New Orleans Gains Office Market Ground

The mixed reaction from residents, former residents and media has trickled over to the Big Easy's office sector. Damaged commercial real estate, though, might have reduced the inventory, but the underpinning is that it's made for positive absorption. In a report by Transwestern Commercial Services' New Orleans' research team, the city's inventory of class A and B buildings totaled 15.1 million sf. At yearend 2004, the inventory stood at 20.1 million sf. The spillover effect is 2005 ended with a 12% vacancy versus the 15% registered at the 2004 close. The telling is in the absorption category: 513,374 sf at the end of 2005 whereas it was 50,985 sf in the red at the 2004 close-out.

"The market, as a whole, has been statistically strengthened, with a lot of inventory being taken off line," says Bryan Burns, senior vice president in the New Orleans office of Houston-based Transwestern Commercial Services. The upside is coming from businesses that took down space while helping to rebuild the city. "A lot of them have established offices here, some with a very large presence," Burns says.

On the negative side, the bulk of the population that was driven from homes is still gone. "New Orleans has been primarily a service industry and they just don't have the people to do the service," Earline Sawyer, vice president with Grubb & Ellis Sawyer Commercial of Gulfport, MS, which handles transactions along the northern and eastern Gulf Coast.

With commercial real estate tied directly to population and job growth, a lack of both could severely hamper any major construction or demand for office space. "The city is still up in the air in terms of permitting," Sawyer tells GlobeSt.com. "No one's sure about elevations or how high they can build. It's just not a great situation yet."

But gloom and doom isn't the permanent lot for New Orleans. Though Burns predicts there will be little new construction, he is seeing signs of investor interest in the market, particularly among opportunistic entrepreneurs. "Those are the types of investors who are most active in a market of this type," he says, adding it could lead to single-tenant office construction within 18 to 36 months.

Sawyer is certain the market will pop back at some point, but not any time soon--at least not while red tape is still an issue. "It'll come back, but it'll be a little behind the rest of the Gulf area," she predicts.