Commercial Real Estate and Office Space Market in Missouri

With its pro-business environment, low taxation system, and low property taxes, Missouri is an appealing real estate market that has attracted significant investment over the past few years (1). This report provides an overview of the commercial property market in Missouri's largest cities, along with some insights into the incentives available to local businesses.

Office Space Market

With a population of over 2.8 million people, St Louis one of the largest metropolitan areas in the United States. 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. Several Fortune 500 companies are headquartered in the city, whose commercial real estate market has seen a marked improvement, especially when compared to other Mid-Western states. Overall, there are more than 47 million square feet of office space in the city, and expansion of the current office stock is more than likely given the substantial job gains that have taken place across the city (2).

The latest research carried out by Cushman & Wakefield points at the important increase in leasing activity that has characterized the St Louis office market since 2014. As a result, vacancy rates have dropped to 15.3 per cent, and are even lower in districts like Clayton and Chesterfield (9.5 per cent), the I-44 Corridor (10.1 per cent), and the I-270 (11.3 per cent). Nonetheless, the decreasing supply of office space has not yet caused a spike in average rental prices, which remain stable at $18.54 / sq ft. In suburban St Louis, average asking rents are at their highest in South County (especially in the Chesterfield and Manchester areas), where rates in excess of $20 / sq ft are not uncommon. Investment sales activity is also on the rise where office properties are concerned, as the city has witnessed the highest level of transactions of the past decade (3).

In Kansas City, the office market continues to gain momentum and shows positive absorption levels, declining vacancy rates, as well as a very limited development pipeline that is mostly centered around South Johnson County. During 2015, vacancy rates for office floor space dropped to 11.1 per cent and average rents were pushed to $17.41 / sq ft. Within the city, the most expensive areas are Plaza and Midtown, where Class A office space commands rates of nearly $23 / sq ft. Above average rates are also present in certain suburban districts, mainly in Wyandotte County and East Kansas City (4).

Click here for office space in Kansas City, Chesterfield and St. Louis.

Retail and Industrial Space Markets

St Louis is an established hub of retail activity that has made great progress despite the effects of the financial crisis. However, investors and consumers remain cautious, as it is evident in the rather stable direct asking prices for local retail space, whose values are below $12 / sq ft. Vacancy rates are decreasing moderately and are at their lowest in St Louis City South (3.49 per cent), Chesterfield ($4.24), and Mid County ($5.76). The most important tenants in the St Louis retail market are discount retailers, fitness centers, and the hospitality sector (5).

Demand for industrial space in St Louis seems to be on the rise, mostly thanks to the healthy state of the manufacturing sector. Vacancy rates in this sub-market average 8 per cent for warehouse space, and are steadily decreasing with regards to flex space too. Average rental values remain high in Chesterfield, where they average $8.14 / sq ft, West County ($6.32), Westport ($5.47), and Fenton ($5.40). The majority of transactions involve companies in search of industrial space for food manufacturing and logistics purposes (6). Approximately 1.6 million square feet of industrial space are set to be delivered by the end of 2016 to accommodate growing demand in St Louis (7).

Tax Breaks, Business Incentives and Support

Missouri-based businesses benefit from a range of incentive programs, tax credits, and tax exemptions that are available to companies large and small. Some examples include:

- The Business Use Incentives for Large Scale Development Program, designed to support the expansion needs of manufacturing, R&D, and business services companies that meet the programme's requirements (8).

- Chapter 353 Tax Abatements, which provide tax relief for up to 25 years to companies that invest in commercial property in blighted areas (9).

- Brownfield Redevelopment Programs, which provide tax credits to firms that invest in the redevelopment of industrial or commercial sites that are either underutilized or contaminated (10).

- Missouri Works, a state-wide program that offers tax credits for up to 6 years to companies in Enterprise Zones or in rural counties (11).

Detailed information about the support and incentive programs available can be found at the Missouri Partnership http://www.missouripartnership.com/Sites-Incentives-Data/Incentive-Programs website.

Sources:

(1) http://www.missouripartnership.com/Why-Missouri/Missouris-Advantages/Low-Business-Costs
(2) http://www.bls.gov/regions/mountain-plains/summary/blssummary_stlouis.pdf
(3) http://www.gershmancommercial.com/Inventory_ Report/2014 Market Report.pdf
(4) http://www.colliers.com/~/media/files/MarketResearch/UnitedStates/MARKETS/Kansas City/q1_2015office.ashx
(5) http://www.cushmanwakefield.com/~/media/marketbeat/2007/11/StLouis_Americas_Alliance_MarketBeat_Retail_Q32013.pdf
(6) http://www.gershmancommercial.com/Inventory_ Report/2014 Market Report.pdf
(7) http://www.cbre.us/o/stlouis/Pages/market-reports.aspx
(8) http://www.missouripartnership.com/Why-Missouri/Missouris-Advantages/Low-Business-Costs
(9) http://www.missouripartnership.com/Portals/0/PDF/chapter 353.pdf
(10) http://www.missouripartnership.com/Portals/0/PDF/BROWNFIELD.pdf
(11) http://www.missouripartnership.com/Portals/0/PDF/industrial infrastructure grant.pdf