New Orleans’ Suburban Class A Office Space Still Outperforms U.S. Average
The greater metropolitan New Orleans office market contains approximately 15 million square feet of office space segregated into five distinct submarkets. Two major submarkets, the Central Business District (CBD) and Metairie (a suburban market), represent 94 percent of the total square footage. The occupancy rates of Class A properties in these two markets are 87.7 percent and 88.7 percent, respectively. These rates are 1.56 percent lower and 3.01 percent higher than the respective downtown and suburban Class A office averages nationally. The overall vacancy is limited to a select group of buildings resulting in limited options for tenants seeking more than 25,000 square feet of contiguous space.
The New Orleans economy typically runs counter cyclically to the rest of the nation. It has enjoyed relative immunity from the lingering effects of the 2008 financial crisis and the relatively stagnant national economy. Over the last several years occupancy rates have trended above national averages and rental rates have experienced modest growth.
New Orleans’ office market is performing well, consistently outperforming most national averages and rarely lagging far behind others. This track record of success can be attributed to several different factors.
Due to geographic constraints there are limited sites available for new office development. This results in high barriers to entry for developers. Consequently, office inventory grows at a relatively steady pace where wild market swings are muted.
Many do not realize just how big the New Orleans’ workforce is. The New Orleans MSA consists of approximately 1.5 million inhabitants. Major economic drivers include the hospitality, healthcare, shipping and oil and gas industries. Although the core industries of shipping and oil and gas took a hit following Hurricane Katrina, they never left the market and have since regained their strength. Furthermore, in recent years New Orleans has attracted a tech savvy, entrepreneurial workforce.
Although New Orleans is not often presented in the national press as an economic hub or as the home of a particularly talented workforce, insiders would beg to differ. New Orleans was ranked as the No. 1 Brainpower City in the U.S. by Forbes in 2014, the No. 1 City for Creative Professionals by SmartAssett in 2015, the 6th Most Tax-Friendly State by Area Development in 2016, the No. 1 Construction Environment in the U.S. by Associated Builders and Contractors in 2017 and the No. 7 Destination in the U.S. for In-Migration of Millennials by Realtor.com in 2016.
The growth of the office market reflects and leads credence to these accolades. Recently, approximately 200,000 square feet of lease transactions have been announced by healthcare-related entities putting downward pressure on vacancy rates. In the CBD, the wave of new startups in the tech sector has also increased occupancy. In other good news, the negative trend of consolidation in the oil and gas industry has worked its way through the market and its effects are waning.
Hancock Whitney National Bank recently announced that it will be relocating from its landmark corporate headquarters on St. Charles Avenue to a new space at One Shell Square. The company will be subleasing approximately 175,000 square feet spread out over seven floors of the iconic New Orleans landmark. As a part of the deal, the building (the tallest in Louisiana) will be rebranded as the Hancock Whitney Center.
Legal giant Stone Pigman Walther Wittmann LLC has recently relocated into approximately 50,000 square feet of Class A space in the First Bank and Trust Tower. This new location places the New Orleans office of the multistate firm closer to the New Orleans Civil District Court and further strengthens the Class A market.
In another sign of progress for the healthcare field, Children’s Hospital recently acquired 108,000 square feet in Westpark. This six-story building was where FEMA set up shop after Katrina, and the organization occupied the space until mid-2015. The property includes seven acres of green space, 500 parking spaces and two helicopter landing pads.
These geographic, economic and social factors combine to produce stable and sustainable growth. As other New Orleans’ industries grow, so do rooftops. As the rooftops grow, so does office space. To some it may seem like New Orleans is back, but the data confirms what locals already know — it never left.
— By Brian Rourke, Senior Commercial Broker and Ian Templeton, Commercial Real Estate Advisor, NAI Latter & Blum. This article originally appeared in the October 2017 issue of Southeast Real Estate Business.