The commercial real estate market in the St. Louis metro area may not break any records this year, but it probably will be one of steady growth. That's expected to be the message today at the annual real estate market forecast organized by the Society of Industrial and Office Realtors.
Land acquisition, leasing activity and investment in the urban core point to a continued upward trend in local real estate. Experts in various real estate sectors are expected to provide details at the SIOR forecast event in Clayton.
The year will be a telling one for industrial property, which has led development activity in the last couple of years, said Jon Hinds, vice president of industrial leasing with Indianapolis-based Duke Realty Corp.
In 2006, 2.1 million square feet of industrial space were leased, making it a good year, if not a record-breaking one like 2003, which saw 5.5 million square feet of space leased. Developers have been acquiring large tracts of land in Illinois and Missouri for industrial development.
"That's a big deal, because it shows that from national and local perspective, the real estate community believes St. Louis is a good location for distribution," said Hinds. "The big question is whether all the new capacity being created through speculative building will get used up."
If the available space is not leased, developers will go into a wait-and-see mode and speculative construction will cool off, he said.
One area where leasing is going rather well, said Dave Morris, senior vice president of Grubb & Ellis/Gundaker Commercial, is the office market along the Interstate 270 corridor between Olive Boulevard and Manchester Road.
Although 2006 continued to be a tenants' market, lease rates rose and landlords are starting to cut back on concessions to lure tenants, Morris said. There is little speculative construction in the office market, and the only projects being planned will not be completed until mid-2008.
Prospective tenants might have trouble finding large blocks of space, Morris said.
He expects about 1.35 million square feet of office space to be leased this year, compared to 1.1 million in 2006. The market should also see a fair amount of small-space leasing because of the reconstruction of Highway 40 (Interstate 64), Morris said.
Because several interstate highways intersect near downtown St. Louis, the city's core is likely to benefit from the construction, he said.
Despite low overall leasing activity in downtown St. Louis, investment interest has been high, said Lynn Schenck, senior vice president of brokerage services for CB Richard Ellis in Clayton. "I think investors are recognizing that there is a revitalization going on downtown," Schenck said.
The appetite for St. Louis area investment properties grew in 2006, as investors spent $1.4 billion, up 13 percent from 2005. That has led to a sellers' market, with individual properties selling at high prices.
Investment in 2007 should be steady but not phenomenal, Schenck predicted.
What is phenomenal, said Jim Smith, managing partner of Kingsdell LP, is the amount of reinvestment in the core of the St. Louis market. Kingsdell LP is involved in the renovation of the Chase Park Plaza hotel.
The investment is coming from several areas, including biotechnology, health care and university development, along with the reuse of older buildings.
"There is movement and momentum in the urban core, and in many ways we are leading the pack," Smith said.