Part-Two: Major Drivers – How did we get here?

Millennial Strength in the City

Despite well-documented population loss in St. Louis over the past several decades, one critical generational demographic for the modern economy has recorded unprecedented growth within the City of St. Louis: Since 2010, the millennial demographic within the City has increased 11.9%. To put this in perspective, consider that between 2004 and 2014, St. Louis experienced a net population decline of over 30,000. At the same time, however, college graduates under age 35 grew by more than 14,400.

Not only have millennials flocked to St. Louis in droves, but for the first time, this generation has replaced Generation X as the largest within the U.S. Labor force. This means that architects, developers, owners, and asset managers must adhere to the changing demands of a younger and more millennial workforce who prefer urban amenities at levels that far outpace that of their generational counterparts.

Figure 1: Millennials now largest generation in workforce (Pew Research)

As a result, it’s no surprise that this generation is having a significant impact across the commercial real estate spectrum.

Figure 2: Fundamentals of Employee Experience and Business Success

“Comprehensive amenities, including access to retail and transit, have become almost second to none when choosing an office space or a place to live.” said Cushman & Wakefield Director of Agency Leasing, John Warren. “Many of the occupier clients I work with place a high value on spaces that allow them to feel creative and collaborative […] this type of benefit has been shown to improve workplace culture and employee satisfaction”.

This sentiment is represented in Figure 2 on the right, which demonstrates how business decisions (including real estate) impact employee experience from the top down.

Emphasis on Technology and Innovation

In 2002, St. Louis’s Cortex Innovation District was founded via a strategic partnership between prominent local universities, companies and organizations. The goal was to foster bio-tech research while attracting some of the largest tech occupiers in the world. Fast-forward to 2019, and much has changed as recent major commitments by Microsoft, Boeing, Aon, Square, ESRI and others all but confirm the successes envisioned over fifteen years ago. As a result, Cortex has become the model for a long-term vision of urban St. Louis’s role in the ever-growing tech and bio-tech sectors. The success of the initiative continues to inform strategic community development across the region and is a testament to how high-level real estate decisions have a considerable impact on employee experience.

Current occupier data continues to tell the story envisioned by the strategic partnership responsible for Cortex. In the last five years, Central West End (Cortex) tracked a 171.0% increase in office leasing activity over the prior five years. Despite less office inventory relative to other submarkets, the demand for Cortex can be seen in its vacancy, which consistently flirts with single-digit rates despite a flurry of new construction in the area. Perhaps most notably, Cortex office fundamentals are on par with that of the Clayton office market, which is often considered the region’s premier office market.

To supplement this emphasis on the tech and bio-tech economy in St. Louis, local universities have undertaken several impressive initiatives in recent years that look to have a long-term positive impact on the tech talent pipeline. A few of these initiatives include:

  • The Gateway Higher Education Cybersecurity Consortium, which was established by seven local universities in order to make St. Louis a frontrunner in cybersecurity education and research.
  • St. Louis University (SLU) signed a Collaborative Research and Development Agreement with the National Geospatial Intelligence Agency (NGA). This will supplement the $1.7 billion NGA headquarters being built in St. Louis, which will position St. Louis as a global hub of geospatial technology and research.
  • SLU announced the hiring of Robert Cardillo, the former director of the NGA, who will help oversee the research partnership with NGA and broader geospatial intelligence research initiatives.
  • SLU has recently engaged in data-driven recruitment called right-fit targeting. This technique has been a major success for the university, resulting in five of the six largest freshman classes in the school’s history. Not only this, but second-year retention rates (+6%), four year graduation rates (+11%), and six year graduation rates (+8%) have all benefited immensely from this strategy.
  • In response to a surge of students pursuing STEM degrees, SLU has recently invested $80 million to enhance its STEM facilities including a new, $50 million Interdisciplinary Science and Engineering Building expected to open in 2020.

Looking ahead, the result of such office sector activity combined with forward-looking investment into STEM education by local institutions will continue to bolster a thriving technology industry across the urban core.

Creating Hubs of Commercial Activity Across the Urban Development Corridor

Adjacent to the Cortex, recent developments along Manchester Avenue in The Grove represent a synergy between multiple community efforts in the UDC. In 2009, the Grove Community Improvement District was established by property owners who were looking to improve the area’s overall appeal. As a result, the younger, tech-oriented workforce that populates the Cortex District has directly supported retail and multifamily developments in the Grove. Similarly, thoughtful retail and multifamily development around and within soon-to-be office hubs Armory, Foundry and Ball Park Village all but ensure that same type of live-work-play continuity across St. Louis’s urban core.

The run-up in this urban momentum is perhaps best described by focusing on multifamily fundamentals. When considering the last two economic expansions, the multifamily sector within the UDC was considerably stronger from 2010 to 2018 than the prior expansion from 2000 to 2008.  Most indicative of this disparity is multifamily net absorption, with the current expansion accounting for nearly double that of the prior (3,040 Units to 1,748 Units, respectively). Figure 3 below summarizes some of this momentum.

Figure 3: Multifamily sector growth within the Urban Development Corridor (Costar, Yardi)

Despite this considerable growth, multifamily development and demand within the UDC has mitigated concerns of oversupply at every turn. Part of the urban core’s ability to absorb this activity is explicitly due to the growth in a millennial demographic often considered the “Rent Generation.” Over the long term, a growing urban workforce attributed to well-positioned urban office hubs should maintain its positive impact on and demand for complementary retail and multifamily development.

Paralleling this multifamily surge is the fact that many St. Louis City residents are new to the city. Nearly 40% of the population living within the St. Louis City limits have moved in after 2005. Not only are City residents newer, but they are also younger. The median age for St. Louis City is just 35.6 years old, which is roughly 4 to 5 years younger than the average resident within the overall Metro area and St. Louis County. Interestingly, St. Louis City’s median age sits almost precisely at the upper age range for the millennial generation, the demographic responsible for flipping the perception of commercial real estate on its head.

With strong trends in office-fundamentals, millennial demographic growth and forward-looking educational and community investments, St. Louis is no doubt positioning it’s urban core for long-term success.

Tune in next week as we discuss the potential for New Industry Expansion including commentary on what industries can expect continued strength or net new growth. To see just how our urban core is evolving in St. Louis, check out our interactive development tracker, EdgeView, a better way to view the momentum.

2019-10-23T11:20:18-05:00September 12th, 2019|Market Research, News & Insights, Research|