Commercial Real Estate and Office Space Market in Louisiana

Louisiana is a resource-rich state that boasts a thriving business environment. In a 2014 survey, owners of local small businesses voted Louisiana as the 5th most business friendly state in the country, ranking it particularly high in terms of its business regulations, ease of finding and hiring qualified personnel, and start-up facilities (1). Ongoing investments in infrastructure and a markedly entrepreneurial spirit are factors that contribute to the overall health of the local real estate market, and in particular to the commercial market sub-sector. This report examines the latest trends affecting the commercial property market in Louisiana's largest urban centers.

Office Space Market

The New Orleans office market has been a strong performer for the past 2 years. Office stock amounts to nearly 20 million square feet, and in some city center areas (such as in Jefferson Parish), occupancy rates exceed 91 per cent and inventory has been virtually non-existent since 2013. In the CBD, availability rates have declined further due to the large number of office to residential conversions that have been recently taking place in the area and to the growth of the digital media sector, which has been behind some of the most significant deals of the past 2 years. Outside of the CBD, occupancy rates are at their highest in East Metairie and North Shore (93 per cent), West Metairie (86 per cent), and West Bank (84 per cent). Combined Class A and non-Class A rental values averaged $20.86 / sq ft in East Metairie, $20.10 in North Shore, $18.29 in Orleans Parish, and $18.17 in the CBD. The majority of new office developments consist of suburban office complexes in areas like North Shore and St. Charles Parish (2).

Click here to find office space in New Orleans.

Retail and Industrial Space Markets

In New Orleans, growth in the retail property market has been traditionally fueled by the visitor economy. Properties in tourist areas like Canal Street may see up to 9 million visitors a year. In some city center sub-markets, like Harrison Avenue, vacancy rates are virtually nil and have been so for years. However, and in an attempt to reverse the current trends, several big box retail developments were delivered in 2014, adding 1.5 million square feet to the city's retail inventory and confirming the market's bullish outlook (3).

The industrial real estate market is also strong in and around New Orleans, as combined leasing and investment activity levels increased by 22 per cent in just one year. As a result, industrial space availability rates are at a record low across the city, evidencing the imbalance between supply and demand. A limited number of speculative industrial developments are taking place in suburban areas, but these have done little to improve the prevailing space shortages. Market researchers have also reported that tenants looking for Class A industrial space have to wait approximately 4-6 months to find and move into a suitable property (4).

High demand and limited availability are also the key characteristics of the industrial market in Baton Rouge, which was marked by the acquisition of several large shopping centers by out-of-state developers during 2014, along with heightened demand for warehouse space and large distribution centers. After nearly a decade without any speculative developments, the city's industrial market is seeing some movement in this respect, although net absorption levels remain markedly high at nearly 85 per cent (5). The highest levels of activity are evident in downtown, in districts to the southeast of the city center, and along the I-10 / 12 Corridor (6). Average rental values for Class A properties are in the region of $21 / sq ft (7).

Tax Breaks, Business Incentives and Support

The Louisiana Economic Development Board has implemented various tax breaks and incentives in order to boost the competitiveness levels of local companies and to attract further investment to the state (8). There is a range of industry-specific and general incentive programs available, including:

- Enterprise Zone Income And Franchise Tax Credits, which consist of tax rebates ranging between 1.5 and 4 per cent against expenses like capital investment, materials, and equipment (9).

- Industrial Ad Valorem Tax Exemptions, available to local manufacturers and offering long-term (10 years) tax relief on new investments (10).

- Restoration Tax Abatements, also available for periods of up to 10 years and providing tax rebates that can be applied against the costs of commercial property improvements and renovations (11).

In addition, the state offers a number of assistance and training programs to small Louisiana businesses. More information can be found in this website.