Rate of Population Growth: 1%
Median Household Income: $61,400
Unemployment Rate: 4.8%
2002 Retail Completions: 4 million sq. ft.
Retail Vacancy Level 2002: 7%
Retail Vacancy Level 2001: 8%
Average Rent Per Square Foot 2002: $15.00
Average Rent Per Square Foot 2001: $14.60
Source: Federal Reserve Bank of St. Louis, St. Louis Regional Chamber & Growth Association, U.S. Department of Labor, Grubb & Ellis
“Stable” and “conservative” are comforting words to retailers and developers weary from the ongoing economic roller-coaster ride. Those are the words Joe Ciapciak, managing director of Pace Properties in St. Louis, uses to describe the St. Louis metro market.
“It's your traditional Midwestern city, with a diverse economy and diverse population,” says Ciapciak. “Retailers will say that their sales are steady and dependable, so they look on us favorably.”
Lately the number of retailers looking on the city favorably has increased substantially. Some two dozen retailers entered the market recently, or soon will. Among them are Recreational Equipment, Orvis, Whole Foods, Arhaus and Viking Culinary Arts Center, all of which leased space at Pace's recently completed 200,000-square-foot, $75 million Brentwood Square.
Discount retailers are thriving in St. Louis. Wal-Mart recently opened stores in Wentzville and Chester½eld and is considering another in Maplewood. According to Grubb & Ellis, Save-A-Lot plans to double its St. Louis store count, while Deal$ Nothing Over A Dollar is expected to open more than 60 new stores in 2003.
Other new retailers include Nordstrom, Galyan's, Coldwater Creek, Apple Computer, Lladro and Adrian Vittadini, which entered the market as part of West½eld Corp.'s redevelopment of West½eld Shoppingtown West County. The $237 million project, which demolished the 563,621-square-foot former West County Mall, brought the property to 1.2 million square feet.
It was Nordstrom's entry, says Ciapciak, that turned the tide. “When people heard Nordstrom was coming, we became the bene½ciary of some very positive momentum,” he says. “We're a second-tier market ½nally getting recognized by ½rsttier tenants.”
Randy Smith, executive vice president of West½eld in Los Angeles, emphasizes that it was only the West County upgrade that made the Seattle-based retailer's entry possible. Despite attractive demographics, the market previously offered no locations suitable for a store of Nordstrom's caliber. Smith says this reluctance to upgrade properties is another signal of the region's conservatism.
West½eld, however, may not completely benefit from its swipe against conservatism. Although the move won over Nordstrom, the REIT owns six of the area's 10 regional malls, and according to Grubb & Ellis, increased activity at the revitalized West County center could draw traf½c away from Westfield's other properties.
Two other trend-setting projects will attract more retailers to the area. The $250 million, 1.1 million-square-foot St. Louis Mills by Mills Corp. of Arlington, Va., scheduled to open this fall in Hazelwood, will feature 18 anchors and more than 200 specialty stores, including the state's ½rst Saks Off Fifth and PBS Kids Zone. In 2004, Pace will introduce The Boulevard-St. Louis, the region's ½rst Main Street-style development, across from the St. Louis Galleria in Clayton. The 225,000-square-foot retail portion will include Crate & Barrel, AnnTaylor Loft and P.F. Chang's. About 300 residential units and 490,000 square feet of of½ces complete the mix.
Colliers' Turley Martin Tucker says 2.8 million square feet of total construction is planned through 2004, increasing the inventory by about 7 percent. “In general, we don't have an enormous amount of retail growth here,” Ciapciak says.
The third-quarter report from Grubb & Ellis puts the current vacancy rate at 7 percent. The same report puts the annual asking rent at $12.50 per square foot for shop space and $19 per square foot for junior anchors. Colliers calculates rents at $10 to $28.00 per square foot for community centers, $10 to $25 per square foot for neighborhood centers and $16 to $23 per square foot for power centers. Both ½rms say rents are holding steady, with gradual upticks apparent.
As with everything else, population and economic change in St. Louis is slow and steady. The population of the 12-county region, the nation's 16th largest metropolitan area, has grown 11 percent in 10 years, increasing from 1.94 million in 1992 to 2.15 million in 2002, according to the Federal Reserve Bank of St. Louis. According to the County of St. Louis, the regional unemployment rate has been below the national average for the past 11 years. Apart from a late summer spike to 6.2 percent, the rate stayed below 5 percent through most of 2002, compared to slightly below 6 percent for the nation for the year, according to figures from the Department of Labor.
The combination of stable vacancy rates, moderate construction and steady population growth has made St. Louis attractive for institutional investors seeking long-term value, and less appealing for REITs hoping to show quarterly increases. But REITs are beginning to show more interest recently, says Ciapciak. Two unidenti½ed REITs, both of which are new to the market, are in contract to acquire former Kmart sites, Ciapciak says; each property drew bids from more than 10 potential investors.
“There's more investment interest now than in the 15 years I've been in the business,” he says. “We're a market that's been discovered at last.”