Berkadia’s Kendrick: No Slowdown in Sight for St. Louis Apartment Market

By on October 16, 2018

From REJournals:  Is there a slowdown in the multifamily market? Not in St. Louis. Just ask Andrea Kendrick, senior director with the St. Louis office of Berkadia.

Kendrick says that multifamily continues to outperform other sectors in the commercial real estate industry, and that the region has seen plenty of apartment transactions this year already.

“It’s not slowing down at all,” Kendrick said.

Kendrick is just one of the top CRE pros speaking during the St. Louis Commercial Real Estate Summit being held Oct. 19 at the Hilton St. Louis Frontenac in Frontenac, Missouri. To register for this event and to hear more from Kendrick and her fellow commercial experts, click here.

What’s behind the strength of this sector? Kendrick said that investors still find the St. Louis MSA an attractive alternative for yield compared to some of the country’s primary markets. Cap rates in St. Louis remain about 100 basis points higher than the national average and interest rates remain the same across the county, which makes St. Louis a target market for many investors, Kendrick said. Historically, St. Louis has experienced about 3 percent average rent growth, which is another reason why investors are attracted to St. Louis.

That’s not booming growth. But it is steady, and it is reliable.

“That balances out investors’ portfolios who had been investing in core markets,” Kendrick said. “That steady, predictable growth is one of the reasons why our multifamily market has remained so strong. We don’t experience the swings that many markets in the southwest and southeast see where in those markets the apartment supply tends to outpace population growth.”

This doesn’t mean that the St. Louis apartment market is a static one. Kendrick said that demand for new units remains high, especially considering that there were several years where developers barely added any new apartment units at all to the market.

So today when developers deliver new projects, they have been absorbed fairly quickly, Kendrick said. The market today is seeing roughly 2,000 new units added each year. The developers in St. Louis never really get ahead of demand,” she said.

There are high barriers to entry for developers in the St. Louis metro market. Take for example the City of Chesterfield, where the first new multifamily project in about 30 years is under construction. There isn’t a lot of available land for new construction, and because St. Louis is a union town, construction costs can be higher. Within St. Louis County, more than 90 different municipalities all compete with each other for new development.

In the city of St. Louis, most new apartment construction relies on some sort of subsidy, whether it be a TIF or tax abatement, or other type of credit, Kendrick said.

There is demand for new product located in walkable neighborhoods near employment.  Kendrick said.

“People want that live/work/play environment,” she said. “The top areas that offer this would be Clayton or the Central West End but there are many other neighborhoods in St. Louis metro that offer that, too.

One of the strongest? The Cortex Innovation Community. This district devoted to high-tech companies and start-ups got its start in 2002. Since then, it has attracted a steady stream of businesses and new residents. The Grove is another neighborhood that is attracting renters who want to be able to walk to stores, restaurants and other amenities.

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