logo mediumWith a 77% increase in price, the gold medal for New Orleans' commercial real estate goes to the apartment sector, far outpacing every other sector of commercial real estate over the past year. The silver medal goes to the office sector with a 21% increase in average sale price, and the bronze goes to the industrial lease sector with an 18% increase in price.

Prices This Past Year for Major Sectors of New Orleans Commercial Real Estate:

  1. Industrial For Sale +8.1%
  2. Industrial For Lease +18.4%
  3. Retail For Sale -20.4%
  4. Retail For Lease +12.6%
  5. Office For Sale +21.3%
  6. Office For Lease +2.4%
  7. Multifamily For Sale +77.4%

Industrial Sector

Sale Prices: Statewide, sale prices are lower than in New Orleans, but are experiencing a higher growth rate over the past year. In New Orleans, asking prices for industrial property average $61.93 per square foot, up 8.1% from one year ago, compared to an average price over the state of only $51.65 per square foot, but up 9.7% compared to one year ago.

The New Orleans industrial market is highly fragmented with Elmwood commanding the highest prices and New Orleans East bringing the lowest at around $20 per square foot.

industrial for sale
Lease Prices:  Asking prices have increased 18.4% over the past year for leasing industrial property in New Orleans  ($7.09 PSF), compared to a 3.5% increase in the New Orleans-Metairie-Kenner metropolitan area ($6.65 PSF). Statewide saw a decline of almost 1% but commanded the highest lease rate averaging $7.13 PSF.

industrial for lease
Retail Sector

Sale Prices: Retail prices in Louisiana, Orleans Parish and New Orleans were flat during 2013-2014, then only New Orleans' prices rallied hard from 70% to 100%, then peaked in March 2015 and have retrenched 30% to where most retail property is priced around $140 per square foot. Louisiana prices averaged an increase of 4.1% while New Orleans sale prices are up 20.4% over the past year.

retail for sale
Lease Prices: New Orleans retail lease prices experienced a 12% increase over the past year, averaging $21 per square foot, compared to only a 2.4% increase statewide, averaging a price of $14.13 per square foot.

retail for lease
Office Sector

Sale Prices: New Orleans Office sale prices exploded over the past year, increasing 21.3% and averaging $147.81 per square foot, compared to the Louisiana office sale price increase of 5.4%,  averaging $103 per square foot.
office for sale
Lease Prices: New Orleans office lease prices have increased only 2.4% over the past year, averaging $17.08 per square foot, compared to the state average decrease of 2.1%, averaging a price of $15.58 per square foot.

office for lease
Multifamily Sector

Sale Prices: With an average 77% increase in price over the past year, apartments experienced the strongest growth. The New Orleans apartment average asking price per unit increased from $60,000 in the summer of 2013 to over $125,000 per unit today.multifamily for sale

 

Summary & Opportunities

New Orleans has a stronger market than the state does in four sectors: apartment sales, office sales and leasing, and retail leasing; however, the charts in every sector show prices can fluctuate both up and down wildly, and remember: past performance is no guarantee of future results.


Contact us today for more information on pricing commercial real estate in these cities:


 

 

logo2 cropped high resPricing commercial real estate is vastly different from other assets, such as stocks and bonds where thousands of buyers and sellers state openly their best price and recent transactions are known by all. In fact, commercial real estate pricing is far from a highly competitive industry which must have transparency and all participants have easy access to information.

In commercial real estate, money is made when one party has superior information, meaning the other party has inferior information. Ironically, both parties feel their idea of price and value is accurate or a transaction would never take place. This article unveils recent prices of all 8 categories of commercial real estate in the New Orleans MSA and provides a math lesson showing how price is not affected by supply. Knowing current prices provides you with information that most commercial real estate participants don't have, and knowledge can help you make better real estate decisions.

Size of the Commercial Real Estate Market in the New Orleans Metropolitan Statistical Area

market summary

The commercial real estate market in New Orleans includes 8.2 million SF for sale and 8.5 million SF for lease, but the largest category is 366 million SF of land for sale.

Average Prices For The 8 Major Sectors of Commercial Real Estate

market statistics
The Industrial and Office sectors have about 5 million SF available, the Retail sector around 3 million, not including 1 million SF of Shopping Centers, Apartments around 200,000 SF and the smallest sector is Hotels with around 100,000 SF available.

Office Market

Zeroing in on the 1,024 property Office sector, there are 142 properties for sale averaging $101 per square foot and 882 for lease averaging $17.35 PSF and on the market for 138 days, down 38 percent from the 12 month average of 223 days. During July 2016, 29 office properties were leased and 3 sold.

Office Sector Lease and Sale Prices With Days On The Market Comparing July With 3 Month and 12 Month Averages

office sector table

 

Cause and Effect: Days On The Market and Lease Price

office DOM
The chart comparing days on the market to lease price doesn't depict any correlation, but both are indicators of a strong office market resulting in the highest lease prices in 24 months and properties being leased the fastest since 2014, back when Ebola was a problem and the Iphone 6 was announced.

Industrial Sector

The 5.6 million SF Industrial sector has only 273 properties, with 192 for lease averaging $4.60 per square foot and 81 for sale averaging $69 PSF and on the market for 259 days, down 28 percent from the 12 month average of 364 days. During July 2016, 7 properties were leased and 2 sold.

industrial summary

Comparison of Industrial SF For Sale and For Lease

While the Industrial square footage over the last 12 months has ranged between 2.5-3.0 million SF, going back to early 2014 shows how the Industrial sector has tripled the square footage coming onto the market for both sale and lease.

chart SF for lease and sale 2014.2016 industrial

 

Comparison of Industrial Lease Price and Square Footage

There does not seem to be a correlation in the Industrial sector between lease price and supply. Since 2014, the supply of SF for lease has increased from around 1 to 2.7 million, but the price has stayed around $5 PSF.

industrial SF vs Price

 

Can Math Prove That Price and Supply (SF) Are Not Related

You can test this mathematically, using a statistical term called Correlation, or how strongly two sets of data are related. Excel makes it easy. Just copy the data below into Excel.

Table of Industrial Prices and Square Feet Last 24 Months

Month Price SF
2014-04 4.60 1,097,714
2014-05 4.74 1,191,966
2014-06 5.13 1,373,344
2014-07 4.76 1,424,003
2014-08 6.28 1,489,141
2014-09 6.52 1,701,071
2014-10 6.79 1,814,324
2014-11 6.54 2,108,881
2014-12 6.97 2,686,484
2015-01 6.44 2,678,266
2015-02 4.65 2,653,680
2015-03 4.38 2,676,633
2015-04 6.20 2,515,386
2015-05 6.32 2,450,285
2015-06 6.72 2,558,397
2015-07 5.38 2,693,481
2015-08 4.68 2,799,854
2015-09 10.60 2,697,487
2015-10 4.86 2,887,840
2015-11 4.06 2,951,164
2015-12 3.58 3,027,771
2016-01 6.88 2,882,150
2016-02 7.10 2,844,831
2016-03 5.93 2,244,517
2016-04 2.23 2,377,821
2016-05 4.93 2,358,527
2016-06 9.28 2,525,389
2016-07 4.38 2,406,397

 

Click tabs formulas, more functions, statistical, then scroll to CORREL. Copy and paste Price cells into array1 and SF cells into array2. The result is .0928 which is 9.28%. That means square footage only explains 9.28% of the change in price. This works for any comparison of data, even temperature versus snowball sales.

Summary

Both the Office and Industrial sector in the New Orleans MSA are experiencing strong markets, where prices hold despite an increase in supply. Prices for the most active sectors are:


For more information on how to value commercial real estate, read our article, How To Value Commercial Property Using Cap Rate.


For a free market valuation of any commercial property, just call or email our office.

 

Robert Hand, MBA, CCIM, SIOR

Louisiana Commercial Realty, LLC

One Lakeway Center

3900 North Causeway Boulevard-Suite 1200

Metairie, Louisiana  70002

Phone: 504-289-8172

 

New Orleans once was one of the largest cities in America- for over 140 years. Today it is an exciting place to live with an intoxicating culture steeped in its 300 year old history, but for those who have lived here long enough to see their children go from the "Trinity Pink Party" to LSU Engineering School, a silent but deadly penalty stymies the growth of wealth. Nobody talks about it, but we all endure it. You don't realize how big of a penalty it is until you visit other cities and see how their growth far surpasses the growth of New Orleans, and has been for years. The challenge is to understand our history of wealth creation as a city and then to do something about it to make it better. It requires a long term strategy and local and state government action.

This article uncovers the reality of wealth creation in New Orleans which is composed mostly of real estate and not stocks or bonds, and suggests some reasonable solutions to make things better. We conclude by tying in how population growth creates wealth in home prices and commercial real estate.

New Orleans Was In The Top 20 For Over 100 Years

New Orleans was founded by Jean-Baptiste Le Moyne de Bienville in 1718 and in 1722 replaced Biloxi as the capital of French Louisiana, but was destroyed by a hurricane in 1722. In 1763, New Orleans was given to the Spanish, confirmed by the Treaty of Paris. In 1800, Spain gave Louisiana back to France and in 1803, Napoleon sold it to the United States in the Louisiana Purchase. Due to demand for sugar and invention of the cotton gin by Eli Whitney, along with the competitive advantage of being a port city, New Orleans' population grew from 10,000 in 1805 to 100,000 in 1840, making it the 4th largest city in the United States.

In 1810 New Orleans Ranks #7 In U.S. Population

In 1810, New Orleans ranked number 7 with a population of 17,242 even though it was not one of the 13 original colonies.

table 1810 population New Orleans number 7

table 1810 population New Orleans number 7

 

From 1820 To 1840 New Orleans Grows To Top 5 In Population

With the advantage of being a port city and the ability to trade sugar and cotton, New Orleans remained a Top 5 City In The U.S. until 1840.

table population New Orleans 1820 to 1840

table population New Orleans 1820 to 1840

From 1850 to 1950 New Orleans Ranks In Top 20 in Population

For another 100 years, New Orleans maintained its population ranking among the TOP 20 U.S. Cities.

table population 1850 to 1960

table population 1850 to 1960

 New Orleans' Population Peaked In 1950

The highest population for New Orleans Metropolitan Area was in 1950 at 660,000, ranking it the 20th most populated city in the United States. Houston ranked 18th at 701,000 and New York 1st at 12,600,000. Today, the New Orleans Metropolitan Area has a population of 1.2 million, Houston has 5.6 million and New York has 20 million. In percentage terms, New Orleans has grown 1% annually since 1950 while Houston has grown 11% annually.

chart population growth since 1950

chart population growth since 1950

 What Population Growth Means To You

The lesson to be learned from history is that for 140 years, from 1810 to 1950, New Orleans was a major city in the United States, with a transportation hub in its port and growing industry and wealth creation. Then it plateaued. The reason population growth is important is because it is the driver to a city's economy and causes home prices to increase which drives wealth creation which drives consumer spending due to more disposable income which drives commercial real estate development. Most of the research from the National Bureau of Economic Research on home prices centers on affordability, or income relative to home prices. When home prices increase, they become less affordable. The important point is that as a city's population increases, there is a higher number of consumers, and even if they have no increase in income, the growth in numbers will result in higher gross disposable income which will drive commercial real estate development of retail stores to satisfy that disposable income, apartments and hotels to meet the need of increased housing, and eventually warehouses to meet the needs of the businesses that supply to those businesses. It is a Domino Effect.

The Average Household Has Most Of The Wealth In Real Estate

The increase in population drives real estate prices higher, which leads to higher wealth for individuals since most of their wealth is in their home and rental property, not in stocks and bonds. This is especially true in New Orleans because as a nearly 300 year old city, there are many generations to have passed along the fully paid for family home and rental property to their children. The U.S. Census research shows, on average across America, that 68 percent of a household's wealth is in real estate.

where is the average household's wealth?

where is the average household's wealth?

 

The New Orleans Penalty

The hidden penalty since the 1950's for those of us living in New Orleans has been that compared to those who moved to Houston, our real estate has not increased as much in value, and therefore our net worth has not increased as much. Correlating home prices to population growth would allow us to put this into numbers. Since 1950, a $200,000 home in New Orleans would now be worth $400,000, but in Houston would be worth $1.4 million. While nobody would say a gain of $200,000 in wealth was immaterial, it wouldn't pay for retirement or an out of state college education. In Houston however, the same home would have created wealth of $1.2 million which could finance a condo in Destin, a college education and still have $600,000 left over for dinner at Galatoire's and karaoke at Cat's Meow.

 How New Orleans Can Get Back On Track

The solution is for New Orleans to get back on track by focusing on population growth, and we are already making headway because visitors and entrepreneurial Tulane students are choosing to stay and live and work here. In order to attract large businesses like General Electric, who is hiring 200 software engineers, we need to have a pipeline of engineers fed from well educated high school students, and not just $60,000 dollar a year private schools. New Orleans has to bring professional leadership to its Board of Education and provide real measurable results-oriented teaching. We need accountability in the police department and a partnership with the judicial system to reduce crime which can be a major reason why people don't move here. We need a fire department that doesn't mismanage their members' retirement savings, causing the City to fund a $17 million dollar shortfall. Imagining a city growing to 5 million in population means we need high speed rail to the airport from downtown, and a reduction in the 20% tax on the hospitality industry. Eliminating state income taxes with bring businesses and retirees to the area fast.

Getting New Orleans back on track can be accomplished, we just have to look back at why we were at the top for over 140 years, and figure out how to do it again.


 

For more articles on New Orleans real estate and how demographics affect commercial real estate, go to Louisiana Commercial Realty, LLC.

 

 

 Notes and Sources:

Metropolitan Area is defined as: Metropolitan and micropolitan statistical areas (metro and micro areas) are geographic entities delineated by the Office of Management and Budget (OMB) for use by Federal statistical agencies in collecting, tabulating, and publishing Federal statistics. The term "Core Based Statistical Area" (CBSA) is a collective term for both metro and micro areas. A metro area contains a core urban area of 50,000 or more population, and a micro area contains an urban core of at least 10,000 (but less than 50,000) population. Each metro or micro area consists of one or more counties and includes the counties containing the core urban area, as well as any adjacent counties that have a high degree of social and economic integration (as measured by commuting to work) with the urban core.

Economic Timeline: Selected Historical Events that Shaped the New Orleans Economy, 1700–2010

http://www.ncsociology.org/sociationtoday/v81/norleans.htm

http://richcampanella.com/assets/pdf/article_Campanella_New%20Orleans%20Timeline%20of%20Economic%20History_NOBA.pdf

http://www.peakbagger.com/pbgeog/histmetropop.aspx

http://www.nber.org/

 

 

Louisiana Commercial Realty

Commercial Real Estate Experts
Robert Hand, MBA, CCIM, SIOR
robert@louisianacommercialrealty.com
Licensed in Louisiana & Mississippi
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