq. ft. speculative office building, Woodsmill Office Center. Southwestern Bell is completing a 130,000 sq. ft. build-to-suit project in west St. Louis County. Lorraine Perkinson, a principal of Perkinson Realty, says leases are being finalized for 60,000 sq. ft. of the building.
In the proposed category, Nooney Krombach has identified almost 1.9 million sq. ft. of space in the suburban markets in the planning and approval stages.
Industrial in demand
The industrial for-sale market is extremely tight, Floyd Sweeney, chairman and CEO of Sweeney-Finn Inc., St. Louis, says. "Demand has a choke hold on the market. There is not much industrial property for sale here. Prices are strong with very little negotiations," he says.
That industrial lease demand moderated "somewhat" during the second quarter with slightly more space added than had been absorbed by transactions, Lenore Burckel, Turley Martin director of research, says.
"The total amount of space available for sale or lease in existing county buildings increased by about 250,000 sq. ft. during the second quarter of the year. In addition, in July more than 700,000 sq. ft. of lease space was being marketed in speculative construction projects scheduled for completion before the end of the year," Burckel says.
The overall occupancy of industrial property is at 91.9%, Ervin L. Heyde, a senior vice president at Nooney Krombach, says. "There is a lot of activity in the industrial market at this time," Heyde says. "Investment interest in the industrial market is also on the rise."
One of the most active developers of industrial property is Indianapolis-based investments. David P. Minton, Duke vice president, reports three projects that the company has under way. Just completed was DukePort I, a 403.000 sq. ft. distribution center, and DukePort II, a 244,000 sq. ft. distribution center, is due to be completed next January. Both of these were spec projects. Also, Duke is developing a 130,000 sq. ft. build-to-suit project in Missouri Research Park.
Duke has 100 acres still available in Earth City for build-to-suit or multitenant buildings. And Centre Park Forty, a 32-acre office project, is in the site-plan approval stage, Minton says. "We hope to start a building on that site next year."
Also, Perkinson is nearing completion of the second speculative distribution center it has built in the past 10 months at Corporate Woods/Earth City.
Nelson Grumney Jr., a Turley Martin vice president, expects future industrial development for the most part to be along Highway 40 and 1-70 in St. Charles County. The city of O'Fallon has had considerable success with an industrial park it is developing along Highway 40, he says.
"Next year's industrial market looks like it will be just as strong as this year's," says Gregory P. Fuller, an associate vice president of Paric Corp., St. Louis.
Balke Properties of St. Louis plans to build a 230,000 sq. ft. build-to-suit distribution center, a 150,000 sq. ft. build-to-suit distribution center and a 150,000 sq. ft. Class-A office/retail project, according to Steven A. Brown, principal of the firm.
"A few remaining sites along the 1-44 corridor in Fenton are posted at $3.75 per sq. ft. In Earth City, ground can be purchased for $2 to $2.25 per sq. ft. Comparatively remote locations off 1-70 in west St. Charles County are priced for under $2 per sq. ft.," Brown says.
Clayco Construction Co. Inc. built more than 2 million sq. ft. of industrial space in St. Louis in the last 12 months. "That's more than we've put up locally in any of the previous five years," says Clayco's president, Robert C. Clark.
Big box leads retail
It's getting hard to find an empty space in a neighborhood strip mall anchored by a supermarket, says John Lauer, president of Lauer Construction Co. Inc., St. Louis. "Retail construction, especially the retrofit market, is continuing to uptick. The shakeouts we've had in St. Louis when companies like Central Hardware and National Supermarkets pulled in their horns, left a lot of hard-to-fill big boxes. This year, those boxes started to fill," Lauer says.
The Midland Group's 1996 Shopping Center Vacancy Report shows an overall vacancy of 9.04% in almost 39 million sq. ft. of retail centers in the metro area.
Big-box activity continues to dominate the majority of retail market demand, according to Joe Ciapciak, director of leasing, Pace Properties. "We have been very involved in the Central Hardware liquidation. Two of the 11 locations have sold and two others are under contract, and we have letters of intent on two more."
The Richmond Height City Council gave its approval to a $15 million mall. The new center, proposed by Chicago-based The John Buck Co., will be a tax increment financed project.
South of this site, The Sansone Group Inc. and ORIX Real Estate Equities are going to develop The Promenade at Brentwood. The center's first phase will be a 300,000 sq. ft. power center. When complete, the project will have 1 million sq. ft. of offices and retail.
In addition, Timothy G. Sansone, executive vice president-operations at The Sansone Group, St. Louis, says the development firm has formed a joint venture with Equitable Assurance Co. and is developing The Shoppes at Sunset Hills, a 100,000 sq. ft. project.
Earlier this year, Sansone represented Aetna Life Insurance Co. in the sale of Town & Country Commons Shopping Center to Charter Communications, which is being converted to an office tech center. "Charter Communications and Unity Health Systems are the anchor tenants of this renovated property, and we expect to be 100% leased by the spring of 1997," Sansone says.
The Desco Group has been named the preferred developer for a $51 million power center called Kirkwood Commons Shopping Center in suburban Kirkwood. This will have 522,000 sq. ft. of retail space.
Apartments draw investor interest
With high occupancy rates, rising rents and the prospect of little new construction, the apartment market continues to be the darling of investors and financiers.
"St. Louis has one of the best apartment markets in the country," says Ken Aston, president of Mills Realty. "Apartments are the best investment available in St. Louis."
Aston says his firm has sold more than 2,000 units in the last 18 months with another 2,100 units under contract. These sold for between $15,000 and $50,000 per unit, he adds.
"The buyers of St. Louis apartments include pension fund advisers, private local investors and regional investment companies," Patricia Nooney, CFO and senior vice president of Nooney Krombach, says. "But, REITs are noticeably absent."
Jon Pyzyk, Kohner Property CEO, says municipalities in St. Louis County have blocked construction of multifamily projects. "One municipality has property zoned for multifamily but has effectively blocked any construction mainly because of home owner opposition."
Michael Mullenix of Mullenix Properties, St. Louis, demonstrates the strength of the apartment market by the rapid leasing of the firm's new 96-unit The Cascades at Time Center in St. Charles County. "Our pro-forma for The Cascades projected that it would take nine months to achieve 95% occupancy. It ended up taking 90 days."
Financing
The commercial mortgage market has been active with every life company back in the market competing for what is predominately refinancing business, according to Terry S. Dunaway, senior vice president at GMAC Commercial Mortgage's St. Louis office.
"Life insurance companies have had to loosen underwriting standards to compete for the better quality properties and, while not as aggressive as in the 1980s, some have entered that gray area that could lead to problems in a weaker economy," Dunaway says.