Real estate experts have a generally positive outlook about the Baton Rouge area real estate market in 2018, as job growth continues—albeit slowly—and the economy remains relatively strong.
But they’re keeping a close on eye on several sectors, particularly the multifamily market, which has seen a lot of new inventory in recent years but not as much absorption.
Though 2017 started out strong for local apartment complexes—a direct result of victims of the August 2016 flood—vacancy rates in the past 12 months have increased and are now averaging 8%, higher than historical norms, while average rental rates have declined 4%.
More worrisome is the fact that more than 3,800 new units have already been completed this year or will be by the end of 2018, while 2,300 more units are scheduled for completion by 2020.
With so much inventory, experts doubt all those developments will materialize.
“The longer it takes for these to come out of the ground, the harder it’s going to be for them to come out of the ground,” says Craig Davenport with Cook, Moore, Davenport and Associates, who offered up the remarks at the annual TRENDS in Baton Rouge real estate seminar, which is taking place today at L’Auberge Casino and Hotel.
Data also shows rents have essentially been flat since 2015, and some 40% of complexes are offering concessions. Davenport expects rents to continue to decrease this year, while vacancies and concessions should continue to rise.
There’s a lot of inventory in the local office market, too, with more than 200,000 square feet available. More is expected to come on line, particularly garden style office developments. Two such complexes have opened in the past two years and six more have been announced.
Still, occupancy rates are relatively healthy at 85.6%, while rental rates are averaging more than $22 per square foot. That’s better than occupancy and rental rates in most peer cities in the South, according to Ty Gose of NAI/Latter & Blum. But it pales in comparison to markets like Austin, where office buildings are 90% occupied rental rates average $35 per square foot.
Gose expects leasing activity to increase in 2018, as oil prices gradually rise and unemployment remains low. He also says to keep an eye on the southeast quadrant of the parish, particularly along the Airline Highway corridor.
“We think there is going to be more inventory heading out toward Woman’s Hospital as commerce increases out there,” he says. “We think it is going to be a good year.”
In the industrial sector, experts are expecting another good year, in fact, a potentially record-setting year. In 2017, vacancy rates fell below 6%, a 10-year low and the second-lowest vacancy rate ever recorded. Rental rates, meanwhile, remained steady, averaging around $9 per square foot for new space.
Continued low natural gas prices fueling petrochemical expansion projects are behind the healthy industrial sector, says Ryan Greene of NAI/Latter & Blum. He says it’s important to watch what happens with the Trump administration’s proposed steel tariffs, which increase steel costs by as much as 15% and, as a result, construction costs for new warehouses, which are made primarily of steel.
Check back with Daily Report PM for more coverage of today’s Trends seminar.
