Strong Footing to End 2019
The St. Louis multifamily market ended 2019 on a strong footing. Despite a slight dip in the occupancy rate, the year ended at 95.6% occupied. Occupancy passed the 95% mark in the second quarter for the first time since 2001. The year also ended with cycle-high demand, absorbing 3,900 units during the year. This level was boosted by the positive job growth in the region.
The improving economy pushed up demand, resulting in a 1.4-point increase in the occupancy rate year-over-year. This was the best year-over-year growth seen within the 50 largest markets in the U.S. According to the Department of Economic Development in Missouri, the state employment ranks grew by 37,100 jobs year-to-year in November. Of those jobs, 58% were in the St. Louis region. Healthcare remains a large economic driver with job growth in the Education & Health Services sector making up over 20% of the job gains in the market over the last five years. The Federal Reserve reported that the unemployment rate for the St. Louis region was 3% in November 2019. This is a slight rise from 2.7% in October of 2019 and 2.9% for November of 2018. However, the St. Louis market is still lower than the U.S. unemployment rate which ended the year at 3.5%.
The increase in occupancy allowed building owners to increase rental rates. Since the end of 2018, rents increased by 3.1%, a rate higher than the national average increase. Class A assets in the St. Louis market experienced the highest rent growth after going through rent decreases in 2017. Looking ahead, the growth within the St. Louis market will be hard to replicate if the economy slows down in 2020. New supply is expected to remain at sustainable levels, which should allow owners to continue to benefit from rent growth.
In the near future, a regional push towards a $15 minimum wage will likely have an effect on the market. The St. Louis City government raised the hourly wage for civilian city workers to $15 per hour in January 2020 in an effort to remain competitive and attract and retain a large workforce. The largest employer in the St. Louis region, BJC HealthCare with an employee workforce totaling over 31,000 people, announced that they will raise the minimum wage for their employees to $15 per hour by the end of 2021. This wage increase will impact more than 3,500 employees.
The improving economy pushed up demand, resulting in a 1.4-point increase in the occupancy rate year-over-year. This was the best year-over-year growth seen within the 50 largest markets in the U.S. According to the Department of Economic Development in Missouri, the state employment ranks grew by 37,100 jobs year-to-year in November. Of those jobs, 58% were in the St. Louis region. Healthcare remains a large economic driver with job growth in the Education & Health Services sector making up over 20% of the job gains in the market over the last five years. The Federal Reserve reported that the unemployment rate for the St. Louis region was 3% in November 2019. This is a slight rise from 2.7% in October of 2019 and 2.9% for November of 2018. However, the St. Louis market is still lower than the U.S. unemployment rate which ended the year at 3.5%.
The increase in occupancy allowed building owners to increase rental rates. Since the end of 2018, rents increased by 3.1%, a rate higher than the national average increase. Class A assets in the St. Louis market experienced the highest rent growth after going through rent decreases in 2017. Looking ahead, the growth within the St. Louis market will be hard to replicate if the economy slows down in 2020. New supply is expected to remain at sustainable levels, which should allow owners to continue to benefit from rent growth.
In the near future, a regional push towards a $15 minimum wage will likely have an effect on the market. The St. Louis City government raised the hourly wage for civilian city workers to $15 per hour in January 2020 in an effort to remain competitive and attract and retain a large workforce. The largest employer in the St. Louis region, BJC HealthCare with an employee workforce totaling over 31,000 people, announced that they will raise the minimum wage for their employees to $15 per hour by the end of 2021. This wage increase will impact more than 3,500 employees.
