A combination of short sales, declining occupancy rates, loan concerns and migration to suburban offices contribute to uncertainty in the New Orleans office market. As we approach the fourth quarter of this year and begin to reflect back on the market in 2024, the challenges unfortunately outweigh the opportunities. Two notable cases include The DXC Technology Center and The Energy Centre.
The DXC Technology Center, located at 1615 Poydras St. in the Central Business District (CBD), a once-prized office tower anchored by Freeport McMoRan, sold for less than $37 per square foot. The building, over 500,000 square feet, traded for $18.5 million, significantly below the remaining debt on the property. The New Orleans Police Department recently signed a lease to occupy approximately 45,000 square feet in the building, which lessens the steep decline in the building’s value.
The Energy Centre, located at 1100 Poydras St., is one of the most desirable and best-performing Class A towers in the CBD. It entered receivership, but the building is back on track and is rumored to be nearing a sale. The building owner, The Hertz Group, controls four additional Class A office towers on Poydras St. (400, 650, 701 & 909 Poydras St.), and all four have loans maturing within the next 24 months. Hopefully, the refinancing market will improve, and the owner can turn these assets around.
For the first time in many years, overall occupancy in both Class A and B office properties in the CBD has dipped below 80 percent. Like nearly all major office markets, downsizing, consolidating and “rightsizing” have continued with maturing leases, particularly among larger office users in town. Market analysts are uncertain whether the office market has hit its low point yet, but time will tell.
Suburban office market activity remains strong, particularly in the Metairie area. Tenants frustrated with the ease of access, parking and proximity to home in Orleans Parish are seeking to relocate to neighboring Jefferson Parish, even though office rents are significantly higher than in the CBD.
What can we look forward to? Public and private construction activity is robust in the CBD as preparations ramp up for the Super Bowl in February 2025.
On a broader level, companies like Amazon have announced that employees will be returning to the office five days a week in 2025. These decisions will signal a broader trend that could improve occupancy in urban office markets, potentially influencing other companies to follow suit.
— By Gaines Seaman, senior advisor with Stirling. This article was originally published in the October 2024 issue of Southeast Real Estate Business.