Amid the turmoil of the COVID pandemic, home sales went on a hot streak last year and demand for warehouse space boomed with Amazon’s giant Cortana plans as the headliner — two trends that experts said are likely to continue over the next year.
But the office space market is expected to remain in a slump as long as white collar jobs continue to leave the city, they said, and demand for more student apartments will remain weak despite record enrollment at LSU because of previous overdevelopment.
Those were some of the conclusions put forth by local experts Thursday during the annual Trends in Real Estate seminar, which was first held in 1988 as a joint project of the Greater Baton Rouge Association of Realtors' commercial and investment division and LSU's Real Estate Research Institute.
Other conclusions: Banks are looking to lend money for single-tenant, owner-occupied industrial developments and garden office/office condos. Retail vacancy rates are expected to remain flat, but rents will rise slightly, even though major stores are reporting online sales doubled over the past year.
RESIDENTIAL: “It has been a wild, unbelievable year,” Tom Cook, of appraisal firm Cook Moore Davenport & Associates, said of home sales. The value of all of the homes sold in the market increased by nearly 22% in 2020 over the year before; for the past five years, the average annual increase was right under 5%.
The increase in activity happened at a time when the area saw job losses because of the pandemic, and apartment vacancies went down.
Cook said the increase in home sales was caused by several factors, including millennials starting to buy houses; people having more money to buy a home because they weren’t going on vacation, eating out or driving during the pandemic; population shifts caused by the devastating hurricanes that hit Lake Charles in 2020 and destroyed tens of thousands of homes; and a pent-up demand from people living in low-quality houses built in the 1970s and 1980s.
But he said the biggest factor has been the sustained run of low interest rates. Cook cautioned that an increase in rates could slow down the homebuying market. And he warned that if inflation starts to rise as a result of the trillions in spending done by the Biden administration to boost the economy, the Federal Reserve will quickly hike interest rates.
“Cover yourself,” he said. “This is not going to last forever.”
WAREHOUSES/RETAIL: The other big real estate story over the past year has been Amazon, which on Thursday posted a tripling of its quarterly profit to $8.1 billion on revenue of 108.5 billion. The online giant opened a distribution center off Reiger Road, started construction on a regional sortation center in West Baton Rouge Parish and plans a 3.8-million-square-foot fulfillment center at the former Cortana Mall site.
Ryan Greene of NAI/Latter & Blum said the question for the industrial real estate market is whether Amazon’s fulfillment center will lure more distribution centers and third-party logistics companies to the Airline Highway/Florida Boulevard corridor.
“Will Lowes, Home Depot and Target follow? They’ve done that in other markets,” he said. “This is an opportunity for Baton Rouge to really stake its claim.”
The pandemic has made e-commerce even more of a factor for retailers as successful as Walmart, Target and Best Buy, said Charlie Colvin, with Momentum Commercial Real Estate. Some of those companies are even trimming the size of their stores and using the extra space for packing and shipping online orders.
A survey found that 75% of consumers tried new online shopping methods during the pandemic, such as grocery delivery or contactless pickup. That same poll showed that 73% of those customers intend to continue using those new shopping methods.
While some retail categories, such as apparel and beauty chains, expect in-store shopping to return as the pandemic becomes less of a factor, others such as grocery and pet stores expect customers won’t return so quickly. That led Colvin to predict that local retail vacancy rates will remain in the 10% range and the biggest trend will be an expansion of existing successful developments, not new construction.
BANK INTERESTS: Jim Purgerson of Citizens Bank and Trust said a survey of more than 20 local lenders found the most interest in financing to be single-tenant, owner-occupied industrial real estate developments and garden office/office condominiums. He said people looking for money to build hotels, student apartments or restaurants, with a few exceptions, shouldn’t bother.
APARTMENTS: Even though enrollment at LSU is rising and the past three freshman classes have set records, the student apartment market is expected to remain soft, said Craig Davenport, with Cook Moore Davenport & Associates. There was a boom in student apartment construction about five years ago and those units are still being absorbed. LSU also started requiring all first-year students to live on campus, unless they are over 21, served in the military, married or live with their parents within 50 miles of campus.
While apartment rents have gone up 1% in the past year and the vacancy rate is down to 9.1% after hitting 10.3% in 2020, Davenport said the outlook for the local apartment market is murky.
It’s not known yet how many construction jobs Amazon will create, or what will happen when the improved unemployment benefits and eviction moratoriums go away. But Davenport said he expects rents and vacancies will either slightly increase or remain flat and for apartment construction to slow down because of rising interest rates and construction costs.
OFFICES: One market that looks weak is the office sector, said Ty Gose with NAI/Latter & Blum. Gose said the call centers and back-office headquarters that took up space on Florida Boulevard have consolidated in Texas. The engineering jobs that would traditionally be created locally by rising oil prices are remaining in Texas. Unless steps are taken to make Baton Rouge more attractive to white collar workers, Gose said the office market will lag behind cities such as Austin and Nashville.
Trends was canceled in 2020 because of the pandemic. This year's event was held in-person at L'Auberge Baton Rouge and online. Normally, capacity for the event would be 1,000 people, but that number was cut in half.