NOLA’s Apartment Market Remains Stable as Occupancy Gains Momentum
Like the rest of the country, metro New Orleans is slowly coming out of the COVID-19 fog. The uncertainty of these uncharted waters caused a lot of anxiety for multifamily owner and operators. Although there were some challenges, the market has survived the pandemic surprisingly well.
The overall vacancy factor for the city is in the 5 to 6 percent range and should compress further given the modest pipeline of new inventory coming on line. The highest vacancy rates reported are in Algiers (15 percent) and East New Orleans (12 percent) where the majority of service and tourism workers lived and the most affected by COVID-19.
It should be noted that we feel this downturn in occupancy is temporary and is showing signs of recovery as our tourism industry slowly rebounds. The Downtown/Warehouse district also experienced increased vacancies as residents fled the urban market for the suburbs with communities reporting vacancy rates as high as 15 percent. As the height of COVID-19 dissipated, the submarket rebounded strongly with many communities reporting 92 to 95 percent occupancy.
Although previous years have seen a host of new developments enter the Downtown submarket, currently there are only two communities in the pipeline that exceed 70 units: 930 Burgundy and the 154-unit Thirteen 15.
A closer look at the seven multifamily submarkets in the metro show the highest rent being paid in the Downtown/Warehouse district, which mostly comprises Class A mid- and high-rise developments. These assets command average rents in the $1,800 to $2,000 per month range.
The highest reported suburban rents are in St. Tammany Parish located north of Lake Pontchartrain. This submarket is the highest income parish in the state and where the newest inventory of Class A market rate product has been developed. Total inventory in the parish is approximately 8,000 units, which is divided almost equally between east and west St. Tammany. Owners report average rents in the $1,200 to $1,350 per month range with an average vacancy in the 3 to 4 percent range. Given the strength of the market and the income demographics of St. Tammany Parish, we certainly expect to see new inventory enter the market.
Rental rates for East Bank of Jefferson Parish (in cities such as Metairie and Kenner) are averaging $1,000 to $1,100 per month, with most communities reporting vacancy factors of 4 to 5 percent. Although most of the inventory in East Jefferson is 25-plus years old, owners have consistently upgraded both interiors and exteriors, thereby lowering the effective age of the properties significantly.
Given the strong fundamentals in the submarket, investors are eager to acquire assets in the area, which has an inventory of approximately 24,000 units. This submarket would be ripe for new construction, however it is fully developed with limited land available for new developments.
At this time there is one property under construction, The Metro at Clearview. The $55 million property is being developed by Audubon Communities and will feature 270 apartments. The property is part of a $100 million mixed-use redevelopment on the site of the former Clearview Mall.
The Westbank of Jefferson Parish (Gretna, Harvey, Westwego) has an inventory of approximately 9,000 units. The area is located on the opposite side of the Mississippi River from East Jefferson and New Orleans. Rents on the West Bank are averaging $925 to $1,000 per month with reported vacancies averaging 4 to 6 percent. A rare new development by STOA Group will be delivered in spring 2022, The Waters at Manhattan. The property will feature 360 units and sought after amenities. This same developer is currently underway with The Waters at Hammond, a 312-units project in a submarket that has seen very little new construction.
The submarkets with the most affordable rents are in Orleans Parish, East New Orleans and Algiers. Combined they have approximately 10,000 units and report average rents of $800 to $900 per month. As mentioned earlier, these submarkets took the brunt of COVID-19 with regards to high vacancies.
However, as the city rebounds, occupancy continues to strengthen. New market-rate construction in those is unlikely given the rental rates, any inventory that would enter the market would likely have a subsidy associated with it.
Multifamily continues to be the preferred asset class as equity that may have been directed to other asset classes has shifted to this sector. As a result, metro New Orleans, like the rest of the country, has more investors than product.
Some notable recent sales transactions are The Collins Apartments, a new Class A development in Covington developed by the Dobbins Group and sold to Passco Cos. Pelican Pointe Apartments in Slidell was sold as part of a portfolio transaction between Carter Funds and RREAF Holdings, DLP Capital and 3650 REIT. Grand Vida and Bonne Vie II Apartments totaling 343 units were recently acquired by Dallas-based Lurin Capital from Walden Group of New Jersey.
We expect to see continued strengthening of the New Orleans metro multifamily market. A rebounding economy along with the geographic barriers unique to New Orleans will inevitability keep the market from becoming overbuilt and should assure investors of continued rent growth.
— By Larry Schedler, CCIM, Principal of Larry G. Schedler & Associates Inc. This article originally appeared in the October 2021 issue of Southeast Real Estate Business.