Like well-tuned machinery, the St. Louis economy and real estate markets continue to roll along. Glitches so far are minor with no breakdowns in sight.

The unemployment rate stands at 4.3%, up slightly with continued labor force growth, but remains one of the lowest rates in 20 years. Even proposed Boeing cutbacks of up to 7,000 blue- and white-collar jobs over the next few years are only one-half of 1% of all jobs in the region. The layoff actually could become a boon to manufacturers who are delaying production because of a lack of skilled workers, and to out-of-state employers like Fort Worth, Texas-based Eagle One Aviation Inc. that might move into the area.

"The St. Louis regional economy is adding new jobs at more than double the pace it was from 1990 to 1994," says Richard C.D. Fleming, president and CEO of the St. Louis Regional Commerce & Growth Association. The Campaign for Greater St. Louis reports a net gain of 83,200 jobs since January 1995.

Daimler Chrysler plans to spend $425 million to increase automation at its truck plant, while Anheuser-Busch is considering a $750 million packaging plant. While not adding jobs, these investments bode well for the future of both companies in the region.

Significant, too, is the emergence of the high-tech and entrepreneurial economy. ComputerWorld ranks St. Louis ninth in the nation as an information technology market (Boston is ranked No. 1). Start-up firms include AeroTech Service Group, Cutting Edge Optronics, World Wide Technology, Growth Network and AP Materials. In 1999, Whittman Hart Inc., one of the largest information technology consulting firms in the United States, opened a St. Louis office that employs 100 people. In addition, the Nidus Center for Scientific Enterprise, the St. Louis Center for Emerging Technologies and the Donald Danforth Plant Center all either recently opened or are underway. Nidus will house up to 100 experts from 15 companies, while the Plant Center will service 200 research scientists.

"Several major 'product improvements' that have been years in the making are now about to happen," continues Fleming. "A very far-reaching, multi-billion-dollar revitalization strategy for downtown St. Louis is beginning to bear fruit. A long-needed $2.6 billion rebuilding of Lambert-St. Louis International Airport has been approved by the FAA (Federal Aviation Administration) and is now in the early stages of implementation. A whole series of pro-investor, pro-development tax credits has been put in place in both Missouri and Illinois."

Robert Clark, president of St. Louis-based Clayco Construction, remains amazed at the strength of the St. Louis economy and indicates no real concerns about any particular real estate market becoming overbuilt. "So far, all has absorbed really well," says Clark. "The REITs and other investors active in the St. Louis market have experienced good success. Lease rates are high enough that you can get good returns on investment."

Bert Follman, chief executive officer of St. Louis-based Follman Properties*ONCOR International, confirms that assessment. "There are some bumps up in office market vacancy, but nothing substantial," he says. "New construction is going to be measured and carefully done."

Follman credits much local success to Indianapolis-based Duke-Weeks Realty Corporation, which owns, manages or has under construction 5.7 million sq. ft. of office and industrial space after entering the St. Louis market four years ago. Edward "Tee" Baur, a St. Louis senior vice president for Duke-Weeks, states the company has had the best success in growing inventory in St. Louis. "We are cautiously optimistic about the industrial and office markets, expecting that they will be good for some time," he says.

Office market stays the course The office market vacancy has increased slightly as 1.1 million sq. ft. of new construction entered the marketplace in early 1999. According to St. Louis-based Colliers Turley Martin Tucker (CTMT), second-quarter 1999 vacancy stood at 8.4%, compared to 7.7% at year-end 1998. Absorption through the second quarter was 772,000 sq. ft. - nearly matching the 795,000 sq. ft. absorbed in all of 1998.

Lease rates continue to escalate, even as supply is added. Estimates of current and probable construction completed total 1.2 million sq. ft. in 1999, 700,000 sq. ft. in 2000 and 1.6 million sq. ft. in 2001. Demand still appears to be outpacing supply. David Morris, vice president of CTMT, indicates potential tenant demand of 1.7 million sq. ft. over the next year.

With the exception of the small inventory in south St. Louis County, the suburb of Clayton had the lowest vacancy rate in the region at 5.5% in second-quarter 1999, with no new space having entered the marketplace. Two premium office towers - the 270,000 sq. ft. Shaw Park Plaza and the 245,000 sq. ft. Forsyth Centre - are now under construction, and a third, the 240,000 sq. ft. World Trade Center, has a proposed fourth-quarter start.

Forsyth Centre will include an expanded 700,000 sq. ft., 14-level parking structure, the tallest garage in Missouri. Rents are anticipated in the $28 per sq. ft. to $30 per sq. ft. range.

In the city of St. Louis, the overall downtown vacancy rate held steady from the end of 1998 to second quarter 1999, near 11.6%. Vacancy in Class-A space, however, dropped from 10.1% to 8.2% as absorption reached 135,000 sq. ft.

New and rehabbed office space totaling 445,000 sq. ft. will join the Cupples Station complex.

Outside downtown, St. Louis-based Balke Brown Associates (formerly Balke Properties) is developing the 26-acre Arena site, now called The Highlands at Forest Park. The first speculative office project, totaling 150,000 sq. ft., will be started shortly, and negotiations continue with a 250,000 sq. ft. user, reported to be Protein Technologies International. The suburban-type office park is expected to absorb quickly because of its easy access to Interstate 64, free parking and rents for $4 to $5 less per sq. ft. than Clayton, 2.5 miles to the west.

In west St. Louis County, vacancy has increased from 5.3% at the end of last year to 7.1% in second-quarter 1999. More than 437,000 sq. ft. of office space, however, was absorbed during the first half of 1999.

In the suburb of Chesterfield, only one speculative building, the 115,000 sq. ft. Timberlake Center III, will be completed this year. At Maryville Centre, a 220,000 sq. ft. speculative building was leased to St. Louis-based Edward D. Jones & Co. prior to completion, and Duke-Weeks is in the approval process for a two-building combination totaling 270,000 sq. ft. According to Tee Baur, Duke-Weeks planned to start one building on a speculative basis but received so much interest that the entire project may be built.

St. Louis-based Sachs Properties also is building three speculative office buildings totaling 317,000 sq. ft.; the company's one million sq. ft. of office space in Chesterfield Village has occupancy in the upper 90% range. Elsewhere in west St. Louis County, Duke-Weeks has a 95,000 sq. ft. office building underway in West Port Center. Dallas-based Trammell Crow anticipates the recently completed 210,000 sq. ft. Creve Coeur Corporate Center IV will be 80% leased by year end.

In the north St. Louis County submarket, St. Louis-based TriSTAR Business Communities is starting Corporate Woods III, as building II is 86% leased. Asking rent for the new structure is $22.50 per sq. ft., compared to $19.50 per sq. ft. for building II. St. Louis-based Coldwell Banker Commercial American Spectrum (formerly Nooney Inc.) is renovating and leasing the 225,000 sq. ft. Northwest Corporate Center. Rents will range from $16.50 per sq. ft. to $18.50 per sq. ft.

In St. Charles County, MasterCard International has broken ground for its more than $90 million Global Technology & Operation Center at Winghaven, a 1,100-acre research, office and residential community. A number of office buildings, both downtown and in St. Louis County, are on the market as sellers take advantage of high occupancies and sale prices approaching replacement costs. Bert Follman reports that "players shift in and out, but there seem to be ample buyers."

Industrial demand continues Although St. Louis notched a small increase in office vacancy, its industrial vacancy dropped to 2.7% in June 1999 from 3.1% at the end of 1998 - despite continued build-to-suit and speculative construction. Demand stems both from expansions of local businesses and growth of logistics companies. Mike Searles, vice president of CTMT, believes logistics company growth is the result of outsourcing by major corporations.

More than 2.6 million sq. ft. of new space, almost 50% of which is speculative, is scheduled for completion by year end in the industrial market west of the Mississippi River. Ramsey Maune, a St. Louis senior vice president for Duke-Weeks, expects strong demand to continue, although perhaps "not at the pace of the last couple years as companies become more cautious."

West Port Center will be built out when Duke-Weeks completes its 173,500 sq. ft. office warehouse building and a 35,000 sq. ft. office showroom. Aurora, Colo.-based ProLogis Trust and Duke-Weeks both have large speculative distribution centers underway in Earth City. To the north, Minneapolis-based Welsh Development Co. plans to build 6 office/warehouse buildings totaling 630,000 sq. ft.

St. Louis' St. Charles suburb is also experiencing substantial activity. Balke Brown has purchased 25 acres in the 427-acre Fountain Lakes Commerce Center to develop two large speculative bulk warehouse/distribution buildings. Three hotels are also proposed for the center, and American Freightways is building a trucking center on a nearby 77-acre site.

On the Illinois side of the Mississippi River, several speculative projects are also underway. St. Louis-based Contract Warehouses Lanter Co., TriSTAR and St. Louis developer Ralph Korte are constructing a 406,500 sq. ft. bulk distribution center at the 2,700-acre Gateway Commerce Center. Lanter will lease 102,000 sq. ft. of the structure.Vero Beach, Fla.-based Environmentally Correct Projects Inc. is developing the 150-acre Lewis & Clark EnviroTECH business park in Wood River, which will include its own building for solid waste conversion. East Side real estate markets will be assisted by a $12 billion statewide program to rebuild and construct roads and extend Metro-Link from Belleville to MidAmerica Airport.

These are good times for the St. Louis real estate market. Considering its low unemployment, steady job growth and impressive market performances, St. Louis looks to start the new century in the strong shape.