Although the metro area suffered four years of nearly constant negative net absorption (2008 through 2011), and the losses have continued since, the vacancy rate has remained relatively modest. Thus the 13.2% rate recorded by Reis for the second quarter of 2012 stands as the cyclical high to date; six months and a year earlier the rate was 12.9% and 12.7%. Such moderate numbers are an effect, in part, of the forced absorption caused earlier by the elimination of more than 2.0 million square feet at the hands of Hurricane Katrina as tenants chased out by the storm sought refuge in other buildings. The slow pace of construction over many years also has contributed to the relatively modest vacancy rate profile.
A thin ray of light, meanwhile, is seen in the firm’s First Glance report of its third quarter data, in which the vacancy rate shed 30 basis points in a return to 12.9%. An additional modest decline currently is expected as well for year-end. Rent growth has been essentially flat but weaker this year than last. At $18.08 psf and $14.97 psf, asking and effective averages for the second quarter were both down 0.3%, following respective increases of 0.1% in 2011 all told. Early reporting of third quarter data subtracts two additional cents from the asking average.
No market-rate office space has completed construction metrowide since the meager volume of 10,000 square feet delivered in 2009. Indeed, a stagnant construction sector has long been a factor here. From 2001 through 2011 a combined total of only 116,000 square feet of competitive office space has completed construction in this market. And no projects of this type were under way per the date of this report. A couple of large endeavors in planning stages on the North Shore (of Lake Ponchetrain), however, lend encouragement. The huge mixed-use Summit Fremaux project planned for the city of Slidell now has a new developer. While a construction timeline remains unannounced, the change at the helm could result in a decisive approach to the project, New Orleans CityBusiness reported in September (see the Retail Space section for more information on the project). Reis reports a 325,000-square-foot office component. Another project gaining attention is Stirling Properties’ Offices at River Chase in Covington, also part of a mixed-use development. Reis reports 565,950 square feet planned for five buildings. If North Shore office demand continues to grow, The Times-Picayune reported recently, River Chase could be built out in five to seven years. Leasing in downtown New Orleans has picked up as well (see Special Real Estate Factors).
The cyclical upward vacancy trend may have peaked during the second quarter. Positive absorption over the remainder of the year should take additional basis points from the rate by year-end, even as rent growth again turns positive. Small increases are expected for the year as a whole.