Office growth moves beyond Class A properties in 2015

1. Office-occupying employment keeps growing
Office-occupying employment has now had year-over-year growth for 26
consecutive months. The four industries comprise approximately 36 percent of
all non-farm payrolls in the region. The rise in employment is spilling over into
the office market, which has had positive absorption in five of the last six
quarters. Of the office-occupying sectors, financial activities continues to shine.
Since June 2007, employment in the sector is up 11.3 percent, best in the nation
during that time. Look for employment growth to remain strong. In the most
recent Federal Reserve Burgundy Book, 95 percent of contacts reported
employment will either be the same or higher over the next 12 months.
Office-occupying employment (in thousands)
Source: JLL Research
Is the trade-up trend ending?
In 2014 Class B properties absorbed five times more square footagethan Class
A properties. This trend continued in the first quarter of 2015, signaling that the
“move-up” trend over the past five years might be coming to an end. The
vacancy gap between the two classes is down to 350 basis points, the lowest
level since 2010. With Class A vacancy now stabilized below 15 percent and no
new construction, tenants have fewer Class A options available, particularly in
Clayton and West County. It is no coincidence that both submarkets had the
highest Class B absorption this quarter.
Net absorption by class (s.f.)
Source: JLL Research
Healthcare dominates leasing activity
Led by Mercy’s 390,000 square feet of renewals, healthcare was responsible for
more than half of all leasing activity in the first quarter. The transactions stabilize
several buildings in West County along the I-64 corridor in Chesterfield, where
Mercy is a major occupier. Total leasing activity also increased, rising 128
percent from the previous quarter. Expect future leasing activity to be driven by
financial and business services in the next 12 months. The two industries
currently total almost 600,000 square feet of tenant demand, or 32 percent.
Leasing activity by sector
Source: JLL Research
15.8%
Total vacancy
64,739
YTD net absorption (s.f.)
64,7396
Q1 2015 net absorption (s.f.)
2.6%
12-month rent growth
0
Total under construction (s.f.)
0.0%
Total preleased
Office Insight
St. Louis | Q1 2015
(70,476)
135,215
(150,000) (50,000) 50,000 150,000
Class A
Class B
Growth moves beyond Class A properties
440.0
450.0
460.0
470.0
480.0
490.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
56%
11%
10%
7%
6%
10% Healthcare
Law firm
Government
Manufacturing & distribution
Technology
Other

2. Current conditions – market and submarket Historical leasing activity
Source: JLL Research Source: JLL Research
Total net absorption (s.f.)
Source: JLL Research
Total vacancy rate
Source: JLL Research
Direct average asking rent ($ p.s.f.)
Source: JLL Research
1,069,443
335,882 314,112
-500,593
29,921
-96,131
108,313
293,792
481,327
64,739
-1,000,000
-500,000
0
500,000
1,000,000
1,500,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$19.26
$19.84
$19.69 $19.73 $19.77
$19.72
$19.59
$19.80
$19.40
$19.84
$18.80
$19.00
$19.20
$19.40
$19.60
$19.80
$20.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
12.8% 12.6%
12.1%
14.9%
15.8%
17.9% 17.9%
17.1%
15.8% 15.8%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
St. Louis
Landlordleverage
Tenantleverage
Peaking
market
Falling
market
Bottoming
market
Rising
market
Non-CBD
CBD
1,240,633
1,949,408
2,420,016
3,714,770
2,987,078
737,389
0
1,000,000
2,000,000
3,000,000
4,000,000
2010 2011 2012 2013 2014 2015
©2015 Jones Lang LaSalle IP, Inc. All rights reserved.For more information, contact: Blaise Tomazic | +1 314 261 7377 | blaise.tomazic@am.jll.com