‘Doom loop’ for St. Louis office market? Some alarms ringing

ST. LOUIS COUNTY — The company redeveloping the former MetLife campus, a sprawling corporate park in suburban south St. Louis County, is jettisoning the office market and turning the land into a housing and retail neighborhood.

Earlier this month, Energizer Holdings announced that it would move its headquarters from Town and Country to Clayton — and cut its real estate footprint in half.

The former Caleres office complex in Clayton has been on the market since 2021. It could soon be taken over by the local school district.

Four years on from the COVID pandemic, with the rise in hybrid and remote work, office downsizing is now common practice. And the stakes are high. 

Real estate insiders across the country have been warning of the domino effect of office-market decline, often called a “doom loop.” As companies pull out of space, vacancy rates grow. Then landlords struggle to pay mortgages with fewer tenants on their rent rolls. Banks take over vacant buildings. Cities lose tax money. 

In the St. Louis region, real estate figures are flashing some warning signs: Over 821,000 square feet of office space was vacated across the region last year — the most in over a decade, according to data from the real estate firm CBRE. Meanwhile, several office projects have stalled or failed to get off the ground.

The departures have hit across the region, from west St. Louis County to downtown St. Louis.

A Post-Dispatch review of revenue data from major office hubs shows some encouraging signs. The area’s modest growth of new office space over the past few decades can shield the region from disaster, some experts argue. And many companies are trying to find creative ways to reuse vacant office space, turning to residential, retail and other development.

“Compared to the rest of the U.S.,” said Stephen Lordo, a senior associate with commercial real estate firm JLL, “St. Louis has been pretty resilient.”

Still, the metro area’s average occupancy rate in 2023 (84.5%) was lower than in 2020 (88.2%), according to the CBRE data. In the city of St. Louis alone, the occupancy rate was 77.4% last year.

Also, the amount of sublease on the market totaled 2.1 million square feet in the fourth quarter of 2023 — among the highest it’s been over the past decade, a sign that corporations believe they don’t need office space. 

But that marks a decline in subleasing from the start of 2023, suggesting that companies have figured out their office needs and the market is stabilizing, said Joshua Allen, CBRE’s Midwest research manager. 

“I think we’ve seen the apex,” Allen said.

Tracy Hadden Loh, who researches commercial real estate for the Brookings Institution, doesn’t see signs of a “doom loop” in cities other than New York. But she says St. Louis is part of a group of cities experiencing a “flight to quality,” with companies ditching older office spaces for new buildings with modern amenities.

“The very best product in the very best locations is doing great,” Loh said. “Everything else is having a hard time.”

Struggles to retain or fill office space can vary by parts of the region. And some areas point to signs of resilience.

For example, sales tax revenues are rising in some cities with big office hubs, such as Clayton and Town and Country.

Clayton reported a 7% increase in total revenue in 2022…