St. Louis is doing well in terms of emerging national trends in commercial real estate, according to remarks from Andy Warren, director of research with PwC, in a recent Urban Land Institute (ULI) presentation hosted by the local ULI chapter.
The ULI’s Emerging Trends in Real Estate report showed the highest level of optimism about a new year since 2016.
“I thought there would be a little more progress, but it turned out to be more positive than expected,” Warren said. “2022 will offer opportunities, although there will still be challenges to deal with.”
Trends to watch are (1) flexibility and convenience will drive activity in the next decade and (2) office resets will be based on "work anywhere/live anywhere" concepts.
Evidence that the outlook for the new year is better than expected includes 84 percent of respondents to a ULI survey saying that 2022 will be better than 2021 nationally and 89 percent saying the same for St. Louis in particular. Optimism will increase, driven by expected demand for commercial real estate projects and properties, although Warren did offer a word of warning: “The question is, are we too confident?”
Supply chain issues should smooth out, but the labor situation won’t change, according to Warren. Among the issue driving up concern is inflation, but “that should be only moderate in 2022. The market is trying to anticipate its effect.” The omicron variant of the COVID-19 virus is a new concern.
“A growing number of people think we won’t go back to a pre-pandemic world,” Warren said. The impact of the pandemic and process of recovery will be different geographically. That is good news for this region: “St. Louis was not hit quite as badly as elsewhere and has started to recover and bounce back faster than other areas.”
The pandemic has had a “dramatic impact” on the industrial sector because “it changed the way we shipped products and materials,” Warren said. “People are more interested in the life sciences now, although not everyone can invest in it. Retail had the worse impact, but has fixed many of the problems, and the outlook for that sector is more positive. Retailers were pulled into using new techniques” — many of which can continue to be used as the economy recovers.
Property sales are going back up as potential buyers look at alternative investments. “Investors will be asking which are the core properties. The real estate universe is going to get bigger,” said Warren.
The flexibility that kept many businesses afloat during the pandemic — accommodating working from home, expanding pickup and delivery services, adapting systems and office space, etc. — will continue to be a factor in success. That doesn’t mean everyone will go back to their offices from 9 to 5 and Monday through Friday. “Going to the office for three or four days of the week seems to be the magic number, but St. Louis numbers are a little lower than national levels,” said Warren.
One important factor for commercial real estate professionals is that fewer people in the office means companies may need less space. On the other hand, “if you want to maintain social distancing, you need the same amount of space as before the pandemic — or more.”
What Warren called the “amenity war” is not over. Commercial space will have to be redesigned to accommodate changing uses and volume.
In terms of regional trends, “it will be important to attract population to keep the economy growing,” Warren said. “St. Louis has been a little slower in growing the local economy, and those efforts will be a greater focus than in previous years.” People are moving around the country because of being able to work remotely, which can make it easier to attract newcomers to the area, but also contributes to losing people.
Salaries in St. Louis are in a “positive position,” which will help with attracting and retaining workers — St. Louis is in the top 10 markets. “People are going back to gateway cities. We are looking at whether infrastructure can help with cityscapes,” Warren said.
Both current and potential new workers need housing, and affordability and supply could be a problem here.
It is also becoming more clear that St. Louis will have to address climate change. “I think ESG will increase,” Warren said. “It’s now seen as our problem, rather than the next generation’s.”