FEATURE ARTICLE, DECEMBER 2004

2005 Outlook

NEW ORLEANS

Retail

At more than 600,000 square feet, the Stirling Covington Center, owned and developed by Stirling Properties, continues to be the largest retail development project in St. Tammany Parish. With an estimated completion date of 2006, and new phases becoming available at regular intervals, we see this project continuing to be a major draw for retailers. — Lewis Stirling

The greater New Orleans Northshore, specifically Covington, Mandeville and Slidell, has shown the largest amount of retail growth in 2002, 2003 and 2004. Many middle- to upper-income people have moved to the Northshore, seeking a better quality of life and relief from urban congestion. As the higher-income population swells, the demand for retailers increases, providing retailers with growth and expansion opportunities. I look for this trend to continue through 2005 and 2006.

Realm Realty recently purchased a vacated Wal-Mart site in Slidell with the intent of redeveloping the site into a new lifestyle center. As an area historically underserved by retail, this new Slidell development will draw many retailers to the area.

Next year, I think we will continue to see the infill and redevelopment of vacated grocery store sites. Our market has seen several independent and smaller grocery store chains squeezed out by larger national chains with low-price and convenience positioning. This continues to provide optimal space to retailers looking for heavily trafficked, urban-infill locations in a dense and mature market such as New Orleans.

— Lewis Stirling, Executive Vice President/Partner, Stirling Properties

The retail market is very healthy in Louisiana. Retail leasing in the local markets is strong and the industry is expecting activity to accelerate slightly. Retail rents have increased over the past 12 months and while rents are expected to continue to rise, it will be at a slower pace. Vacancy rates have been flat, especially in the neighborhood and community centers where it has lingered at 6 to 7 percent for the past 3 years.

Low interest rates and solid leasing activity has investors seeking shopping centers, especially grocery-anchored centers. City planners have been working for decades to revitalize downtowns and this is creating new avenues for entertainment-oriented retail projects. Lifestyle centers are the new preferred development for larger urban projects.

In order for the market to improve, the economy needs to generate new jobs to expand the size and spending power of the labor force. The interest rates need to stay low and centers or vacant land need to be available at reasonable prices for sophisticated investors. Retail tenants that are in a expansion mode are still extremely price-conscience with regard to their location costs. Therefore, rents need to remain steady until the economy is back on its feet. Residential growth is a key factor for retail growth and transportation traffic flow.

— Heidi Leporowski, Property One, Inc.

The New Orleans metro area retail market has taken a nice upward turn in recent years. This can be attributed to more national retailers developing a comfort level with New Orleans. The demographics have always been there and the cities and state have done a great job to date of reworking the major thoroughfares allowing better traffic flow, which reflects the recent interest of national and more regional retailers.

New or redevelopment properties include Lake Forest Plaza Mall, a 1.2 million-square-foot property on 80 acres, which is being considered a redevelopment site. The city wants it to become the focal point in eastern New Orleans. The tenants being sought are the likes of Wal-Mart, Sam’s Club, Target, Lowe’s, Belk and Academy. Esplanade Mall is going to substantially increase its size and bring some large tenants. Saints Stadium, if it is approved, will have a major impact.

For the market to improve, it will need continued work on infrastructure to increase traffic, access and visibility. This will assist in the continued influx of regional and national tenants, which will strengthen and stabilize the metropolitan area of New Orleans.

— Rod Stieffel, CCIM, senior broker, Property One, Inc.

Office

As no significant new office space has been constructed in New Orleans lately, growth in the New Orleans office market has been measured in recent years by the absorption of vacant space rather than by the construction and occupancy of new space.

Even without new space being built, the New Orleans office market has suffered in recent years from a significant amount of sublease space introduced to the market. In 2004, the market successfully absorbed a considerable amount of that sublease space, leading to higher occupancy rates and incrementally higher rental rates. Two factors will test the strength of that recovery over the next 12 to 24 months. One factor is that much of the sublease space, which has been absorbed, is approaching the end of the lease term. The other key factor is the large amount of space currently occupied by oil companies that have leases expiring between 2005 and 2006.

Metairie, the only other significant office market in the metro area, has also seen little to no new office construction in recent years. Occupancy rates are slightly higher than downtown at 90.9 percent occupied. Rental rates for Class A space are much higher, however, and range from $17.50 to $21 per square foot. For many users, the higher cost in Metairie is more than offset by free or very inexpensive parking for employees. However, large blocks of space are unavailable in Metairie, making downtown the only option for users needing more than a full floor of space.

The hotel market has seen the most construction activity in New Orleans recently and that is expected to hold true in 2005. Construction underway or starting soon includes two interesting hotel projects. Harrah’s, operators of the large land-based casino in downtown New Orleans, is building a 450-room hotel, which will connect to the casino and make it easier for Harrah’s to market the hotel and casino to visitors from outside of the area. A 203-room Hilton concept, funded by a local investment group, is now underway in the Audubon Building, adjacent to the Ritz-Carlton on Canal Street.

Rich Stone, vice president of NAI/Latter & Blum Inc., notes, “For New Orleans commercial real estate to continue to experience the recovery we’ve seen over the past 12 months, we will need to see continued strength in tourism-related activity and no significant spikes in interest rates. If tourism stays strong and interest rate hikes remain modest, we’re expecting a healthy year for New Orleans in 2005.”

— Don Cooper, NAI Latter & Blum

©2004 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.