The resilient New Orleans office market showcases both modern structures and traditional architecture.
As we approach the end of 2024, New Orleans’ office market continues to demonstrate resilience, with downtown occupancy rates holding steady at 79%. Excluding long-vacant buildings, the occupancy rate rises to nearly 84%. While there are concerns about rising costs and class A buildings, the suburban office market shines with occupancy close to 99%. Notably, developments like the new Class A office building signal ongoing progress in the region’s market, despite challenges faced due to inflation and property taxes.
Welcome to New Orleans, a vibrant city that, despite experiencing the ebbs and flows typical of urban life, is showing a commendable resilience within its office market as we close out 2024. As it stands, the occupancy rates in downtown office spaces are sitting at 79%, maintaining stability compared to the previous year. And you know what’s even more interesting? If we take a closer look, excluding the long-vacant 1515 Poydras building, the occupancy rate bumps up to an impressive almost 84%.
It is crucial to consider where we were before the pandemic threw a wrench into daily routines. Back then, downtown occupancy rates were floating around 87%. The average lease rates stuck at a steady $20 per square foot since 2018. That’s right, little to no change over six years, which is a big deal in a world where rents can sometimes skyrocket overnight!
Interestingly, when stacked against larger metropolitan giants like New York and Chicago, the office market in New Orleans appears to be holding its ground quite well, as noted in recent reports. There seems to be a consensus that New Orleans is not in the same boat of struggle as its larger counterparts, which is a positive sign amidst the ongoing recovery from the pandemic.
Over the past decade and a half, the overall office market in New Orleans has seen a shrinkage in size. Why? A lot of older buildings have been transitioning into hotels and residential spaces, resulting in less office space being available. But here’s the kicker: during that period, there have been no new constructions pouring into the market.
Talking about the challenges – rising costs are certainly on the minds of office space owners and renters alike! Inflation, high interest rates, and increased insurance premiums have made running office buildings more expensive. Some forecasts are predicting a possible 20% increase in lease rates this year alone!
Moreover, newer class A office buildings on Poydras Street may face uncertain futures as nearly half of them were financed through collateralized mortgage-backed securities, with many loans set to mature between 2024 and 2026. A prime example is the Energy Centre, a notable 39-story tower that has had its fair share of financial troubles. It has been placed in receivership but there are signs that a sale is on the horizon.
The suburban office market remains a beacon of hope, with regions such as Jefferson and St. Tammany parishes showing promising occupancy rates, pulling in lease rates averaging around $25 per square foot. On the other hand, older renovated buildings around Riverside Park are enjoying remarkable occupancy rates close to 99%! Talk about a thriving neighborhood!
While the sale of the DXC Technology Center at 1615 Poydras St. at $18.5 million might sound like a setback – especially considering it was below its debt – the New Orleans Police Department securing a lease for approximately 45,000 square feet there does provide a glimmer of hope in sustaining the property’s value.
As if rising costs weren’t enough, property taxes in the broader New Orleans region have seen a significant uptick, with the New Orleans-Metairie area experiencing a 14.7% increase from 2022 to 2023. On top of that, office property insurance costs have climbed a staggering 37%, presenting the highest increases in the nation, with One Canal Place seeing insurance costs surge 113% year-over-year!
On a more optimistic note, New Orleans is finally seeing its first new Class A office building constructed since 1989. This development, leased by Shell, does face financing concerns due to the lingering effects of the pandemic on office demand, but it demonstrates that there are still exciting developments in the pipeline.
The mixed-use River District development is also stirring up excitement, aiming to add modern amenities and attractive features to the area. Plus, infrastructure improvements around Poydras Street are leading to further increases in commercial property taxes. It’s clear that efforts are being made to keep New Orleans’ office market buzzing!
In conclusion, as New Orleans continues navigating the twists and turns of the office landscape, there’s a blend of challenges and opportunities on the horizon. It looks like this city is committed to showcasing its robust character and charm—even in the office market!
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