For years, downtown St. Louis has struggled with partially or completely vacant high-profile office buildings and the negative narratives that can accompany them.
The pandemic punctuated many of these challenges as some companies chose to leave downtown, and daily foot traffic declined. Prominent reporting in the Wall Street Journal last year even described the area as a “real estate nightmare” in the middle of a “doom loop.”
A study released Wednesday by the Brookings Institution examines how the city and region may reverse this perception by converting office buildings to residential uses.
“Cities are the economic engines that drive the country, but some cities are relatively dependent on commercial property taxes within their revenue structure,” said Brookings fellow Tracy Hadden Loh, one of the study’s authors. “The disruption that’s happening in office valuations because of the rise of hybrid and remote work during the pandemic is a threat to those business models, and cities need to adapt.”
In addition to St. Louis, the study analyzed Houston, Los Angeles, Pittsburgh, Samford, Conn., and Winston-Salem, N.C., to conclude how cities can generally tackle office vacancy challenges by converting that space into residential.
The dynamics of St. Louis’ demographics and downtown office and residential market were key reasons the city was included, according to Steven Paynter, global leader for Building Transformation and Adaptive Reuse at Gensler. He said the city’s significant population drop since its peak in the 1950s can offer lessons for other cities now facing similar trends.
“[St. Louis] presented a unique set of problems,” Paynter said. “How do you incentivize more people in the downtown? How do you incentivize housing, and how do you create that while preserving the historic character of the city when the city isn’t actually growing?”
Given the city’s population dynamics, there might be an expectation of surplus housing, not unmet demand, Loh said.
“And yet in St. Louis, there’s already a significant amount of office-to-residential conversion happening in the downtown,” she said. “That particular submarket represents a niche within the overall regional housing market for which there is unmet demand.”
The study points out that at least five of these conversion projects have been completed since March 2020, with three more in progress.
“The places where you’ve seen the most office-to-residential conversion have been places that, frankly, have been able to do it without a lot of incentives, that the market has been the biggest driver,” said Kate Collignon, a partner with HR&A Advisors and one of the study’s authors.
What is left behind in St. Louis are the buildings that are too large, complicated or financially risky to take on without additional incentive or support from local or state governments.
“The Railway Exchange Building in St. Louis is really emblematic of this,” Loh said. “There isn’t going to be any one tool or solution that can solve for the entire structure.”
She bristles at questions of a project’s feasibility and instead argues it comes down to market demands and price point.
The dynamics in St. Louis diverge from other markets in how vacant office space is concentrated in a few large buildings. Two properties, Railway Exchange and AT&T Tower, account for nearly half of the vacant office space in downtown St. Louis, according to the study.
“It’s super unique, honestly, to St. Louis,” Paynter said. “We didn’t find that anywhere else that you have these two entirely ghost buildings. It kind of makes things easier and harder to deal with in a weird way.”
Easier because the vacant space is concentrated and harder because the scale of both buildings, more than 1 million square feet each, could yield nearly 2,000 new units. (The study mocks up the floor plan of a potential conversion.)
“You can’t miss them,” Collignon said. “It makes it very challenging because it means you’ve got to solve these whales [of buildings] if you’re going to change perceptions, if you’re going to fundamentally alter the market.”
There is a $350 million proposal to redevelop the AT&T Tower into more than 600 apartments and new retail space that hinges on the Missouri legislature passing the Revitalizing Missouri Downtowns and Main Streets Act, which could unlock tens of millions of dollars in tax credits for the project.
Collignon argues the success of a large-scale conversion project in downtown St. Louis also hinges on the environment around the conversion site.
“That means making sure the street is vibrant, a place you want to walk, that you want to spend time, that you have access to open spaces,” she said. “Thinking about the value creation outside of the building is a critical part of making an overall office-to-residential conversion strategy work.”
This is where involvement and interest from state and local elected leaders can help build momentum, Paynter said. He points to Atlanta as an example where the local government was intent on spurring office-to-residential conversions, even buying an old building and facilitating its development.
“What it told all of the developers in the area was, ‘Hey, the city really wants to do this. They’re going to be proactive about getting our projects approved,’” Paynter said. “The change in that attitude from the city and the state then inspired a hell of a lot more developers to go do projects too.”
The City of St. Louis is in the process of doing this with the Railway Exchange Building, having initiated the eminent domain process.
When city or state governments get involved, it can build confidence in the marketplace to take on more projects, which can spill over from block to block, Collignon said. It can also bolster the office market by removing unused space and better matching the existing demand for office space, she added.
Plus, in many cases, existing office stock just isn’t what companies want and is easier to turn into apartments than refurbish into updated office space, Loh added.
“New construction and infill is also a huge part of the story of what's happening in and around downtown St Louis,” she said. “While it seems paradoxical that you can have new offices at the same time as you have too many offices, that paradox will continue to exist, because there's demand that can't be met by the old product.”
Loh added that removing obsolete space through conversions can strengthen the overall value proposition of cities, with housing near jobs.
“Real estate challenges should not be conflated with economic development,” she said. “Growing the economy and creating jobs is the No. 1 most helpful thing that could be done, not only to facilitate office to residential conversion but loads of other things.”
