Commercial real estate agents in the New Orleans area say the Metairie and Central Business District office markets will strengthen in 2014 as occupancy rates and average rents continue to increase in both areas.
Robert Hand, broker and owner of Louisiana Commercial Realty, said CBD office space remains a coveted commodity and available property is leaving the market at an increasingly quick pace.
“Toward the end of 2013, office space in Orleans Parish leased and sold faster than ever before,” said Hand. “Average days on the market plummeted from 274 days at the end of 2012 to 35 days at the end of 2013.”
Hand’s figures also noted a 54 percent increase in office property for sale in the CBD from 600,000 square feet available in 2012 to 922,000 available at the end of 2013. The additional space could start to pull tenants from Jefferson Parish, where occupancy rates and average rents are much higher, he said.
“Over the next couple of years, there is going to be much more demand for office space in Orleans Parish than there already is,” Hand said. “The CBD market is becoming a living community with residences and other amenities opening at a growing pace.”
Hand spent the closing months of 2013 analyzing the Orleans and Jefferson office sectors as part of his efforts to market a 75,000-square-foot space available for sublease at 1250 Poydras St. The space, which covers four floors in the building, has been available since 2010 after oil and gas company ENI left the city for Houston.
“It’s the largest block of space currently available in the city, and it is located right in the middle of the CBD,” Hand said. “My goal is to get a digital media or tech company into the space.”
According to Hand’s research, 1250 Poydras is one of only seven class A properties in the CBD with available office space exceeding 17,000 contiguous square feet. Lease rates range from $16.50 to $18.50 per square foot.
“Rates are on the rise in the CBD, but you are still getting somewhat of a bargain when you compare it to the more than $23 per square foot rate in Metairie,” Hand said.
Bruce Sossaman, leasing director for Corporate Realty, compiles his own office trends data. His information shows class A occupancy in the CBD grew from 85 percent in 2012 to 88 percent at the end of 2013, with a pair of major leases buoying those figures.
“In the fall, Shell Offshore, one of the city’s largest tenants, renewed its 10-year lease of more than 600,000 square feet of office space in One Shell Square two years early,” Sossaman said. “The company’s Gulf Coast headquarters will remain in the city through 2026.”
Also in 2013, the engineering firm URS moved from its headquarters at 600 Carondelet St., a class C building, into a space exceeding 42,000 square feet on the top two floors of 1515 Poydras St.
Sossaman said the URS upgrade is part of a trend he expects the city will see more of in 2014, with local and national companies starting to look for higher-quality properties.
“The last high-rise offices were built in the late 1980s, and the stock is starting to get old,” Sossaman said. “In the coming years, building owners are going to start improving what they have to attract new tenants. Available land remains a barrier of entry, and rents are not nearly high enough to spur any new office development. Residential conversions will continue to be the highest and best use for vacant property.”
One property ahead of the renovation trend is Lakeway Center in Metairie, where the ownership group recently renovated offices and installed new elevator systems in all three buildings. Sossaman said tenants are willing to pay more to have those types of amenities.
Sossaman said that although average rents in the CBD continue to be lower than those in Metairie, it is too early to say whether the city is pulling demand away from Jefferson Parish. He said the great equalizer will always be parking.
“That is a premium tenants will get in Metairie that they won’t always get in the CBD,” Sossaman said. “When you factor in the parking spots needed per 1,000 square feet leased in the CBD, price per square foot can increase by as much as $7.”
Reporter Robin Shannon can be reached at firstname.lastname@example.org or @LSURob504