The Class A office market in New Orleans is 90% leased but the 10% that is vacant is almost half comprised of full floors, and full floors take an eternity to lease since they are configured for a single tenant. Full floors range from 18,000 square feet to 24,000 square feet which can accommodate 50 to 75 employees depending on the configuration.
Gone are the days of 10' x 10' private offices, which accommodate the fewest employees per full floor. The modern office configuration has plenty of open desk areas that facilitate collaboration and teamwork, and can accommodate the highest number of employees. Full floor space can be difficult to lease to multiple tenants due to the layout of restrooms, hallways, and conference rooms; therefore, the most likely tenant is a large company with at least 50 employees moving into the downtown area. Even with the 35% payroll rebate as an incentive to media and software companies moving into the city, no full floor space has been leased in the past 6 months and the amount of full floor space has increased 19,000 square feet.
The result is that vacancy rates will stay higher for those buildings with empty full floors compared to other Class A office buildings, and lease rates will include a larger amount of free rent and buildout allowance. Once the market reaches equilibrium; however, the buildings that can offer the last Class A full floor space will have the highest pricing power and can command a higher than market rent. The tradeoff is that the present value of the higher rent several years down the road may be less than a lower rent price today.
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Sources: LoopNet, LACDB