The spectre of low oil prices and Louisiana’s budget crisis loom over the Baton Rouge real estate industry, although most local and national experts said they expect various segments of the market to remain steady this year.
That was the upshot of the annual Trends in Real Estate Seminar Thursday at the L’Auberge Casino & Hotel Baton Rouge events center. A sellout crowd of 800 people attended.
Low oil and gas prices may be cooling down local demand for industrial real estate, but there should be enough work to buffer the market in the short term, participants were told. Some shifting of offices into new developments has caused a slight drop in office occupancies, but rates remain steady.
Retail occupanies and rental rates are down, but coming off a high. Apartment occupancy and rental rates for Baton Rouge have edged down, but that’s because new development is slightly outstripping demand. Single-family home sales remain at peak levels, industry experts said.
The Capital Region continues to add jobs year over year, thanks to a series of expansions at petrochemical plants. The increased construction activity at the plants has rippled across the region, leading to more demand for houses, apartments, retail, office and industrial space.
“Louisiana has had some suffering, but that has not occurred here in Baton Rouge,” said Elliot Eisenberg, formerly the senior economist with the National Association of Home Builders and the seminar’s keynote speaker. “Unless the state does something extreme to balance the budget, it will not affect you very much.”
The fact that Baton Rouge is adding jobs and Lafayette, Houma and Shreveport have seen employment declines leads to one conclusion, Eisenberg quipped. “Don’t look for oil.”
Trends in Real Estate started in 1988 as a joint project of the commercial and investment division of the Greater Baton Rouge Association of Realtors and LSU’s Real Estate Research Institute. Teams of local real estate professionals in the finance, industrial, multifamily, office, residential and retail sectors provide the latest information about what is going on in their field.
Here’s what experts said:
SINGLE FAMILY HOUSING: The Baton Rouge housing market continues to operate at a peak level, with home sales and sale prices continuing to rise, while inventory continues to fall.
Rick Haase, president of Latter & Blum, said the Baton Rouge market has been operating at a peak for seven years.
Several factors are driving the increased activity: Millennials are buying homes in force and rising rental rates mean it’s cheaper to buy a home than rent a property of the same size. Haase said interest rate increases that the Federal Reserve is expected to implement this year could hurt the housing market. It’s not so much that the rates will be high, it’s that many homeowners are paying 3.5 percent interest on their homes. “It’s not the rate, it’s the difference,” he said. This could keep some buyers in a property with a low interest rate instead of moving up to a larger home.
Overall, Haase said he’s bullish about 2016. Latter & Blum is expecting a 6 percent increase in sales volume, with half of that coming from higher home prices and half coming from an increased number of homes changing hands.
APARTMENTS: Rental rates for Baton Rouge apartments dropped slightly from 2014 to 2015 for the first time since local experts started tracking the apartment market for the Trends seminar.
Craig Davenport, who tracks apartments for Cook, Moore & Associates, said the 0.74 percent drop in quoted rents is the result of new apartments that have been built over the past few years. Between 2015 and 2016, 4,460 apartments units have been or should be completed. That means the market will have to absorb 2,230 units a year for the next two years for the occupancy rate to remain stable. “That’s a pace 2½ times more than the Baton Rouge average,” he said.
While the vacancy rate increased to 5.94 percent, it’s still below the historic local averages of 6 to 7 percent. Davenport said apartments are cutting rents and offering concessions to attract tenants, such as giving them a free month’s rent or gift cards. Those trends will likely continue: another 3,184 apartment units are proposed to be open by the end of 2017, although Davenport said it’s likely that 1,003 units will be completed in that time frame.
OFFICE: The occupancy rate for the Baton Rouge office market actually dropped in the first quarter when compared to early 2015, going from 89.3 percent occupancy to 85.8 percent. Branon Pesnell, of Beau Box Commercial Real Estate, blamed the drop on two factors: The Advocate moved out of a building in the Jimmy Swaggart Ministries complex into its own office on Rieger Road and the Louisiana Office of Group Benefits moved out of lease space in the Bon Carré Business Center into a state-owned building.
Pesnell said government agencies will continue to consolidate into state-owned buildings. “If you’re a landlord, you need to be aware of that,” he said.
This year, office space development will remain slow, although there is activity at the Water Campus, the 500 Laurel building downtown that will be the new headquarters for Business First Bank and two developments near Towne Center on Jefferson Highway: 6700 Jefferson and City Farm.
The local occupancy rate is projected to remain at about 85 percent and rental rates will remain flat.
RETAIL: The number of retail vacancies in Baton Rouge rose over the past year, while rental rates dropped.
Jonathan Walker, of Maestri-Murrell, said the local market remains strong because Baton Rouge is buffered by being a center for state government and having two large universities.
“We’re just coming off a high,” Walker said.
A survey of 123 local shopping centers found that the average rent per square foot dropped from $17.73 to $17.19 and vacancies rose from just under 8.0 percent to 8.9 percent.
Bright spots include the Long Farm mixed-use development, which will be home for Rouses, Five Guys Burgers and Fries and Zaxby’s, and Juban Crossing in Denham Springs, which has grown rapidly.
Hobby Lobby is set to take over the former Rooms To Go space on Siegen Lane. Rooms To Go is opening a smaller store down the street, something Walker said is a trend in the retail industry.
“They don’t need to have everything on the showroom floor,” he said. “If you go in and you don’t like the exact couch they have, they can order one in the color you like and you’ll get it in two days.”
INDUSTRIAL: Scot Guidry, of Mike Falgoust & Associates Commercial Real Estate, said low oil and gas prices may be cooling down local demand for industrial real estate and the fundamentals show it could take a long time for oil and gas prices to rise.
“We know it’s a cycle,” he said. “Prices will come back”
Guidry said the sluggishness in the local market may not be longlasting because some petrochemical construction projects that have been delayed may be revived.
“A lot depends on where the investments are made,” he said. “There are decisions being made in the corporate boardrooms.”
Follow Timothy Boone on Twitter, @TCB_TheAdvocate