While the recent floods have caused a flurry of activity in the metro area’s residential real estate market—available inventory in the multifamily sector is quickly being depleted—the office market hasn’t experienced a surge in demand for available office space, according to commercial brokers.
“It’s nothing like we saw after Katrina,” when large users from New Orleans leased up office space in buildings all over Baton Rouge, says Branon Pesnell of Beau Box Commercial Real Estate. “The office market is basically unchanged from a week ago.”
There are a couple of reasons for the lack of activity. None of the large office buildings clustered downtown, along Corporate Boulevard or off Essen Lane were affected by the floods. Similarly, none of the city’s large office users were affected.
“It was more residential, retail and some industrial areas that were flooded,” Pesnell says.
Pesnell doesn’t expect the situation to change dramatically in the weeks to come. What will be important to watch, however, is the activity around the smaller commercial properties in affected areas—strip centers in Livingston, Ascension and Central, for instance, that house mom-and-pop retailers and restaurants.
Landlords have an obligation to repair those premises in 90-120 days, after which they can begin collecting rent again.
“That potentially puts tenants in a dilemma,” Pesnell says. “They can’t go out and rent new space because they’ll be in a situation 90 days from now where they’ll be paying rent on two spaces.”
By the same token, some landlords won’t be able to repair their properties, particularly those who don’t have flood insurance. At that point, tenants will be able to cancel their leases, provided they can hang on that long without any customers.
Will that happen in significant numbers? It’s too soon to say, but Pesnell says it will be an important indicator of how quickly the area’s local economy will rebound from the disaster.
“It will be interesting in the next 90 days to see who can repair what,” he says. “Because if you didn’t have flood insurance it’s a lot of out-of-pocket expenses and some landlords aren’t going to be able to afford it.”
—Stephanie Riegel
