By Richard Stone, CCIM

It has now been two and a half years since Hurricane Katrina and the calamity to our city that was caused by the major failure of our levee system.  Ever since that event, our residents and businesses have tackled a mind-boggling array of unprecedented challenges.  While great challenges remain, the city’s business climate has become significantly more settled, thus enabling individuals and companies to move forward with their real estate decision-making.

As was expected, the area’s recovery has been fastest in the areas that suffered little or no flooding: the largely unaffected areas of East Jefferson Parish, the West Bank of Orleans and Jefferson Parishes and Uptown New Orleans.  Only one Class A CBD tower still remains shuttered, and it would not be surprising to see that property back in commerce soon.  In the parts of our area that did flood – mostly parts of Orleans Parish (New Orleans), the repopulation has generally been inversely proportional to the depth of the floodwaters that occurred in August 2005.   In other words, the deeper the water, the slower the pace of returning residents and commerce.

According to a recent estimate of population in Orleans Parish (New Orleans proper) as compiled by GCR & Associates, the February 2007 population of the city was now at 302,000 residents, or 66% of its pre-Katrina population of 455,000. 

According to The New Orleans Community Data Center, as of January 2008, 70.5% of the pre-Katrina New Orleans households are actively receiving mail, and the overall New Orleans region was home to 86.3% of its pre-storm households, although the rate of repopulation has slowed in recent months.  Metro area employment has grown to 84% of pre-Katrina levels and unemployment has dropped to 3.4% in November 2007.  The area still has significant labor shortages for numerous occupations.  Over $450 Million in New Orleans area infrastructure improvements have been approved by the now fully funded Louisiana Recovery Authority.

Highlights of our current market by property type:

Office

The Post-Katrina downtown office market remains balanced, but with reduced volume of deals being done.  The downtown Class A occupancy rate has inched upwards to approximately 91%, reflecting approximately 155,000 positive net absorption for the year.  The 492,000 sq. ft. Class A Dominion Tower next to the Superdome suffered damage during the storm and remains shuttered, reducing total downtown Class A inventory from 9.2 Million sq. ft. to 8.7 Million sq. ft.  The status of the Dominion Tower is still uncertain – it may be reintroduced Class A market or redeveloped into an alternative use.  The property had been considered as a potential site of a new City Hall complex, but that project has not come to fruition.

The reduction in downtown Class B inventory post-Katrina was even more pronounced, from 2.03 million sq. ft. down to 1.27 million sq. ft.   The two most significant properties removed from inventory are the 121,000 sq. ft. 800 Common Building, which is currently being redeveloped into apartments, and the 429,000 sq. ft. 225 Baronne Building, which will be part of a proposed $150 million conversion together with an adjacent property into 437 apartments, retail space and a 550-space garage.

Downtown Class A rates have pushed upwards by $1.50 to $3.00, to a range $16.50 to $19.50 following the storm, with the increase being entirely a function of a jump in operating expenses, particularly insurance and construction/labor.

The suburban Metairie Class A and B markets remains tight.  The Class A inventory of 2 million s.f. is 92% leased, and rates of $23 to $24 per sq. ft. are now being quoted.   The 1.3 million s.f. Class B market is also approximately 92% occupied, with rates at $16 to $19 per sq. ft.

Retail

The suburban market, which experienced far less of the catastrophic damage from Hurricane Katrina, has rebounded significantly.  Lowes has recently opened two locations on Jefferson Hwy and Elysian Fields Avenue, and Home Depot is opening two new locations including an Orleans Parish store on Earhart Boulevard at Claiborne Avenue. 

The major malls on the east bank of Jefferson Parish are back in operation but not all the merchants are back.  Macy's has decided not to reopen its downtown store in the closed New Orleans Center, but has recently committed to renovate and reopen its 188,000 sq. ft. store in The Esplanade Mall in Kenner.  Additionally, they will open a new 228,000 sq. ft. store to be built at Metairie's Lakeside Mall, with both stores set to come online in November 2008.  Dillards has recently reopened its store in the 950,000 sq. ft. Oakwood Center on the Westbank, joining Sears which had reopened earlier.  Also on the Westbank, a new Bed Bath & Beyond and Circuit City are slated for construction on Manhattan Blvd. near the Westbank Expressway. 

Circuit City also recently opened a new outlet on Veterans Boulevard in Metairie to replace their recently closed location further west on Veterans.  The Elmwood Shopping Center on Clearview Parkway, now the largest open-air center in the area, recently a 30,000 sq. ft. Best Buy and a 17,500 sq. ft. Old Navy store near the center’s Clearview Parkway entrance.

Louisiana based Rouses Markets has acquired 17 Sav-A-Center locations in the New Orleans metro area.  With the sale, Sav-A-Center has now exited the market.

All of the other significant projects all located in the suburban north shore.  Construction on Colonial Properties Trust’s $220 Million 900,000 sq. ft. Pinnacle Nord du Lac has commenced at the intersection of Interstate 12 and Louisiana 21.  After a lengthy battle with the Smart Growth Tammany citizens group, the developers have altered their original plans and will not include a Sam’s Club and Wal-Mart as was originally proposed.  The target opening date is March 2009.  In neighboring Tangipahoa Parish, the 431,000 Hammond Square Mall in Hammond, LA is now under redevelopment.

Industrial

Rental rates have increased by about 20% post-Katrina, but the frenzy of leasing activity that immediately followed the storm has subsided.  NAI/Latter & Blum research indicates that the metro area experienced negative absorption of 378,000 sq. ft. during 2007.  Latter & Blum's current industrial survey indicates 4.6 million square feet of available industrial space in the marketplace, representing an increase of 8.9% over the past 12 months.

The only new significant construction underway is Sealy Business Center III in St. Charles Parish, a 49,800 sq. ft. of office/warehouse with 18’ clear ceiling height scheduled for completion in October 2008.  Quoted rates for this development are $9.25 NNN.

Housing

Demand for affordable rental units remains strong in all areas of the metropolitan area but the rental market has softened considerably from the frenzied activity immediately following the storm.  As much as 15% to 20% of the larger area apartment complexes were destroyed or otherwise rendered uninhabitable from the storm.  Increased numbers of flooded properties that have hit the market over the past several months are contributing to a swelling of overall single-family inventory and a steadying prices after a 10% to 15% increase in the months following the storm.  Several of the high-rise condominium projects that were announced shortly after Katrina have been scuttled in this softer residential market, echoing a trend that has occurred in many markets around the country.