Baton Rouge’s office utilization rates still hover around 60%, higher than the 50% national average, as the hybrid work model continues to impact the market.
That is according to Branon Pesnell, with Marcus & Millichap, who spoke at the annual TRENDS seminar sponsored by the Greater Baton Rouge Association of Realtors this morning.
“People around here are more keen on coming back to work and going into the office,” Pesnell says.
A recent survey of 800 companies conducted by Resume Builder revealed that 95% of companies say employees would suffer consequences if they didn’t return to the office. Employees pushed back on that, according to a FlexJobs poll, with 63% of professionals surveyed saying they are willing to accept a pay cut for a remote opportunity.
Pesnell says deals are taking longer to transact. Tenants are also requesting shorter, more flexible lease terms. Pesnell estimates the hybrid work model plays a factor in the delayed transactions.
“We’re seeing a real delay in lease turnaround,” he says. “I think the productivity with the work-from-home model has fallen off. It’s slowing the process down.”
Pesnell warns of a debt crisis for the national office sector. An estimated $540 billion in commercial real estate debt will come due this year across the nation.
Older buildings lacking significant capital improvements have seen a rise in vacancy. Those buildings have seen a substantial decrease in occupancy since 2020, which has spawned the continued growth of condos, Pesenell says. Baton Rouge also has a large number of aged office buildings.
Suburban garden offices in well-located areas are still generating healthy leasing activity and maintaining above 95% occupancy in Baton Rouge.
“They want to be able to walk into that space and show that employee that this is where they can return to work,” Pesnell says.
Development activity is expected to be “slow to nonexistent” this year due to continuing high interest rates slowing demand and increased construction costs. As a result, rental rates are expected to increase at some point within the next year.
Overall, the market will remain flat with little to no new tenant activity, while buildings with “ready to lease” spaces will see the most activity. Pesnell says the market will remain favorable for tenants in negotiations.
