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St. Louis Multifamily Supply Heading For New Peak in 2018

Supply Wave Continues Amidst Slowing Absorption Totals
December 20, 2017
Developers continue to build at a feverish pace in St. Louis, even as fundamentals have become stressed. More than 5,000 units opened across the metro over the last four years, but net absorption has underperformed. Occupancies have dropped and rent growth has continued to slow. While this performance might signal a tapped-out apartment market, supply will not be slowing down in the near term. More than 2,000 units are underway with expected 2018 openings, which will easily set a post-recession record for deliveries.

Although ongoing supply can be found in virtually all major submarkets, most projects are located in the urban core of St. Louis. More than 500 new units are scheduled to open in Central St. Louis City next year, with a few developments underway in the CBD and the Central West End. Roughly 1,500 units opened in the submarket over the last four years, to mixed results. Furthermore, vacancies have shot up in Three-Star properties, which represent more than half of the submarket’s inventory. Overall, net absorption fell well short of supply gains in three of the last four years and vacancies exceed their historical average by a sizeable margin.

Disappointing net absorption in Central St. Louis City may explain why developers have shifted their focus into neighboring South St. Louis City, where close to 1,000 units are underway. South St. Louis City offers an array of neighborhoods and quick commutes to job nodes in the CBD and the Central West End. These qualities make the submarket a logical target for developers that want to attract tenants seeking a live/work/play atmosphere, but might feel that Central St. Louis City is oversupplied. Net absorption exceeded supply gains in each of the last five years here, but the underway projects will present a new challenge to landlords. With nearly 800 units scheduled to hit the market in 2018 alone, next year’s deliveries will exceed totals from all prior post-recession years combined.

One of the largest projects underway is Balke Brown Transwestern’s Encore at Forest Park, which is scheduled to open in the second quarter of 2018. The 246-unit apartment community will be located just south of St. Louis’s largest public park and in close proximity to Cortona at Forest Park, which Balke Brown Transwestern opened in 2014. That asset typically maintains occupancies in the high 90s. Encore-like Cortona will feature mainly one- and two- bedroom units. Asking rents for one-bedrooms at the development will start in the range of $1,400-$1,800/month, about double the South St. Louis City average.
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