“Apartment boom in New Orleans drains condo supply,” runs the headline of an October report in New Orleans CityBusiness. While much of the planned market-rate apartment construction had not broken ground per the date of this Reis Observer, demand has been soaring (see Special Real Estate Factors for information on the condo sector). The 1,114 market-rate apartments completed over the 2010-2011 time span were accompanied by more than two-and-a-half times that volume in net absorption.
With no new units delivering through the first half of 2012, net absorption ran at 373 units. Per the date of this report, 312 market-rate apartments were under construction metrowide in two projects, both in the Central New Orleans submarket. Accordingly, 175 units will deliver this November in the redevelopment of the Hibernia Bank building at 313
Carondelet Street. And 137 market-rate apartments in a larger project with a combined total of 410 are under way with undesignated completion in the first phase of the Marrero Commons at Broad Street and Martin Luther King Boulevard, a redevelopment of several buildings at the B.W. Cooper public housing development destroyed by Hurricane Katrina. In addition, Reis reports 1,500 market-rate apartments in two phases in planning and proposal stages at the Summit Fremaux mixed-use development in Slidell on the North Shore. As described elsewhere in this report, this much-delayed project, now with a new developer, may soon see new life.
While not as low as in some of the nation’s tighter markets, the New Orleans area vacancy rate has been descending decisively. Reis put the second quarter number at 7.0%, down 20 basis points for the period, down 120 year-over-year. According to the firm’s First Glance report of selective third quarter data, the vacancy rate has slipped to 6.9%. While the increases were moderate, rent growth was positive in 2010 and 2011. Acceleration, however, now is under way: at $890 and $858 per month, asking and effective averages for the second quarter of 2012 were up 1.1% and 1.8% since year-end (the largest share of the growth occurred during the second quarter). The new data indicate an additional increase in the asking average to $892.
With absorption demand positive, Reis expects vacancy to close 2012 at 6.5%. Gains of 2.7% and 3.3% are projected for the average asking and effective rents for the year. Construction should heat up somewhat in the period ahead: nearly 700 market-rate apartments are projected to deliver in 2013. Satisfactory demand is expected. Rent growth rates should again increase.