The Silicon Bayou: Is the Tech Industry Fueling a CRE Turnaround in NOLA?

In early June, Austin-based software company Accruent announced plans to open an outpost in New Orleans. The company will hire 65 employees by year’s end, and is aiming to build a workforce of 350 by 2020, many of whom will be highly-paid software engineers, developers, and administrative personnel.

The Louisiana Department of Economic Development department estimates that Accruent’s move will not only generate millions of dollars in tax revenues, but indirectly create an additional 338 jobs in greater New Orleans.

Accruent’s announcement came just three weeks after Louisiana Governor John Bel Edwards and New Orleans Mayor LaToya Cantrell held an event to celebrate the official opening of DXC Technology’s new “digital transformation center.” The center will eventually be home to more than 2,000 DXC employees, making it “the single-biggest economic development [project] in the city’s history.”

This surge of tech-driven investment is welcome news in a city that has struggled to recover from the one-two punch of Hurricane Katrina in 2005 and the Great Recession in 2008. And while it may still be too soon to claim a total turnaround, recent trends in New Orleans real estate suggest that The Big Easy may finally heading toward Easy Street.

New Faces Need New Places to Live

With increased tech presence comes an unprecedented demand for highly skilled workers. Some of this talent will be local — Louisiana agreed to invest $25 million in tech-oriented programs at its public universities as part of the incentives package it offered to DXC — but much of it will come from outside New Orleans for the foreseeable future.

This influx of predominantly young, well-paid residents will continue to drive significant growth in New Orleans’ housing markets on both the single- and multifamily sides. For instance, in late 2015, a CNN analysis found that millennials accounted for roughly 45 percent of new mortgage holders in New Orleans — the ninth-highest share in the country — a share that will almost certainly increase as young people flock to the city to take jobs at companies like Accruent and DXC.

Early indications suggest that the city’s transformation into the “Silicon Bayou” will have an even more pronounced effect on multifamily housing. According to Reonomy’s data, the number of sales of multifamily assets grew by over 70 percent from 2013 to 2017, with 2015 marking the first year since the recession in which more than 2,500 deals were struck.

What’s more, the median sales price of multifamily assets in New Orleans has risen steadily since bottoming out just below $100,000 in 2010. The city’s multifamily markets have been particularly strong in recent years, with property values jumping 11.8 percent between 2015 and 2016 and 5.1 percent between 2016 and 2017. This growth appears to be even stronger in 2018, as the median multifamily sales price has increased by 25.6 percent through the year’s first two quarters.

“New Austin,” Louisiana

Thanks to a steady stream of new (and revitalized) supply, rents in New Orleans have remained relatively stable despite the market’s ongoing expansion. PwC reports that New Orleanians spend 4.8 percent less of their household income on rent than the average American, and the cost of doing business in the city sits 9% percent below the national average.

That said, Reonomy’s data shows that the median sales price of office spaces in New Orleans skyrocketed by nearly 85 percent between 2014 and 2017, an increase that will only be exacerbated as enterprise tech companies make sizeable investments in the city.

Ultimately, as Johnny Culpepper, Accruent’s first New Orleans hire, observes, the city’s recent growth is “similar to what Austin was going through 20 years ago.” It remains to be seen whether The Crescent City will actually become a go-to destination on Austin’s level, but the potential is certainly there.

The views expressed here are the author’s own and not that of ALM’s Real Estate Media.