Adaptive Reuse in Core New Orleans Pushes Industrial Activity Westward
When real estate professionals think of the New Orleans industrial market, oil companies, the Port of New Orleans (recently rebranded Port NOLA) and distribution companies come to mind. That thought is currently undergoing an evolution.
The historically industrial areas of New Orleans are being absorbed seemingly daily by an insurgence of retail and entertainment-based business. As traditional retail in American shopping and strip malls is on the decline, developers are rushing to buy warehouses for physical entertainment and non-traditional uses.
Port NOLA used to be home strictly to cargo ships and tankers, but is now expanding to fill the need of cruise ships. Norwegian, Carnival and the newly announced Viking Cruise lines all now use it as a docking port. The $2 billion port master plan encompasses the growth needs of the cruise ships, as well as the recently announced deepening of the Mississippi River’s main channel to 50 feet. However, Tchoupitoulas Street warehouses that once served the port are being turned into cross-training gyms and breweries.
High-profile industrial properties are in huge demand. Drive Shack, a competitor of popular Topgolf, is developing a $29 million venue at the old Times-Picayune newspaper site owned by Howard Investors LLC, which is owned by group of developers such as Joe Jager, Barry Kern and Arnold Kirschman.
The Gayle Benson-owned Dixie Brewing Co. just announced a takeover of the former MacFrugal’s Distribution Center in New Orleans East, a site most recently utilized as the FilmWorks New Orleans production studio, and designed for its new use by Woodward Design Group. The new Dixie Brewing site has great visibility when traveling east over the Interstate 10 high-rise bridge and will also house a museum and event space.
Activity in Kenner, Elmwood
New interest has also arisen in Kenner with the Louis Armstrong New Orleans International Airport terminal relocating to the north side of the runway. That project is set to open in March 2019.
An area once filled with auto body shops now houses airport construction companies needing a physical location. Some landlords in the area now have a false pretense of inflated property values and rates vary greatly due to the belief that hotels and retail developers will make a play for their buildings. However, this could happen much further down the road.
Elmwood, an area originally developed for the oil industry then turned into a major distribution hub following the 1980s oil bust, is now seeing bounce houses, trampoline parks, martial arts studios and birthday party venues taking over warehouses and loading docks.
Elmwood Shopping Center, owned by the Lauricella Land Co., is a successful non-traditional industrial site development. With strong anchor tenants like Home Depot, Best Buy, T.J. Maxx, Hobby Lobby and PetSmart, this area has turned into a shopping and entertainment hub and the heart of Elmwood. High-density apartment complexes are popping up daily to accommodate the center, once again pushing traditional industrial groups out of the area.
Dry Land in Demand
Companies with large land needs are finding sites west of metropolitan New Orleans. If traveling west of the airport into St. Rose, La., it seems almost every major heavy equipment rental company is located there. This has been a hot spot in recent years as developers have scrambled to obtain acreage that is not wet.
The issue New Orleans is now facing is a shortage of true industrial land. Raw dirt that costs over $7 dollars per square foot is not feasible to build a warehouse for most developers to support market rates. However, that land is viable for retail and special venue tenants. The New Orleans market already has high lease rates due to the shortage of dry land. The market has high barriers of entry as it features the Mississippi River, Lake Pontchartrain and outlying marshlands.
Most large distribution companies interested in the market will require property to not be in a flood zone and have higher than available eave heights. Dry land is available by the river and Elmwood fits this need, however the plus-30-foot eave heights required by most weren’t common in the 1980s when most buildings in the area were built. It should be noted that the flood zone restriction immediately crosses off New Orleans East for most companies.
This flood zone issue will likely be a long-term problem as traditional industrial developments are typically built on the outskirts of town where cheap dirt is available. The city has caught up with Elmwood and developers are now seeing opportunities at a much lower cost.
Also, because of government zoning, industrial zoning typically has much looser restrictions than normal commercial zonings. Developers have taken notice and are now embracing this zoning because they don’t have to battle as many government restrictions. How to handle the zoning issues going forward will be something to watch closely.
— By Burden Edmonds, Agent, Beau Box Real Estate. This article originally appeared in the October 2018 issue of Southeast Real Estate Business.