2008 – Metro New Orleans Office Market Observations

Despite the fact that Hurricane Katrina was in August of 2005 it still has a profound impact on the metro N.O. office market.  According to Bruce Sossaman’s latest office market report done in coordination with Equity Office Properties, the city is showing (on the surface) a remarkably good occupancy in comparison to some markets across the country.

The report shows 90.73% occupancy in the CBD and 92% in Metairie.  Class B Metairie is right in line at 91.76%.

What’s behind these numbers, however, has some areas of concern.   The good news is The Dominion Tower is slated to come back on the market in which should bring 489,000 sq.ft. back.  This is good news as this will be much needed big block space for the market.    But, the bad news is it will have an effect on the occupancy rate dropping it to an 86%+/- occupied market.   Also, McGlinchey Stafford law firm has moved from its stand alone building in the warehouse district into the Pan American Building and, therefore, this is not a new user to the market.

Of most concern to the CBD is that Chevron is about to move from its building at 935 Gravier to the Northshore in a new complex in Northpark.  While we believe this is a good move for our region it will have a negative impact on the CBD.  The questions are how many others might follow Chevron’s lead and what will happen to their vacated building.

Chevron’s move has already had an impact on other oil field services companies looking to the Northshore as that market is tight.  The conundrum, however, that tenants wishing to move to the Northshore face is that new Class B+ to A type construction is expensive and most developers are faced with trying to get a downtown office tenant used to paying $16-$18/sq.ft. gross to a newly constructed building needing $28-$30/sq.ft. gross.  For most, that is too big a difference to pay.  For some they either will find a way to pay it or look to the Garden Office market or secondary retail market to get such space.

A couple bullets below detail our opinions:

·         Class A CBD Rates are ranging from $16-$19/sq.ft.

·         Class B CBD Rates are ranging from $14-$16/sq.ft.

·         Class A Metairie Rates are $22-$24/sq.ft.

·         Class B Metairie Rates are $18-$20/sq.ft.

·         Mandeville ranges from $18/sq.ft. NNN to $30/sq.ft. Gross for new construction.

·         N.O. East still has no significant office availabilities, but the UNO Tech Park (Lakefront) is up and running and has some raw space of size available.

·         Slidell has some major possible office developments planned and Textron’s move will give it credibility, but at present there is no available office space of any significant size.

BY: Richard E. Juge, CCIM, SIOR – President RE/MAX Commercial Brokers Inc.