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In the aftermath of Hurricane Katrina, two things are readily apparent: first, the smaller markets of Baton Rouge, LA; Jackson, MS; and Mobile, AL experienced instant boosts in their commercial markets after the storm. Second, it is too early to tell what the long-term implications of the storm might be.

According to Rich Stone, vice president of our Latter & Blum office in New Orleans, “Overall, the area is recovering much more quickly than was anticipated in the days immediately following the storm. While some areas of the city are still effectively shut down, business is now springing to life in many parts of the metropolitan area. Even the Downtown office buildings are beginning to reopen. New Orleans residents whose neighborhoods fared the best are finally beginning to move back home. I expect that 90 days from now you will see a markedly improved city.”

While the largest demand in New Orleans is currently industrial, at least aside from residential, the Trump Organization is still committed to building the 60- or 70-story Trump International Tower announced shortly before the storm struck, a sure sign that commercial real estate business will soon return to the city. Entergy, a Fortune 500 company based in New Orleans, relocated its corporate headquarters to Clinton, MS for an unspecified amount of time with the full intention of returning to New Orleans. Many businesses have relocated with similar plans, and the suburban markets are already up and running.

Of course the relocation process had a positive effect on several nearby markets. Baton Rouge, the closest available large market, saw the lease of all available class A and B office and large blocks of warehouse space within the first seven days after Katrina. Lease rates were inflated by the sudden influx of business, and the housing market showed a similar adjustment. (For more on Katrina and the housing impact, click on Washington Insider.)

A similar commercial real estate scramble was seen in Jackson, MS, where Mark Bounds of our Mark S. Bounds Realty Partners office saw the demand for two to three million sf that the Jackson market was unable to provide. He has also seen displaced companies moving to Jackson, while FEMA placed 400,000 sf in Hattiesburg.

With much of South Mobile County devastated by Katrina, an unexpected surge in commercial real estate activity followed the storm. The office and industrial markets showed a 22% vacancy factor before the hurricane and were 95% occupied within two weeks of the disaster.

Interestingly, many of those leases were made with terms of three to five years. Of course retailers are experiencing record-breaking sales as a result of the damage to the Mississippi Gulf Coast. According to Bernie Heggeman of NAI Heggeman Realty Co., “The influx of business as a result of Hurricane Katrina should add some much needed stability to the Mobile economy for the foreseeable future.”

Almost as soon as Katrina had run her course, there was great speculation as to the flood of commercial real estate activity in both Houston and Memphis. According to Jason Whittington of NAI Houston, the business boom in his city is not yet significant. Of course the one and a half to three million square feet leased on a temporary basis barely put a dent in the 26 million square feet available in the Houston market. Whitney Holding, parent company of Whitney National Bank, has taken up temporary residence in Houston, but has every intention of returning to New Orleans – as it is the city’s oldest bank.

In Memphis, according to Eddie Saig of NAI Saig Co., there were requests from many brokers for 300,000 to 600,000-foot distribution centers that he believed would be filled by the developers themselves. The firm placed a company in 15,000 sf of office and completed some smaller deals, but the impact of Katrina on the Memphis market has also been small.

The greatest impact in the state of Texas was seen in Texarkana, where the residential explosion promises a great deal of business. Jerry Brewer, owner of NAI American Realty, has seen a large number of FEMA contracts and a growing interest in building mobile home parks.

In the Dallas market, brokers are checking with their clients to gauge the need for further warehouse space and to determine the long-term impact of Katrina and Rita. According to Jerry Alexander of our Stoneleigh Huff Brous McDowell affiliate, there has been a high demand for short-term warehouse space but a dearth of concrete long-term deals.

Evacuees were brought into San Antonio after the landfalls of both Katrina and Rita. While the business community eagerly lent a helping hand, there has been no influx of new business in that market. All of the evacuees from Katrina have by now already left town or purchased homes and remained, addressing more of their residential needs and not growing the commercial real estate arena.

The commercial markets in Florida have seen relatively little activity as a result of Katrina. Although George Livingston of NAI Realvest in Orlando discovered that other states were encouraged not to recruit New Orleans businesses, his city was the relocation choice for Ruth’s Chris’s corporate headquarters. Also, because of the damage to New Orleans, the Miami Convention Bureau is picking up a fair amount of business.

Although Hurricanes Katrina and Rita have had no effect on the Fort Lauderdale market, Fort Lauderdale is experiencing the union of a huge demand coupled with a lack of inventory. In West Palm Beach and Boca Raton, construction prices (already on the rise before Katrina) have continued to escalate. Contractors are in short supply there due to a high demand; it is too soon to know whether these items have resulted from the storm or simply from a strong market.

Based in Atlanta, Tom Garland is NAI Global’s VP of corporate services. Views expressed here are the author’s solely.

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