St. Louis Office Market

RESEARCH 1Q 2019 ST. LOUIS OFFICE MARKET

SIGNIFICANT SALES AND CURRENT CONDITIONS

LEASING ACTIVITY CONTINUES The overall market loosened in 1Q19 as vacancy increased 60 basis points IN THE FIRST QUARTER OF 2019 and asking rental rates decreased slightly from $20.35/SF to $20.31/SF.

Total net absorption in 1Q19 declined significantly to -460,943 square feet The St. Louis office market loosened in the first quarter of 2019, as Save-A-Lot and Vatterott College both exited large blocks of space. registering negative total net absorption with two key departures, Save- A-Lot and Vatterott College. The market did, however, enjoy significant $35 million Edge@West project to bring 110,000 SF of Class A space to the market. Elekta signs 40,000 SF lease at the Streets of St. Charles. sales activity, as various individual buildings and multi-property portfolios successfully traded to out-of-town and local investors. Class A vacancy rates range from 3.6% to 4.6% in three metro submarkets, MARKET ANALYSIS leading to few opportunities for prospective tenants in Clayton, Mid Asking Rent and Vacancy County and South County. Overall market vacancy should range from 9.8% to 10.8% during the rest of 2019. At the same time, expect asking rental rates to range from $20.05/SF to $21.25/SF. $20.5 16.0% $20.0 14.5%

EDGE@WEST PROJECT TO BRING 110,000 SQUARE $19.5 13.0% FEET OF CLASS A SPACE TO THE MARKET $19.0 11.5% With market rents at near-record highs, a $35.0 million office building has been proposed for Creve Coeur. The Class A Edge@West project $18.5 10.0% will include a four-story, 110,000-square-foot building with cutting edge $18.0 8.5% design and technology to capture and help retain today’s workforce. 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 The project will include various amenities to attract technology and Average Asking Rent (Price/SF) Vacancy (%) creative firms, including open floor plans, a fitness center, coffee bar, basketball courts and putting greens. The project will be one of the few Net Absorption (SF, Millions) premiere technology offerings outside of the St. Louis urban core.

Developers expect to commence construction once either a large-scale 1,000 single user or multiple users commit to pre-leasing the structure. 500 ELEKTA SIGNS 40,000-SQUARE-FOOT LEASE AT 0 THE STREETS OF ST. CHARLES -500 The St. Charles County submarket started the year strong with an -1,000 announcement of a significant lease. Elekta, a Sweden-based cancer 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 treatment solutions firm, announced it will occupy the entire second and third floors of 1450 Beale Street at the Streets of St. Charles MARKET SUMMARY development. The 40,000-square-foot space will house approximately 100 Elekta employees, which will vacate one of their product supply Current Prior Year Ago 12 Month Quarter Quarter Period Forecast and support centers in Maryland Heights. Total Inventory 75 MSF 75 MSF 75 MSF 

The 60,000-square-foot, Class A mixed-use retail and office building is Vacancy Rate 10.6% 10.0% 10.6%  near various restaurants, entertainment and hospitality offerings. Quarterly Net Absorption -460,943 487,886 -206,599  Available office space for rent in the building is currently being Average Asking Rent $20.31 $20.35 $19.61  marketed at $34.00 to $36.00/SF on a full service basis. The property is expected to deliver by June 2019. Under Construction 60,000 60,000 60,000  Deliveries 0 0 0 

FORMER AT&T TOWER TO BE AUCTIONED IN APRIL SAVE-A-LOT AND VATTEROTT The former One AT&T Center at 909 Chestnut Street in downtown St. Louis will be auctioned off starting April 16th and ending at 10:00 a.m. COLLEGE BOTH EXITED LARGE on April 18th. As St. Louis’s largest office building, the 44-story tower was officially vacated by AT&T, Inc. in the third quarter of 2017. BLOCKS OF SPACE IN Totaling more than 1.4 million square feet, the office tower was NORTH COUNTY foreclosed by U.S. Bank National Association Trustee from its previous owner, Chicago-based Inland Real Estate Group. The city of St. Louis appraised the property at $93.4 million in 2017, but the building’s The St. Louis office market realized a slight drop in asking rental rates special servicer, C-III Asset Management, placed the fair market value in the first quarter of 2019, as rents decreased $0.04/SF to $20.31/SF. at $21.1 million in May 2018. The market loosened, as vacancy increased 60 basis points in the quarter. Vacancy has remained flat over the past year, measuring WESTLINE CORPORATE CENTER TRADES FOR 10.6%. $13 MILLION The Mid County submarket’s streak of key sales and leasing activity Total net absorption in the first quarter measured negative 460,943 continued, as the Westline Corporate Center portfolio of three square feet, as Save-A-Lot and Vatterott College both exited large properties traded in March. Summit Realty Ventures, a locally based blocks of space in North County. Net absorption for the past four entity, sold the property to Wisconsin-based SARA Investment Real quarters totaled negative 654 square feet. Current projects under Estate. The three-building, 121,420-square-foot complex traded for construction remained minimal at 60,000 square feet during the $13.0 million, or $107/SF. Located in Maryland Heights, the Class B quarter, as no projects delivered to the market. office buildings were built between 1965 and 1975. The buildings were 97.0% percent leased by six tenants at the time of sale.

LEASE/USER TRANSACTIONS

Tenant Building Submarket Type Square Feet

Lumeris 3251 Riverport Dr North County New 98,000 Drury Development 13075 Manchester Rd West County New 69,180 Stereotaxis, Inc. 4300-4348 Forest Park Ave Downtown Renewal 69,160 Elsevier, Inc. 3251 Riverport Dr North County Renewal 48,000 Elekta 1450 Beale St St. Charles County New 40,000

SALES TRANSACTIONS

Building Submarket Sale Price Price/SF Square Feet

W Park I & II/Pine View Pointe Port. (3) Mid County $35,445,000 $118 299,640 1 Progress Point Pkwy St. Charles County $16,100,000 $130 123,540 Westline Corp Center Port. (3) Mid County $12,975,000 $107 121,420 174 Clarkson Rd West County $2,795,000 $126 22,130 2464 W Port Plaza Dr Mid County $2,200,000 $110 20,090

4161 Highway K St. Charles County $4,972,640 $391 12,720

SUBMARKET STATISTICS Total Total Under Total Qtr YTD Total Submarket Class Number of Inventory Construction Vacancy Absorption Absorption Asking Rent Buildings (SF) (SF) Rate (SF) (SF) (Price/SF) Downtown ALL 243 28,708,640 0 13.00% 10,286 10,286 $17.50

Class A 36 11,118,336 0 27.30% -145,850 -145,850 $18.45

Class B 124 11,636,715 0 4.10% 183,765 183,765 $16.11

Class C 83 5,953,589 0 3.70% -27,629 -27,629 $15.05

Clayton ALL 96 8,165,569 0 5.10% -105,760 -105,760 $24.97

Class A 30 4,810,740 0 3.60% -50,283 -50,283 $29.30

Class B 48 2,585,262 0 9.20% -55,181 -55,181 $20.76

Class C 18 769,567 0 1.50% -296 -296 $17.65

Mid County ALL 176 11,932,238 0 7.50% 72,151 72,151 $21.08

Class A 36 5,373,682 0 4.30% 8,553 8,553 $24.70

Class B 117 5,859,023 0 11.30% 65,557 65,557 $19.55

Class C 23 699,533 0 0.40% -1,959 -1,959 $17.09

North County ALL 93 7,903,509 0 13.80% -385,820 -385,820 $18.47

Class A 20 3,159,428 0 14.30% -368,671 -368,671 $21.21

Class B 44 3,686,527 0 16.20% -15,749 -15,749 $16.64

Class C 29 1,057,554 0 4.20% -1,400 -1,400 $11.21

South County ALL 75 4,149,236 0 11.10% -46,027 -46,027 $21.56

Class A 14 1,025,531 0 4.60% -5,165 -5,165 $23.74

Class B 48 2,667,228 0 13.50% -15,002 -15,002 $20.84

Class C 13 456,477 0 12.20% -25,860 -25,860 $21.26

St. Charles County ALL 71 4,161,963 60,000 10.20% -7,593 -7,593 $19.31

Class A 23 2,316,520 60,000 11.90% 885 885 $21.34

Class B 40 1,457,166 0 7.80% 70 70 $17.52

Class C 8 388,277 0 8.70% -8,548 -8,548 $11.30

West County ALL 146 9,904,426 0 9.20% 1,820 1,820 $24.40

Class A 59 6,166,555 0 6.80% 11,351 11,351 $26.45

Class B 78 3,406,863 0 14.00% -12,553 -12,553 $21.97

Class C 9 331,008 0 4.70% 3,022 3,022 $14.55

St. Louis Market ALL 900 74,925,581 60,000 10.60% -460,943 -460,943 $20.31

Class A 218 33,970,792 60,000 13.60% -549,180 -549,180 $22.24

Class B 499 31,298,784 0 9.40% 150,907 150,907 $18.75

Class C 183 9,656,005 0 3.90% -62,670 -62,670 $15.80

SUBMARKET STATISTICS – CLASS A

Total Under Total Qtr YTD Direct Sublet Total Submarket Inventory Construction Vacancy Absorption Absorption Asking Rent Asking Rent Asking Rent (SF) (SF) Rate (SF) (SF) (Price/SF) (Price/SF) (Price/SF)

Downtown 11,118,336 0 27.30% -145,850 -145,850 $18.85 $15.31 $18.45

Clayton 4,810,740 0 3.60% -50,283 -50,283 $29.33 $24.86 $29.30

Mid County 5,373,682 0 4.30% 8,553 8,553 $26.04 $20.16 $24.70

North County 3,159,428 0 14.30% -368,671 -368,671 $21.21 - $21.21

South County 1,025,531 0 4.60% -5,165 -5,165 $23.95 $22.53 $23.74

St. Charles County 2,316,520 60,000 11.90% 885 885 $21.73 $16.50 $21.34

West County 6,166,555 0 6.80% 11,351 11,351 $26.96 $20.67 $26.45

St. Louis Market 33,970,792 60,000 13.60% -549,180 -549,180 $22.67 $17.98 $22.24

SUBMARKET STATISTICS – CLASS B

Downtown 11,636,715 0 4.10% 183,765 183,765 $16.16 $14.55 $16.11

Clayton 2,585,262 0 9.20% -55,181 -55,181 $20.76 - $20.76

Mid County 5,859,023 0 11.30% 65,557 65,557 $19.60 $17.97 $19.55

North County 3,686,527 0 16.20% -15,749 -15,749 $16.74 $13.00 $16.64

South County 2,667,228 0 13.50% -15,002 -15,002 $20.93 $18.75 $20.84

St. Charles County 1,457,166 0 7.80% 70 70 $17.40 $22.50 $17.52

West County 3,406,863 0 14.00% -12,553 -12,553 $22.11 $17.68 $21.97

St. Louis Market 31,298,784 0 9.40% 150,907 150,907 $18.82 $16.54 $18.75

ECONOMIC CONDITIONS EMPLOYMENT BY INDUSTRY The local economy continued to improve through February, with total employment growth of 0.8% and positive growth occurring in seven out St. Louis, February 2019 of ten industries, calculated on a 12-month percent change basis.

Education/Health Svcs Payroll employment in St. Louis increased 40 basis points compared to 3.6% Trade/Transportation/Utilities the prior year registering 0.8% in February 2019. The national average 4.7% 18.8% increased 10 basis points to 1.7%. Both indices have realized positive 6.6% Prof/Business Svcs 12-month percent changes since August 2010. Government 8.7% Leisure/Hospitality The Consumer Price Index (CPI) for the United States decreased 70 18.7% Manufacturing basis points compared to the prior year, registering 1.5% in February 10.5% 2019. The Midwest Urban CPI decreased 40 basis points to 1.3% in Financial Activities

February 2019. 11.1% 15.3% Construction/Mining/Logging

Unemployment in the United States increased 10 basis points to 3.8% Other Svcs in February, while unemployment in St. Louis also increased 10 basis Information points to 3.4% compared to the past quarter. Unemployment in St.

Louis decreased 30 basis points from a year prior. Source: U.S. Bureau of Labor Statistics

UNEMPLOYMENT RATE PAYROLL EMPLOYMENT

Seasonally Adjusted Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change

8% 2.5%

7% 2.0%

6% 1.5%

5% 1.0%

4% 0.5%

3% 0.0% Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 St. Louis United States St. Louis United States

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics

CONSUMER PRICE INDEX (CPI) EMPLOYMENT GROWTH BY INDUSTRY

All Items, 12-Month % Change, Not Seasonally Adjusted STL, Feb. 2019, 12-Month % Change, Not Seasonally Adj.

3% Total Construction/Mining/Logging 2% Manufacturing 1% Trade/Transportation/Utilities Information 0% Financial Activities Prof/Business Svcs -1% Education/Health Svcs Leisure/Hospitality -2% Other Svcs Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Government

Midwest Urban United States -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics

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MIKE CARLSON, SIOR, CCIM KEVIN MCLAUGHLIN, SIOR BEN ALBERS ANDREW GARTEN Executive Managing Director, Principal Executive Managing Director, Principal Managing Director, Office Brokerage Director, Research 314.628.0438 314.628.0436 314.628.0439 816.474.2000 [email protected] [email protected] [email protected] [email protected]

Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents. Newmark Knight Frank Research Reports are available at www.ngkf.com/research

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