Despite healthy local market dynamics, the greater New Orleans industrial market did not perform as strongly as insiders expected it to perform over the past 12 months, which is indicative of wider economic factors suppressing a market with pent-up demand.
The Port of New Orleans and its access to major shipping routes along the Mississippi River has long been the principal component for industrial real estate in the area. The recent 2024 regular session of the Louisiana Legislature committed $230.5 million to Port of New Orleans infrastructure projects, including allocations to the Louisiana International Terminal, a $1.8 billion project in Violet, La., scheduled to be operational in 2028, which will be the Gulf South’s premier container shipping gateway able to accommodate New Panamax- and Post New Panamax-sized vessels.
A bit further up the Mississippi River but still in the greater New Orleans region, Canadian company Woodland Biofuels announced a $1.35 billion investment at the Port of South Louisiana in Reserve, La., to establish the largest renewable natural gas plant in the world. The facility will take waste wood and sugar cane and turn it into natural gas. The process will be carbon-negative, leaving less carbon in the atmosphere than before the gas was produced.
Such projects affect Louisiana’s economy as a whole, and also affect the demand and infrastructure available for traditional warehouse, distribution and manufacturing facilities. The ports of the region are critical hubs for imports and exports, and companies across various sectors, particularly logistics, shipping and manufacturing, are increasingly seeking to establish a presence or expand their footprint in the region. However, while demand continues to grow, the supply of available industrial real estate is limited.
New Orleans faces several challenges in expanding its industrial space inventory. The scarcity of developable land, regulatory hurdles and the complex process of acquiring suitable sites near the port or major transportation corridors have contributed to the bottleneck. Older industrial facilities in the region also require significant capital investment to modernize them for current market needs, making redevelopment slow and costly.
While the local industrial real estate market is experiencing strong demand, broader national economic factors are slowing the pace of expansion in the greater New Orleans area. Rising interest rates, inflation and increased construction costs are tamping down the market fundamentals that support growth. Higher interest rates have raised the cost of borrowing, impacting both developers and tenants. For companies looking to expand or relocate their operations, the higher cost of capital has forced them to reconsider or delay investment plans. This is particularly true for smaller businesses, which may lack the financial flexibility of larger corporations to absorb these costs; the investments we’ve seen in the past 12 months are from actors with longer time horizons who are able to outlast current economic conditions.
Inflation, meanwhile, has pushed up the price of construction materials, labor and logistics services. Many projects have faced delays as developers reassess budgets and timelines, and the tightening of the financial markets has made it harder for businesses to secure funding for new developments. This has had a particularly pronounced effect on speculative industrial development.
Despite the current economic headwinds, the outlook for the industrial real estate market in greater New Orleans remains optimistic. The region’s strategic advantages, particularly its proximity to the Port of New Orleans and access to transportation networks, make it a highly attractive location for industrial tenants. As global trade patterns evolve and supply chains continue to shift, the demand for industrial space in the region is likely to remain strong.
Rental rates are stable or rising slightly, and sale price comparables have jumped 30 to 40 percent on a per-square-foot basis in the past three years. Demand still outpaces the supply of suitable, modern product. The hope is that whatever the election cycle brings, once completed, will result in stability and an equilibrium in costs and interest rates that can be planned around, such that developers can find solutions to the supply constraints.
Gulf Coast Commerce Park is one such solution, and longtime developer Crosby Development Co. is pressing forward despite the challenging economic environment. Located in St. Tammany Parish on I-12 where it intersects La. Highway 1088, Gulf South Commerce Park has 189 acres ready for immediate development. Roads are cut in, all utilities are run and the site is cleared and shovel-ready. This site in the fastest-growing parish in Louisiana is ready to take advantage of the unmet demand once the economy stabilizes.
All told, the greater New Orleans industrial market is poised for growth in the coming years.
— By Matt Taylor, President, and Lee Audibert, Broker, Property One Inc. This article was originally published in the October 2024 issue of Southeast Real Estate Business.