With its strategic location in the Midwest, low business costs, and high quality of life, Missouri provides an environment conducive to growth and new business opportunities. Over the years, the state has received recognition for its performance in many business-related areas, including digital infrastructure, low business tax burden, and commercial energy costs.
Some of the industry leaders that have chosen the state as their base include Boeing, Wells Fargo, Ford, Bayer, Oracle, Square, and General Motors.
There are three Foreign Trade Zones in Greater Kansas City, St. Louis County Port Authority, and in the City of Springfield, which offer everything business owners need to increase their global reach.
In addition, MO is home to an appealing real estate market that has attracted significant investment over the past few years. Large corporations have recently moved to the state, creating new employment and helping expand the commercial real estate market with large-scale requirements.
Increasing investment levels have also been important for Missouri's startup ecosystem and commercial real estate market, as they've helped entrepreneurs secure suitable premises to develop their venture sustainably and bring diversity to the office occupier profile.
Also supporting Missouri's real estate market is the corporate services sector, one of the state's key industries, with proven strengths in headquarters, support services, data centers, and financial services.
This report provides an overview of the commercial real estate property market in Missouri's largest cities, along with some insights into the incentives available to local businesses.
Office Market in Missouri
Office Space in St Louis
The city's economy has been growing steadily thanks to the expansion of strategic industry sectors like advanced manufacturing, health care, transportation, and professional and business services.
The St Louis metro area provides employment to nearly 40% of the state's workforce, with education and headquarters operations being some of the largest employers and therefore key office property occupiers.
The metro area contains nearly 40 million square feet of office space, having the biggest concentration in St Louis CBD, Clayton, and Olive / I-270. Class A offices account for almost 70% of the total inventory in metropolitan St Louis.
Key indicators had remained more or less stable since the Great Recession of 2007-2008. The first major change came in 2018 with a rise in vacancy rates, which have since kept increasing to the current averages of 20%, a historic high in this market. This is partly due to an ongoing flight to quality, and to large amounts of space vacated by co-working operators.
New office developments (mostly in the CBD and Clayton) have high pre-lease rates, which may have a moderating effect on spiking vacancy rates.
On the other hand, average asking rents for properties have only experienced slight gains over the past five years, both for direct leases and subleases. Current averages are $23 and $29 / psf respectively, although Class A units in Clayton and Midtown St Louis command rates in the mid $30s.
Office Space in Kansas City
Kansas City has known industry strengths in office-using sectors, such as finance, headquarters, technology, and contact centers.
The metro area contains approximately 53 million square feet of office space, with the vast majority being Class B and suburban space.
Over a ten-year period, the most evident trend in the Kansas City office market has been the increase in vacancy rates, which have exceeded the historical average of 13% to push beyond 20% in 2022. This took place after absorption levels plummeted into negative territory for three consecutive years.
The current state of the market is due to a combination of factors, including very few new deliveries and demand for a very specific type of properties in terms of size and amenities. This means that property transactions are only closing at a slow pace, which is keeping vacancy rates elevated. Vacancy rates are expected to increase in the short term, as the less appealing offices will remain vacant.
Asking rents have experienced a marked increase since 2019 given the demand for space in renovated buildings or in upgraded units. Averages are close to $22 / psf and only slightly higher for Class A offices, although in specific sub-markets, like Plaza, averages of $30 / psf are not uncommon.
Retail and Industrial Market in Missouri
Retail Space in St Louis & Kansas City
Looking at the 2018-2022 period, the retail market shows evidence of moderate improvement, with vacancy rates at 4% being in line with the national average.
Most activity driven by big box and chain retailers, who are better able to cope with ongoing asking rate rises, which have brought averages to $14 / psf.
Similar trends and vacancy / asking rate indicators are present in Kansas City, although here there is a predominance of transactions involving space in restaurant and shopping centers.
Industrial Space in St Louis & Kansas City
The St Louis industrial market is characterized by robust demand, which often outstrips supply, given supply chain constraints that have caused delays in new product deliveries.
At approximately 3.5%, vacancy rates are at their lowest level since 2018. High absorption levels are expected to continue into the mid 2020s, which will likely keep vacancy rates low and bring sustained rises to asking rates, whose latest recorded average exceeded $6 / psf.
Kansas City has been experiencing an industrial boom since 2013, but the period of rapid expansion came to an end in 2022, when record absorption levels and asking rents were achieved. With vacancy rates just below 5% and average rental rates above $5 / psf, the market is likely to sustain gains over the next few years, but at a much slower pace.
Tax Breaks, Business Incentives and Support
Missouri-based businesses benefit from a range of incentive programs, tax credits, and exemptions that are available to companies large and small. Some examples include:
- Missouri Works Program, which includes tax credits and tax retention schemes for businesses that create quality jobs in the state.
- Missouri One Start, which offers financial awards to be used in workforce training and development.
- Missouri Build, delivered in the form of tax credits available to companies investing in large-scale projects that meet job creation and investment targets.
- Incentives for specific industries, including automotive, manufacturing, data centers, and R&D.
- Detailed information about the support and incentive programs available can be found at the Missouri Partnership website.
This organization also offers a range of services to help local businesses succeed by reducing their risk of failure, through personalized site selection and workforce training, helping entrepreneurs navigate the market, identify opportunities and reach out to talent.