ST. LOUIS — Big windows. White floors. Technology galore.
The atrium at downtown ºüÀêÊÓƵ’ 100 North Broadway has plush seating, an outdoor patio and, soon, a café that beckons the office tower’s tenants to stay awhile. The conference rooms come with built-in microphones and cameras for virtual meetings. The owner, Larson Capital Management, invested $16 million in upgrades, hiring its own tenant, architecture firm Trivers, to lead the redesign.
“For about 10 years, this was completely underutilized,†said Trivers Principal Joe Brinkmann. “Nothing was happening.â€
The investment is already paying dividends: Housing giant McCormack Baron Salazar recently moved to the tower after years at another building just a few blocks away, trading size for quality.
The coronavirus pandemic left companies across the country rethinking the traditional office. Some downsized, expecting a portion of their workforce, happy to work from home, would never return to a cubicle. Others decided they had to improve their offices to entice employees back into the building. And that all means landlords, with space on their hands and concerns for future demand, are shelling out big bucks to upgrade their buildings.
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Here, companies like agriculture and pharmaceutical giant Bayer, footwear brand Caleres and managed health care provider Centene Corp. are ditching big footprints.
“They’re certainly not outliers,†said Jim Loft, executive vice president of Gershman Commercial Real Estate. “But at the same time, these companies are putting a value in having good quality office space, and they’re making a significant investment in it.â€
Caleres is selling its Clayton headquarters to a developer that will remake the site into an office tower with retail and a commercial fitness center. The shoe company will have less space, but more amenities.
Centene said it would cut 65% of its office space nationwide.
And more recently, bakery-café chain Panera Bread Co. announced it would leave its longtime Sunset Hills headquarters for a smaller office in Fenton at the 1400 Building, once the south campus of corporate incentive company Maritz.
“It was sort of a, ‘build it and they will come,’ approach,†said Mark Alspaw, Maritz’ vice president of real estate and property services.
A competition for tenants
Maritz consolidated employees to the north campus around 2018. It renovated the 400,000-square-foot south campus, upgrading the technology there and adding amenities like a new fitness area with yoga studio. The 1400 Building is now 76% occupied, despite not being in a prime office market for companies. Alspaw credits that to the amenity-rich campus and its position along Interstate 44.
In Clayton, the metro area’s top office market, older buildings are facing competition from new construction like the 1 million-square-foot twin towers at Forsyth Pointe, which should see tenants move in by the end of the year. U.S. Capital Development is adding amenities like a rooftop garden terrace and juice bar, training and conference areas and touchless technology.
It’s also counting Shaw Park, just steps away, as an amenity and designed the development without columns to maximize views of the park, said Managing Partner Scott Haley. It’s already scored as tenants Commerce Bank, the law firm Husch Blackwell and packaging supplier Barry-Wehmiller Cos., among other top companies.
The new construction prompted the owner of the nearby Plaza in Clayton, Chicago-based Franklin Partners, to transform the fifth and six floors, packing them with upgrades, after losing Husch Blackwell.
And Los Angeles-based real estate investment firm Tryperion Holdings, which has owned and managed about 1 million square feet of office space in ºüÀêÊÓƵ, recently wrapped up renovations at Shaw Park Plaza, the Clayton high-rise that overlooks its namesake, with a new fitness center, lounge and conference rooms.
“It’s an amenities arms race right now,†CEO Jeffrey Karsh said. “The buildings that are seeing success in leasing are well-amenitized with either the amenities inside the building or outside that are walkable: retail, fitness, lunch options.â€
So intense is the race that even owners of what the commercial real estate industry considers to be Class B and Class C offices, those that lack high-end amenities and feature outdated finishes, are feeling pressured to make upgrades. These owners could previously compete on price alone — offering no frills translated to a lower rental rate. But now more and more tenants are expecting amenities. Inflation and the rising cost of construction aren’t making it easier, experts said.
“The inability to modernize … you’re going to get left behind,†said David Kelpe, senior vice president of CBRE in ºüÀêÊÓƵ. “ºüÀêÊÓƵ has a lot of older buildings, and a lot of investment is going to be required.â€
Not every owner will have what it takes to survive.
“There are some buildings whose owners will give up and cede them to the lender,†Karsh said. “Then it’ll be the lender’s problem.â€
Still holding on to office space
It’s unclear how much of that the ºüÀêÊÓƵ region will experience. Loft, the VP at Gershman, said the metro area has traditionally been conservative on new construction and has never been overbuilt.
And ditching the office altogether is unlikely for most companies. A from CBRE found that more than a third of companies are transitioning back to the office now, and that an overwhelming majority want employees back at least half the time.
Financial services firm Block, formerly known as Square, touts a hybrid work model, allows employees to work wherever they want, and just declined to renew its lease at its San Francisco headquarters. But it is not dumping the office altogether: It still has space there and across the country, including its newly refurbished building on North Tucker Boulevard in ºüÀêÊÓƵ.
Financial planning firm Moneta Group recently expanded its Shaw Park Plaza footprint by an additional 27,000 square feet. The company, chairman and CEO Eric Kittner said, has continued to hire up to 40 new employees annually and now tops out at around 425 locally.
A hybrid working model is the new normal, he said, but a majority still spend a significant amount of time in the Clayton office.
“We like to meet with clients in person when possible because you see body language that doesn’t translate as well virtually,†Kittner said. “We want to be efficient where we can, but we really want to be effective and sometimes being effective means that we need to be in person.â€
McCormack Baron maintains a hybrid model at its new, smaller office at 100 North Broadway in downtown ºüÀêÊÓƵ — changes brought on because of the pandemic.
“The building was already under renovation, so we were able to create a new vision for our workplace,†the company said in an email. “The owner and architects did a terrific job. The bright atrium that serves as a central gathering space is a real highlight.â€