Downturn Continues in Q3, Companies Downsize

ST. LOUIS-With the aid of a continued unfavorable economic environment, the industrial market continued to decline in the third quarter. A large portion of the decline was due to area companies consolidating operations and downsizing facilities.

According to Q3 figures from CB Richard Ellis, availability rose to 13.3% from the second quarter’s high of 12.7%. The Earth City submarket experienced the steepest incline, with availability climbing to 21.5% from 16.8% in Q2. The submarket’s growth in available property was mainly due to 114,343 square feet of negative absorption that happened as a result of tenants vacating space at Corporate Woods Court, Lakefront Drive and Rider Trail.

Still for the quarter net absorption was a positive 378,980 square feet, a figure which takes into account the 515,000-square-foot short-term lease by Ozburn-Hessey in the Metro east area.

Direct lease rates fell only slightly to $4.41 per square foot from the second quarter’s $4.45 per square foot. The cheapest average asking rate for industrial property is found downtown, with companies asking for $2.93 per square foot. The Chesterfield Valley submarket, on the other hand, has asking rents set at $9.54 per square foot.

As the industry is seeing across the country, as tenant leases begin to expire the company is often looking to renew the lease with some concessions and/or downsize the amount of space it currently occupies. The St. Louis market is no different. Tenants are pushing for short-term, six-month to two-year terms, leases when renewing; as everyone is waiting to see what the market decides to do in the months ahead.

Industry experts including CBRE’s Matt Harrington who penned the MarketView report, see a few positive signs ahead. The vacancy rate declined slightly in the third quarter, ending at 8.3% instead of the 8.4% of Q2. More importantly is the fact that new construction has slowed.