CITY HIGHLIGHT, JUNE 2012

NEW ORLEANS CITY HIGHLIGHTS

New Orleans Industrial Market

In 2011, the Greater New Orleans industrial market demonstrated phenomenal absorption of more than 1.38 million square feet, followed by a slight decline of 158,038 square feet in the first quarter of 2012. At present, the market is stable with no new construction under way and no pressing needs, largely due to several major projects that were built in 2011.

Namely, in 2011, TCI Trucking opened a 150,000-square-foot headquarters building on 27 acres adjacent to the Port of New Orleans and six lines of the New Orleans Public Belt Railroad. The Port continued towards a $24 million expansion of its cold storage facility at the Henry Clay Terminal. Hollywood South’s film activity increased in the Nims Center, a 100,000-square-foot state-of-the-art facility in Elmwood. Additionally a local developer began buying up storage facilities for the London Metals Exchange (LME). According to www.nola.com, New Orleans is now the second-largest LME site in the country behind Detroit, and it has more copper, zinc, and steel in storage than any other place in the United States.

The effects of the recession on the New Orleans industrial market have been relatively minor, because there are still federal funds (buffered now by BP insurance money) being focused on construction and rebuilding after Hurricane Katrina. Also, unemployment is below the national average (7.1 percent versus 8.1 percent, per the U.S. Bureau of Labor Statistics). To the extent that local owners have been impacted by the recession, though, their response has been to offer concessions or even free rent for a period to entice tenants to stay or to lease new space.

Rental rates in the area range from $2.50 to $5.50 per square foot at a 10 percent vacancy factor, with Elmwood being the strongest of the New Orleans submarkets. Lease rates for warehouse space there range from $3.00 to $5.50 per square foot, and the vacancy rate is 9.5 percent. Service centers in Elmwood lease from $6.50 to $10.00 per square foot.

The expansion of the Huey P. Long Bridge from four to six lanes — connecting the major industrial corridor of Elmwood with Westwego across the Mississippi — will likely result in southward expansion as there is no remaining land in Elmwood.

Responding to the ongoing activity, the oil and gas industry will seek to expand south of New Orleans in an effort to increase production. As a result of the downturn, the permitting moratorium and the reduction in permitting activity in the Gulf, activity reached its lowest point in 2010, though still providing 242,000 jobs. A return to historic federal permitting levels could increase that employment by 190,000 jobs in 2013 and augment federal GDP by nearly $45 billion.

Although NASA is still using its 832-acre Michoud site (complete with a 43-acre facility) to work on the Orion spacecraft, the drawdown of the Lockheed Martin employees will present some opportunity there.

The closure of the Avondale Shipyard in Westwego (owned by Northrup Grumman/Huntington Ingalls) in 2013 will also create some opportunity for industrial expansion, perhaps in the form of oil and gas rigs, offshore wind generators, commercial nuclear energy or commercial shipbuilding, according to state officials.

— James Morock Jr. is part of the commercial sales group, and Patrick Egan CRE, is executive vice president with New Orleans-based NAI / Latter & Blum, Inc.

New Orleans Retail Market

The New Orleans retail market consists of approximately 19 million square feet and serves a population of roughly 1.2 million people. The retail market has seen steady improvement during the past several years with average occupancy levels increasing from 88.7 percent to 89.9 percent during 2010 and up to 91.6 percent by the fall of 2011. Asking rents in the region have stabilized with a slight edge in the upward direction. Employment growth has been steady, and continues to outperform many markets throughout the U.S.

As the New Orleans region moves further from post-Katrina conditions and the lingering effects of the BP oil spill, the recovery process continues, fueled in part by resources that arrived to facilitate the rebuilding of infrastructure, schools and levees, but also by the increase in private investment generated both locally and from areas outside of the region. Much of that private investment has come in the form of new shopping center development.

Success stories include Stirling Properties’ River Chase, a master-planned, mixed-use development located on the southeast quadrant at the intersection of Interstate 12 and Highway 21 in Covington. Stirling recently announced the openings of Michaels, ULTA Beauty, Charming Charlie, Maurices, Carter’s and Justice, as well as planned openings of The Children’s Place, Chuck E. Cheese’s and a 120,000-square-foot Sam’s Club later this year. These tenant additions complement the existing 640,000 square feet of retail, anchored by Target, JC Penny, Belk and Hollywood Theaters.

The Colonial Pinnacle Nor Du Lac project, located at the northeast quadrant of the same intersection in Covington, was reprogrammed from its lifestyle concept to focus on freestanding stores and outparcel restaurants. Recent openings include Academy Sports + Outdoors, Kohl’s, Hobby Lobby, Texas Roadhouse, Cracker Barrel, Olive Garden and Buffalo Wild Wings.

Notable projects planned or under construction include Bayer Properties’ The Shoppes at Fremaux, located at I-10 and Fremaux Boulevard in Slidell. Retailers in the first phase of development will include Dick’s Sporting Goods, Best Buy, T.J. Maxx, Michaels, Versona, ULTA Beauty and Rack Room Shoes.

Local developer PMAT Acquisitions LLC plans to break ground this month on the redevelopment of the Village Aurora Shopping Center. Located in Algiers, on the Westbank of New Orleans, the newly named Algiers Plaza will consist of 200,000 square feet of retail and be anchored by a 63,000-square-foot remodeled Winn-Dixie grocery store.

Mid-City Market, another Stirling Properties’ development, has broken ground in the heart of New Orleans at the intersection of North Carrollton Avenue and Bienville Street. Anchored by a 53,000-square-foot Winn-Dixie, Mid-City Market will consist of 108,000 square feet and includes national and local retailers, such as Five Guys Burgers and Fries, Pei Wei Asian Diner, Office Depot, Verizon Wireless, Neighborhood Pet Market by Jefferson Feed, Felipe’s Taqueria and Pinkberry.

Just up the street from Mid-City Market, construction is under way on a nearly $3 billion Medical District, which will create nearly 7,000 new jobs during the next several years. The project includes the joint Veterans Affairs/Louisiana State University Medical Center (the largest healthcare development under way in the United States), the BioInnovation Center and the Louisiana Cancer Research Center.

Other areas with planned retail development and redevelopment activity include the downtown/central business district market, where the recent opening of a 40,000-square-foot Rouses Supermarket and the $275 million remodel and re-opening of the 1,200-room Hyatt Regency have sparked a flurry of activity, including several redevelopment projects along Canal Street and in the Theater District. Based in New York, but with strong ties to New Orleans, The Domain Companies recently announced plans to develop the South Market District, a mixed-use, transit-oriented development combining 500 luxury apartments with 170,000 square feet of retail, restaurants and entertainment venues in the heart of New Orleans’ historic downtown core, just across Loyola Avenue from the Mercedes Benz Superdome and the New Orleans Arena.

While many areas of the New Orleans region are experiencing strong retail growth, there are still areas that are vastly under-retailed in the post-Katrina era — most notably, New Orleans East. There are positive signs on the horizon, however. Walmart recently announced plans to re-enter the New Orleans East market, opening a 180,000-square-foot store at the intersection of Bullard Avenue and Interstate 10 in the fall of 2013. This announcement, along with Walmart’s plans for a 116,000-square-foot store at the site of the former Gentilly Woods Shopping Center in Gentilly, are signs that Walmart plans to vastly increase its presence Orleans Parish.

— Joseph Mann Jr. is principal and managing broker of the New Orleans office of Birmingham, Alabama-based Retail Specialists, Inc.

New Orleans Multifamily Market

The historic Hibernia Tower is being converted from office use to multifamily use.

The world knows New Orleans for its great cuisine — and every great meal starts with a great recipe. If you were to create a great apartment market recipe, it would include an improving job market, a shift from single-family ownership to rentals, a slowdown in new construction, tightening of credit, the lack of developable land and a dash of community resistance. All of these ingredients are prevalent in the metro New Orleans multifamily market.

The robust volume of multifamily construction the market experienced during the past few years has subsided and supply is in sync with demand.

As a result, the eight submarkets that comprise our metro apartment market have an overall occupancy rate of 92 percent, with the strongest submarkets showing 95 to 97 percent occupancy. Metro rental rates average $1 per square foot with a range of 81 cents to $1.44 per square foot, with some Historic Center properties commanding rents of $2.25 or more per square foot.

Current development activity is confined to the Historic Center, which comprises the central business district and Warehouse District of New Orleans and St. Tammany Parish, which is located north of Lake Pontchartrain along the Interstate 12 corridor. Both of these submarkets have the highest reported rental rates as well. The Historic Center is the epicenter of urban infill living with close proximity to the new medical district, which is currently being developed. St. Tammany Parish is the future of the Metro suburban garden-style apartment market, due to its high per capita income and expanding employment base.

There are two significant new developments in St. Tammany Parish. Brewster Commons at River Chase is a 240-unit luxury garden community situated along the Interstate 12 corridor in Covington. The property features high-end amenities and condo-style floor plans. Monthly rental rates range from $975 to $1,485. The property began leasing in January. It is being developed by Favrot & Shane of Metairie, Louisiana. Brookstone Park Apartments is being developed by PPQ Development of Metairie and is located on Highway 21 in Covington near Interstate 12. Phase I consists of 128 luxury units and there are plans for a second phase.

One notable Historic Center development is the Hibernia Tower located in downtown New Orleans. The office building is being converted to a 175-unit, mixed-income and mixed-used development. The property will consist of a bank on the first floor, Class A office space on the second and third floors and multifamily units on the remaining 20 floors. There will also be an adjacent parking garage. This historic 23-story building was built in 1921 and was once the tallest building in Louisiana. Market rents will average $1.90 per square foot, with the affordable units being set aside for individuals earning 50 percent and 80 percent of the area median income. The Hibernia Tower is being redeveloped by HRI Properties of New Orleans and is financed with a combination of historic tax credits, state Community Development Block Grants, New Markets Tax Credits, and bank financing.

All of the ingredients for a healthy market seem to be in place for the metro New Orleans multifamily market. An increasing demand with a constrained supply should prove the perfect recipe for attracting developers, investors and lenders to the market for the foreseeable future.

— Cheryl Short and Larry Schedler, CCIM, are principals with Larry G. Schedler & Associates, a New Orleans-based multifamily brokerage firm.

New Orleans Office Market

The office market in New Orleans is stable, with a slight uptick in the first quarter of 2012. Leasing is on the rise, and in October of last year, One Shell Square sold. At $102 million, it was the largest office property sale in New Orleans since Hurricane Katrina hit in 2005.

“I am optimistic that the market will continue to strengthen,” says Brian Rourke, broker at New Orleans-based NAI/Latter & Blum. “Tenants are committing for longer lease terms, there have been more requests for additional space and increased interest from entrepreneurs looking to relocate to New Orleans.”

According to Equity Office Properties’ first quarter report, Class A and B properties posted increased occupancy and absorption improved in the CBD as well as in several submarkets, including Metairie, Westbank, Kenner/West Metairie and Elmwood.

In the CBD, Class A properties had positive absorption of 21,346 square feet in the first quarter of 2012, compared to negative absorption of 21,352 square feet in the fourth quarter of 2011. Additionally, occupancy rose from 84.74 percent in the fourth quarter of last year to 85.78 percent in the first quarter of this year.

Class B properties in the CBD also enjoyed positive absorption of 71,692 square feet in the first quarter, and occupancy rose from 57.48 percent to 62.93 percent.

Last September, Ochsner Health System signed an 80,000-square-foot lease to occupy four floors at the 487,760-square-foot Benson Tower in downtown New Orleans. The company moved between 500 and 750 employees to the building in the first quarter of 2012.

Additionally, in April, GE Capital signed a 60,000-square-foot lease at the 930,000-square-foot Place St. Charles in downtown New Orleans. The space will be used for the company’s new information technology center, which will add approximately 300 new jobs to the area once fully staffed in 2015. The GE Capital Technology Center is scheduled to open this summer.

Metairie, New Orleans’ largest submarket, has also seen an uptick in activity. In the fourth quarter of 2011, Class A occupancy was 91.34 percent. In the first quarter of this year, it rose to 93.05 percent. Additionally, the market saw positive absorption of 34,915 square feet in the first quarter of 2012.

Despite increased leasing activity, office development has been at a standstill for several years.

With the stable occupancy rates relative to the rest of the country as well as high barriers to entry, the New Orleans office market remains attractive to real estate investors, Rourke notes.

Last October, CommonWealth REIT demonstrated great faith in the New Orleans market when it purchased the 1.25 million-square-foot One Shell Square from Metropolitan Life Insurance Co. for $102 million, or $81.60 per square foot.

“This purchase is a vote of confidence in New Orleans and will encourage other investors to take a look at what New Orleans has to offer,” Rourke says.

He is optimistic that New Orleans will continue to strengthen during 2012. “Stable conditions will continue with positive absorption anticipated for the CBD in both Class A and Class B buildings,” he says. “The same is anticipated for the Metairie submarket. I predict that a Class A building in the CBD will trade hands and that we will see an additional 100,000 square feet of Class A space absorbed downtown.”

— Savannah Duncan


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