Baton Rouge 2008

Baton Rouge Real Estate Market Overview

October 3, 2008

The greater Baton Rouge commercial real estate market remains mostly steady despite prevailing national trends and uncertainty in the financial sector. Although a glut of space in all property sectors evolved post-Katrina (late 2005), the boom came late enough in the national economic cycle that local developers could see the direction the economy was heading long before Baton Rouge felt the effects. The result was a fortuitous slowdown in development allowing for greater absorption at still reasonable rental rates.

Local owner/occupants and investors still have ample options to finance projects through area community banks. Larger projects that require outside lenders are much more problematic in securing funding that will still allow deals to work. Developers of several large mixed-use developments that were in due diligence/feasibility have found themselves scrapping or shelving projects as the financing spreads widened. Existing residential condominium developments are also seeing slower sales as first-time home buyers are having greater challenges qualifying for financing.

The Baton Rouge retail sector in has also experienced a slowdown in growth. Of the roughly 4 million square feet of projects announced in 2006-07, only about 700,000 square feet is actually in development. Rental rates in lifestyle centers are holding steady in the mid $20’s to mid $30’s, with power centers and anchored centers closer to the high teens to low 20’s. But we are witnessing deals being signed with national retailers making their initial foray into Baton Rouge. Two of the more noteworthy developments are the Boulevard at the Mall of Louisiana and Perkins Rowe, where The Apple Store and Texas de Brazil have recently opened new locations. Unanchored and neighborhood centers are displaying much higher vacancies which are now into double digits.

The industrial market remains very healthy. Office/warehouse supply is still relatively low, with sale prices approaching $95 per square foot for metal buildings up to 15,000 square feet, with lease prices hovering about $8.00 NNN. This is in large part due to the growth along the ports of the Mississippi river and petro-chemical plant expansions by major companies such as Shintech, Shaw, Huntsman Chemical, Cemus, and Placid. Shintech’s expansion alone may exceed $1 Billion. The largest vacancies are in the 700,000 square feet of bulk distribution facilities which have recently come online. Rental rates for these buildings are in the $5.00 NNN range, which is about $.25 lower than 2007 asking rates.

The multi-family sector has experienced a glut of new Class A construction in the past few months, softening occupancy levels which were at historic highs for the two years post-Katrina. The recent active hurricane season and lack of available financing for homeowners has boosted those levels, at least on a temporary basis. Existing Class A properties maintain above 95% occupancies across the board, however newer construction is taking longer to absorb than some developers anticipated. Several new projects are hovering at about 60% occupancy. Class A rents range anywhere from $1.20 to $1.80 per square foot per month for new construction, and $.95 to $1.45 for existing Class A. Class B and C complexes continue to stay above 95% with some closer to 99% depending on the location. Capitalization rates range between 7% to 9%, depending on the deal.

The office sector is somewhat of a moving target depending on the sub-market. Class A buildings in the older Sherwood Corridor have seen a $2.00 per square foot increase to the $20 range over the last year, with virtually 100% occupancy. Sub-markets that have new construction coming on line are having a tougher time filling space. Downtown is seeing a larger vacancy number, as Wampold Companies places City Place II online with roughly 256,000 square feet of new space. Quoted rents are $28-$30 per square foot for new construction in the CBD, and in the lower $20’s for existing Class A space. All in all, the Class A market is holding steady with occupancies around 95% city-wide. Class B occupancies are hovering around 75%.

This market overview was prepared by Baton Rouge commercial associate
Ty Gose 225-297-7808.