New Orleans’ Metro Multifamily Market is Humming an Upbeat Tune
There is a popular song from the HBO show Treme written and performed by Steve Earle titled “This City Won’t Wash Away”. Ten years ago the wind and water of Hurricane Katrina threatened to destroy almost a third of the multifamily market in metro New Orleans. After a decade of rebuilding, the multifamily market has emerged as one of the most dynamic and resilient markets in the country. For 10 straight years this world-class city has seen strong demand, increasing rents and stable occupancy.
New Orleans is not only unique in its food, music and culture, but also its geography. The Crescent City is situated on the bend of the Mississippi River with Lake Pontchartrain to its north and wetlands to the east and west. The ability to increase inventory in Metro New Orleans is seriously impaired by a lack of land, as well as historic and demographic factors. Over the past 14 years the multifamily inventory in metro New Orleans has only increased by 10,500 units, an average of only 750 units per year. Included in that number is the rebuilding of existing inventory damaged by Hurricane Katrina. Fifty percent of the increase of inventory has been in downtown New Orleans where 5,000 new units were added. The majority of this activity was through the redevelopment of old office buildings, warehouses and recent ground-up construction.
Respectable increases in the suburban garden market have occurred in East and West St. Tammany Parish where available land and household income support new construction. The demand exists for new development on the East Bank of Jefferson Parish, however the scarcity of land has kept the inventory in this submarket virtually static for the past 20 years.
The multifamily market is small and diverse with an inventory of approximately 54,000 units, which comprises conventional, affordable and urban developments that have a minimum of 100 units. Average rent per square foot overall is $1.08, with the most affordable rents being offered in East New Orleans and Algiers at $0.88 per square foot, respectively. Market rate suburban development in Jefferson and St. Tammany Parishes are averaging $1.04 per square foot. The downtown Historic Center is reporting average rents of $1.64 per square foot with many new developments commanding rents in excess of $2.00 per square foot. Current overall average occupancy ranges from 94 to 96 percent.
The engines that are driving this robust demand for multifamily product are as diverse as the city itself. Demand for the downtown historic market is being fueled by a multitude of industries, the largest being the recent opening of the BioDistrict, which is a massive new innovative medical corridor that will offer world-class bio sciences research. Additionally, the University Medical Center and Veterans Affairs Medical Center is a $2 billion development that is estimated to have a $1.3 billion economic impact and add more than 10,000 permanent jobs to New Orleans. Other mainstays of the New Orleans economy include the port, education, tourism and a growing tech sector.
Due to the rapid absorption of inventory in the Historic Center, we would anticipate construction activity to continue particularly with ground-up developments as the inventory of existing buildings to convert is quite scarce. An active developer of this type of product is the Domain Cos. with their Paramount and Beacon at South Market properties. Developers currently active in the market include HRI Properties, Kailas Cos., Tulane Partners LLC, Belmont Commons LLC and Corporate Realty. A suburban development nearing completion is The Springs of Fremaux at Town Center, 296 units, which is being developed by Continental Properties in East St. Tammany Parish. Recently the Favrot & Shane Cos. completed Bella Ridge Apartments, a 264-unit garden development on the East Bank of Jefferson Parish.
The positive economic environment of New Orleans has not gone unnoticed by the capital markets sector. Debt and equity have been aggressively searching for opportunities throughout the Crescent City. The demand, however, currently exceeds the supply. The investment community has accepted New Orleans as a world-class city. Marking the milestone a decade after the wrath of Hurricane Katrina, the future of the multifamily market appears bright. The city that many thought might perish is flourishing.
— By Larry Schedler, CCIM, Principal, and Cheryl Short, Principal, Larry G. Schedler and Associates Inc. This article originally appeared in the October 2015 issue of Southeast Real Estate Business.