Two Proposed Port Container Projects Could Catapult NOLA’s Industrial Sector

by John Nelson

The current state of the New Orleans industrial real estate market can best be described as “dichotomic.” On the one hand, New Orleans has the stability of a mature market featuring one of the largest and oldest ports in North America, traditionally serving heavy industry that continues to perform. On the other, you have two new proposed container port projects that could significantly alter the landscape of the industrial real estate market for the foreseeable future.

Like so many other markets across the country, the New Orleans area is gaining its fair share of distribution facilities, with Amazon and the like scrambling for sites to service increased consumer and business-to-business demand. That said, the real game-changer for the distribution sector will ensue when at least one of the two announced container port projects in the New Orleans area comes on line.

Chris Abadie of Stirling Properties

The Port of Plaquemines and the Port of New Orleans have both identified sites with access to rail, major roadways and water-based transport options that would fundamentally alter the opportunity for distribution emanating out of the New Orleans area. Either project would instantly create a great demand for warehousing and distribution space and further diversify the industrial asset class in the region.

The New Orleans market is also following national trends related to its current inventory. Tight supply and increased demand are compressing cap rates, and more outside investors are looking for opportunities in the market.

As of the second quarter of this year, Crexi reports the total industrial inventory was 81.4 million square feet, and the vacancy rate was just under 4 percent, with only 5,000 square feet of new industrial construction coming on line over the past year and another 154,000 square feet under construction. The average asking rent in the market is $7.70 per square foot annually, and sales prices are around $33 per square foot. (This report does not capture much of the proprietary inventory in the suburban markets in various development stages, such as the Amazon fulfillment center in Slidell that is slated to come on line in early 2022.)

Being a market over 300 years old leads to much of the existing supply for warehousing and distribution space being antiquated by modern standards in the city of New Orleans itself. But being an “old” city also helps create barriers to entry, making the existing product more valuable.

In the short term, most of the market’s new industrial development has been build-to-suit. However, as supply dries up, we expect to see more conversion and adaptive reuse of retail buildings and other property types across the metro area, as well as new ground-up development in the suburbs.

When local COVID-19 restrictions forced people to stay home and hindered travel, oil prices took a significant hit, sending one of the region’s most important economic drivers into stagnation. As a result, many of the major industrial projects slated for the area were delayed or abandoned.

Despite the hits, there are currently at least $1.44 billion in industrial construction projects underway in the metro area, including Diamond Green Diesel’s $1.1 billion project in Norco that will more than double its capacity to produce renewable diesel fuel; Shell/Equilon’s $234 million facility maintenance and upgrade project; Lineage Logistics’ $42 million expansion of a cold storage unit; and Arq in St. Rose’s $40 million investment on a facility to produce a proprietary fuel product.

Additionally, there is an impressive $39.3 billion in industrial projects announced that have yet to materialize. If just a couple of the larger projects pull the trigger, it will be a massive boon for the region and further drive demand for warehousing to service these facilities.

While the number of industrial projects in the pipeline servicing the petroleum and petrochemical industries is impressive, the real opportunity for investors lies in the distribution and warehousing sector. Current demand — even without a new container port, or two — already exceeds supply.

Also, the timing for a new container port couldn’t be more ideal. Current supply chain disruptions provide the perfect opportunity to help alleviate port congestion at other North American hubs and allow New Orleans to keep pace with other Gulf Coast ports already increasing capacity to service this need. Even with the current limited container capacity in New Orleans, the backlog for unloading containers is less than one-third the time of other major North American ports.

A large-scale, modern container facility would further diversify the market and catapult the significance of the industrial sector for developers and investors alike.

— By Chris Abadie CCIM, CRX, Vice President and Manager of Commercial Brokerage of Stirling Properties. This article originally appeared in the October 2021 issue of Southeast Real Estate Business.

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