By Richard Stone, CCIM

New Orleans continues to make strides in its long recovery process from the effects of Hurricane Katrina some three years ago.  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 by  The New Orleans Community Data Center, as of July 2008, 72% of the pre-Katrina New Orleans households are actively receiving mail, and the overall New Orleans region was home to 87% of its pre-storm households, although the rate of repopulation has slowed in recent months.  The area still has significant labor shortages for numerous occupations.  New Orleans metro area unemployment for July 2008 was at 4.1%, well below the national average.  Over $450 Million in New Orleans area infrastructure improvements have been approved by the now fully funded Louisiana Recovery Authority.

New Orleans Area Households Receiving Mail - Pre-Katrina and July, 2008 Graphic by Latter & Blum research department; Data Source: The New Orleans Community Data Center

Highlights of our current market by property type:

Office

The current office market remains balanced, but with a reduced volume of deals being done when compared to past years.  The downtown Class A occupancy rate stands at approximately 90%, reflecting approximately 42,000 negative net absorption so far for the year.  The 492,000 sq. ft. Class A 1450 Poydras Building next to the Superdome has remained shuttered since Hurricane Katrina, reducing total downtown Class A inventory from 9.2 Million sq. ft. to 8.7 Million sq. ft.  The status of that building is still uncertain – it may be reintroduced Class A market or redeveloped into an alternative use.  The state of Louisiana has expressed strong interest in the property for state offices and perhaps a retail/entertainment complex to complement the Superdome and New Orleans Arena, but no deal has yet been struck.

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, but little activity on that property has occurred.

Full-service downtown Class A rates are in a range $17.50 to $21.00, with current occupancy at about 90.5%. 

The suburban Metairie Class A and B markets remains tight.  The Class A inventory of 2 million s.f. is 92.5% 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 93.5% occupied, with rates at $18.50 to $20 per sq. ft.

Retail

Retail has slowed somewhat as has been the case nationally. Macy’s committed to renovate and reopen its 188,000 sq. ft. store in The Esplanade Mall in Kenner.  Additionally, construction is well underway on a new Macy’s to be built at Metairie's Lakeside Mall, with both stores on schedule 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 under 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. Rouses has recently purchased three of the properties it was leasing from the respective owners.  

Bayer Properties' Summit retail development, Slidell, LA

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.  The first phase of Bayer Properties' $900 Million Summit Fremeaux lifestyle retail center is under construction in Slidell, LA near the new Fremeaux I-10 interchange, with a projected opening to occur in 2010.

Industrial

The market has slowed considerably in the industrial arena.  Occupancies peaked in December 2005, four months after Katrina, and have been slowly and steadily softening ever since.  Rental rates, that had increased by about 20% post-Katrina, have begun to soften as well. NAI/Latter & Blum research indicates that the metro area experienced negative absorption of 485,432 sq. ft. during the first three quarters of 2008.  Latter & Blum's current industrial survey indicates 5.07 million square feet of available industrial space in the marketplace, representing an increase of 44% from December 2005 levels.

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

The timing of Hurricane Katrina, coupled with little available development land precluding large-scale residential development, helped the area avoid some of the excesses being experienced in other parts of the county.  But the market has definitely slowed, as evidenced by an overall 10 month supply of homes in Orleans/Jefferson.  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.