The office sector of the U.S. commercial real estate market is facing a reckoning.
Office vacancies have surged to 12.8%, the highest percentage of vacancies in the country since the 2008 recession. Outdated designs and changing workforce preferences are flattening demand, especially for older and lower-quality properties.
On the other hand, suburban and small-city markets are proving resilient even as tech giants like Amazon, Google, and Apple transform urban development and e-commerce transforms retail.
The COVID-19 pandemic has also reshaped the hospitality sector, prompting alternative uses for hotels. And foreign investment has revitalized city centers by refurbishing properties.
Despite all the ups and downs, the outlook is positive.
What Is Happening in Commercial Real Estate in New Orleans?
Shell Leases Space in a Tower Being Built in 2024
In October of last year, Realty News Report reported that Shell USA has leased space in a new office tower being developed in New Orleans.
Located along the Mississippi River, the 142,000-square-foot tower, which will include modern amenities and sundry energy-saving features, is the first major office building to be erected in the city since 1989. It will be the headquarters for Shell’s Gulf of Mexico activities.
Shell’s 12-year lease signals a long-term commitment to the region. The new tower is part of the River District’s mixed-use neighborhood near the Ernest N. Morial Convention Center.
What Is Driving Commercial Real Estate Market in Downtown New Orleans?
New Orleans now has a mixed-use downtown.
COVID-19 accelerated a trend already in progress: conversion of office buildings into such alternative uses as hotels, condos, and apartments. The trend has been encouraged by an abundance of historic buildings, tax credits for historic rehabilitation, new demand in the hospitality industry, and the desire of many people to live closer to nightlife, vibrant dining, and shopping scenes. Result: downtown doesn’t become a ghost town when office workers go home at night.
Office use has not yet returned to pre-pandemic levels.
Although most New Orleans workers are back on the job now that the COVID-19 pandemic has waned, corporate offices still aren’t as busy as they used to be. Having experienced the advantages of flexible schedules and working remotely, many employees are being allowed to continue with these patterns. Despite the popularity of flex time, though, the offices of businesses in the CBD like law firms and accounting firms are open and adequately staffed.
Commercial rents may increase.
Although demand for office space has gone down, the costs of creating, maintaining, and financing have gone up, significantly. Insurance, wages, construction, and interest payments are all exacting a larger toll. We predict that rents may increase soon enough.
Historic tax credits are encouraging renovation.
In the New Orleans Central Business District, dozens of historic buildings have been renovated thanks to the incentives provided by tax credits for historic rehabilitation. We can expect other downtown buildings to be patched up for the same reason.
New developments are epic.
Examples include the opening of the Four Seasons, renovation of the Superdome, redevelopment of Charity Hospital, and redevelopment of the Convention Center. All of this recent work is encouraging more spending by locals and visitors.
Attracting new businesses should top the to-do list.
New Orleans has much to offer new workers and companies, including great quality of life and lots of modern commercial spaces for sale. And the more people and firms come to New Orleans, the more business there will be for existing stores, bars and restaurants, hotels, centers, parks.
At Satsuma Real Estate, we believe the focus should be on attracting new businesses and on securing the best tenants possible, and we’re here to help our commercial clients in any way we can. Contact our Realtors if you’re in the market for buying, selling, or leasing commercial real estate.