SOUTHEAST SNAPSHOT, JULY 2005

New Orleans Office Market

Michael Siegel Executive Vice President Corporate Realty, Inc.

The Class A rental rates in the market currently are $19.50 per square foot to $21 per square foot in Metairie, New Orleans’ main suburban market, and in the city’s CBD, the rates range from $14 per square foot to $17 per square foot. In addition, vacancy rates for Class A properties currently are 8 percent in Metairie and 16 percent in the CBD.

New Orleans’ office market has not seen any new construction in the last 15 to 20 years; in fact, the last new office building constructed in the CBD was Dominion Tower, which encompasses 492,000 rentable square feet and was built in 1989. In Metairie, the last two multi-tenant office buildings to be developed were Three Lakeway, which was constructed in 1987 and includes 462,890 rentable square feet, and the Galleria, a 465,985-rentable-square-foot office tower built in 1986. Since these openings, the only new multi-tenant office building construction in the area consists of small buildings (less than 100,000 total square feet) located west of the airport within James Business Park.

While there has been no major office development in New Orleans since the mid- to late-1980s, redevelopment of not only obsolete office buildings but also warehouses, retail buildings and other structures has strongly impacted the overall CBD office market. The redevelopment of these Class B and C buildings into alternative uses has yielded several positive effects: a reduction in total supply of space in the CBD, which has fallen from roughly 16.5 million square feet to approximately 13.5 million square feet; a slight increase in demand as tenants are moving out of the Class B and C buildings; and the continued improvement of quality-of-life elements such as aesthetics, security, restaurants, galleries and other services in the CBD.

No new developers have entered the New Orleans office market; however, quite a few new office building investors including IPC REIT, Hertz Investment Group, Feil Organization and Compass Financial Management as well as several local investors have been very active in the market. Generally, new developers in New Orleans have found their niche in hotel, apartment conversion and condominium endeavors.

Major law firms are absorbing space in New Orleans’ CBD, representing the main tenants expanding in that sector. In the suburbs, no specific single industries or tenant types are absorbing space, but the suburban submarket is extremely diversified, boasting a few large tenants and representing virtually every tenant type.

Two major leases recently have been closed in the CBD, and they represented the two largest non-renewing lease transactions in New Orleans in close to 15 years. First, Hibernia National Bank is relocating from its former location at the Class B/B- 225 Baronne Building; Hibernia signed a lease for more than 200,000 square feet at Place St. Charles, a top-of-the-market Class A office building located at 201 St. Charles Avenue; Loeb Partners Realty and JS Karlton Company, Inc. own the building. Furthermore, Tulane University signed a 180,000-rentable-square-foot lease in the Faison-owned 1555 Poydras Building. The lease is for expansion of Tulane’s School of Medicine. This was a new lease and true absorption. Corporate Realty represented both Hibernia and Tulane in these negotiations

In the future, the CBD will continue to see redevelopment and the positive market trends that result from such activity, but as a result, Class B and C properties in this sector will continue to disappear due to functional and/or economic obsolescence. The Metairie submarket is continuing to strengthen and mature, and the occupancy rate is approaching the mid-90 percent range; the end result is that new office development may begin in Metairie in the next 3 to 4 years.

While some people fail to acknowledge it, New Orleans is a great place to do business. The office market is seeing positive trends, and with a great quality of life, an underappreciated and valuable work force, and terrific real estate values, New Orleans will continue to be a growing and flourishing city.

— Michael Siegel, executive vice president, Corporate Realty, Inc.


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