Blueprint / St. Louis
March 15, 2006
Blueprint / St. Louis
By Maura Webber Sadovi
The Wall Street Journal
(Copyright (c) 2006, Dow Jones & Company, Inc.) Hurdles Abound
Some 40 years after St. Louis completed its soaring Gateway Arch, the region still is fighting to regain a competitive edge, while its trailing economy has kept commercial real-estate values grounded.
Straddling the Illinois and Missouri banks of the Mississippi River, the Midwestern region is home to a largely suburban population of about 2.8 million. The area is anchored by the city of St. Louis, which has seen its population steadily shrink to 348,189 in 2000, less than half its peak in 1950, according to the U.S. Census Bureau.
There are signs that the region's prospects are improving. The area's health-care sector is on the upswing, driven by such companies as pharmacy-benefits manager Express Scripts Inc., which is building a new headquarters. Isle of Capri Casinos Inc. is relocating its corporate headquarters to the region from Mississippi, partly to avoid hurricane-related evacuations of its main offices and to be more centrally located. DaimlerChrysler AG's Chrysler Group is investing as much as $1 billion over the next four years to modernize two manufacturing plants in Fenton, Mo.
The national back-to-the-city trend helped to give St. Louis its first population gain in decades during 2003, according to Rollin Stanley, director of the St. Louis Planning and Urban Design Agency. About 1,500 new and converted residential units have been added since 2000 with another 1,500 under construction, including Park East Tower, a 26-story residential high-rise.
The city, which is exploring such ambitious concepts as building floating islands in the river to expand its recreational space, also is gaining major entertainment venues. A new $365 million baseball stadium for the St. Louis Cardinals is opening downtown this spring and a $400 million casino and hotel by Pinnacle Entertainment Inc. is under construction.
Missouri voters approved riverboat gambling in 1992. While some say gambling was one of several attempts to revitalize downtown that have fallen short of expectations, boosters say Pinnacle's upscale approach and five-star hotel will be part of the city's successful turnaround. "St. Louis has had a few passes at trying to renovate downtown that have withered on the vine," says Mark Mantovani, president of the National System Inc., a 175-employee marketing-service firm known as NSI that moved from the suburbs into a former warehouse in downtown St. Louis last year. "This one's going to make it."
St. Louis's industrial market also is drawing interest from such developers as Dallas-based Trammell Crow Co., which believe the region's location and competitive rents will compare favorably with other warehouse markets, including Chicago, Indianapolis and Memphis, Tenn. Last year Trammell Crow purchased 400 acres in a business park across the river in southwestern Illinois, where it plans to kick off its development with a 500,000-square-foot speculative warehouse, according to Kevin Wilkerson, a Trammell Crow senior vice president.
The warehouse market and downtown revitalization efforts face challenges. Most commercial real-estate rents trail national measures. Office, retail and warehouse rents in the fourth quarter were below-average and office rents are only beginning to stabilize after declining since 2001, according to Property & Portfolio Research Inc., a research group based in Boston. Average prices fetched by area office properties last year were $104 a square foot, well below the national average of $190 and the Midwestern level of $130, according to Real Capital Analytics Inc.
Over the long term, warehouse rents may be hurt as developers ramp up construction, and some demand could be damped by the idling this month of a Ford Motor Co. manufacturing plant in Hazelwood, Property & Portfolio Research says. The downtown St. Louis office submarket is weak, posting the highest vacancies and lowest average rents of the region, Property & Portfolio Research says. In recent years many city office buildings have seen tenants depart for growing areas such as nearby Clayton, according to Regan Trittler, a vice president with Equis Corp.
Most significantly, prospects for improvements in the city and the region's commercial real estate hinge on a regional economy that has been less than robust. The area's population is growing at a below-average rate and employment levels rose by 1.2% in December from the year earlier, below the national level of 1.5%, according to the Bureau of Labor Statistics.