St. Louis Retail
Some higlights and lowlights for retail in St. Louis.
04/01/09

 

While St. Louis has a diversified economy, it has not been immune from the forces reshaping the retail landscape. As the economy contracts and consumer confidence continues to dip, retailers are reeling from the impact. Circuit City was the latest fatality when its 567 stores went dark in early March, including seven sites in the St. Louis area. Colliers Turley Martin Tucker expects that 2009 will best be remembered as a year of significant closures and consolidations among retailers.

Despite the current uncertainty in the marketplace, there were several retail developments completed last year, all of which were primarily committed to well before the economy began taking its toll.

St. Louis ended 2008 with more than 1.5 million square feet of new retail space. The majority of these new developments are anchored by retailers selling necessity or discount items such as Costco, Wal-Mart, grocery stores and drug stores. Such a tenant base, combined with consumers now taking a more cost-conscious approach to spending, should allow these developments to do well despite the current economic turmoil.

Among these new developments is the new 260,000-square-foot Meadows at Lake Saint Louis in Lake St. Louis, Missouri. Billed as the first lifestyle center in St. Charles County, the first phase of the upscale center is approximately 75 percent occupied, with Bed, Bath & Beyond and Old Navy among its junior anchors. Eventually, the center, which is being developed by Davis Street Land Company, is expected to total close to 500,000 square feet and include Missouri’s first Von Maur department store.

Once underserved, the Lake Saint Louis suburb, which is situated near the outer limits of St. Charles County, now boasts a wealth of retail options. The Shoppes at Hawk Ridge is situated just across Interstate 40/64 from the Meadows, and is anchored by Wal-Mart Supercenter, Lowe’s Home Improvement Warehouse and Sports Authority. Developed by Retail Realty, the center will encompass 800,000 square feet of retail when complete, making it one of the largest developments in St. Charles County. These two developments are likely to alter shopping patterns in St. Charles County, especially the Highway K corridor, as well as draw consumers from West County.

Additionally, the West County submarket is home to two new retail developments that were added to the market in 2008. Anchored by Target and Whole Foods and developed by TNC Investors LLC, Town & Country Crossing opened with 310,000 square feet of retail space. Also, Pace Properties opened the first phase of Manchester Highlands, which features approximately 137,000 square feet of space. Anchors include Best Buy, Bed Bath & Beyond, PetsMart and Ulta. When it comes online later this year, the second phase of Manchester Highlands will include Wal-Mart Supercenter (203,710 square feet) and Costco (163,409 square feet).

In Jefferson County, Missouri, south of St. Louis, THF Realty has unveiled Arnold Commons, a 353,000-square-foot shopping center that is anchored by a 71,747-square-foot Dierbergs Market and a 138,684-square-foot Lowe’s.

The newly added space, along with the market’s growing inventory of sublease space, is pushing retail vacancy rates up, according to CoStar. While the vacancy rate only rose slightly at the end of last year to 8.4 percent, which is up from 8.1 percent at the start of 2008, sublease space is steadily increasing. Sublease inventory totaled more than 415,000 square feet at year-end 2008, up more than 300 percent year-to-year.

The wealth of space available is putting pressure on rents. Quoted rents at the end of last year were $13.17 per square foot, down from $13.30 in the previous quarter, according to CoStar. Some of the area’s most challenged centers are reporting rental reductions of up to 30 percent. Slowing activity from Mom-and-Pop retailers, franchise operations and many smaller chains will continue to impact rental rates. Most affected are the Class B and C properties,  but the closures of once-stalwart junior anchors such as Linen-N-Things and Circuit City mean that some Class A space will find the going rough, as well.

Moving forward, developers are mindful of the troubles facing retailers and the glut of space coming onto the market. Speculative projects will be shelved for the foreseeable future, and the development pipeline will be minimal over the next several years, requiring significant pre-leasing commitments before work begins.

In particular, retail development will dramatically slow in former fast-growing residential areas such as St. Charles County and other outlying fringe suburbs. It will take some time to fill new space that has come online in these submarkets over the past several years.

With a vacancy rate of approximately 12.5 percent, St. Charles County has seen the sharpest increase within the St. Louis area. This is largely attributed to overdevelopment that has occurred during the past 5 years. With rising vacancy, this market has experienced substantial compression on rental rates. Investors, retailers and landlords alike are keeping a close eye on how this market continues to be affected by the depressed economy. Conversely, the South and West County submarkets have seen far more modest increases in their vacancy. This is largely attributable to these markets being more mature infill trade areas with less developable land still available.

While mixed-use development is again on the lips of developers and local governments as a way of spreading risk among multiple cyclical building types, the majority of the new developments are traditional community or power center developments anchored by a grocer or discount/warehouse retailer. An example of this mixed-use movement is unfolding in Chesterfield, Missouri, a West County suburb, where Sachs Properties has started developing a 98-acre site that will eventually include 1,000 residential units and 1.7 million square feet of restaurant, office and retail space.

This isn’t the first time that St. Louis and the global economy have been faced with tough times, nor will it be the last. Just as it has in the past, the market will inevitably correct itself. A return to the highs of 2007 may still be a few years away, but St. Louis and the areas’ developers will be poised once again for strong and substantial growth in the near future.

— Joshua Roedemeier is a retail broker in Colliers Turley Martin Tucker’s regional office in St. Louis. He specializes in retail sales and leasing, site selection and disposition.
 

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