The specter of plunging oil prices hung over Baton Rouge-area real estate market discussions Thursday, with predictions that it could lead to a glut of new apartments, a reduction in the office space occupied by local engineering firms — but also increase sales for retailers.
The collapse in oil prices could lead to slowdowns in the petrochemical industry, which would reduce the number of new jobs expected to be added in metro Baton Rouge over the next two years.
APARTMENTS: That would directly affect the amount of new apartment construction, which is based on the Capital Region adding 18,000 new jobs by 2016.
“We could end up with a glut of units,” said Wesley Moore, with Cook, Moore & Associates, during a speech at Thursday’s Trends in Real Estate seminar. Moore said nearly 6,000 new apartment units are planned in the Capital Region by the end of 2016.
In 2015 alone, 1,666 apartment units are expected to be completed, including developments such as The District, a 312-unit complex that opened earlier this year on Perkins Road near Pollard, and The Exchange, a 304-unit student housing complex at the intersection of Ben Hur Road and Burbank. Moore said the Baton Rouge apartment market remains healthy. The vacancy rate was 5.5 percent during fall 2014, compared to the national average of 4 percent. Rents have gone up 6 percent since 2010.
But Moore said he expects vacancies to rise over the next year and rental rates to flatten because of the new units in the pipeline. Complexes also will offer incentives such as free TV sets to attract tenants.
OFFICE MARKET: Falling oil prices could have an impact on the office space market.
Branon Pesnell, with Beau Box Commercial Real Estate, said if oil prices remain low, local engineering firms could lay off employees and downsize the amount of space they are taking up.
“The big ‘what if’ is oil prices,” he said. “That will determine how well Baton Rouge does over the next two years.”
The occupancy rate for office space was 89.3 percent in 2014. Pesnell said he expects that rate will hit 91 percent in 2015.
INDUSTRIAL MARKET: While business is good in the industrial real estate market, some “brake pumping” is going on because of the sudden drop in oil prices.
Scot Guidry, with Mike Falgoust & Associates, said some firms are making adjustments to deal with the 50 percent drop in oil prices that has happened over the past year.
“The large industrial guys are still very busy,” he said, noting that construction projects in petrochemical plants are still going on. “Business is good.”
The low oil prices and cheap natural gas have benefits to the petrochemical market, by making raw materials less expensive. But Guidry said the strong dollar is making exports more expensive for overseas buyers.
While Baton Rouge is not an oil town, the area is affected by low crude prices. Guidry said some companies that aren’t doing business in the Capital Region may want to break into the market by buying properties.
“Oil prices aside, we are in the middle of all these multibillion-dollar projects,” he said. “The Mississippi River is not going to go dry.”
RETAIL MARKET: Lawrence Yun, chief economist and senior vice president of research for the National Association of Realtors, said declining oil prices will mean savings for families. The average household is set to save $1,500 to $2,000 a year because of reduced gasoline prices, said Yun, who was the keynote speaker at the Trends seminar.
While oil-drilling states such as Louisiana will have some exposure, Yun said the low gasoline prices, along with continued national job growth, will boost the real estate market across the United States.
“Market conditions are improving from a very low base,” he said.
The savings coming from low gas prices are boosting the retail market locally and nationwide. Jonathan Walker, with Maestri-Murrell Inc., said the retail market locally has reached levels not seen since the Great Recession.
“We’re blessed to do business in Baton Rouge,” Walker said.
Over the past year, retail rental rates in metro Baton Rouge went up from $16.85 per square foot to $17.73. At the same time, the vacancy rate dropped from 10.6 percent to just under 8 percent. That’s close to the national average of 7.3 percent.
Walker said retailers, such as grocery store chains, are cautiously expanding. “Businesses have gotten very, very picky on locations,” he said.
One location that has brought in retail activity is Juban Crossing in Denham Springs. Walker said 375,000 square feet of retail space in the shopping center has been built in the past 12 months. Additional space will come online during 2015.
HOUSES: The Baton Rouge residential real estate market continues to remain healthy, with a continuing decrease in the number of houses on the market and a rising demand for properties.
“We’re seeing a healthy price increase, but it isn’t a bubble,” said Richard Haase, president of NAI/Latter & Blum. During the first quarter of 2015, Haase said the percentage of closed sales has increased by 3 percent, while the number of pending sales is up 13.6 percent over the first quarter of 2014. And just under 25 percent of the active housing inventory has gone under deposit.
Haase said Livingston Parish is one of the strongest markets in the area.
“We’re at the tail end of peak market,” he said. Job creation is going on, consumer confidence is improving and demand for housing is high.