As long as oil prices stay low and natural gas prices remain steady, local realtors expect this year’s growth in demand for commercial real estate across office, retail and restaurant sectors to continue into 2015.
Demand for office space continues to grow as businesses that support the petrochemical industry flock to south Louisiana, attracted by the industrial boom, says Branon Pesnell with Beau Box Commercial Real Estate, who notes there’s already a shortage of space for companies to move into.
“There aren’t a lot of existing vacant buildings and not a lot of people are selling unless they have to do so, because they’re expanding or the building is old and hard to keep up with,” Pesnell says.
According to an economic outlook published by the Baton Rouge Area Chamber earlier this year, the functional vacancy rate of office space will drop from 7% this year to 3% in 2015. Pesnell says there’s been a trend of businesses that had leased their office space buying the buildings out of which they operate or moving into new construction.
“There are barriers to entry. Land is scarce, finding suitable land is even harder, and the cost of construction is high,” he says. “For sound companies in a good economic position, it’s a good time to buy, but that’s not something everyone can do.”
Pesnell says it has become cheaper for businesses to own their own buildings than to lease, in part because of low interest rates afforded to owner-occupiers.
As long as industry in Louisiana is not affected by dropping oil prices, demand for office space will remain high, Pesnell says, adding that businesses that are seeking office space in Baton Rouge are more reliant on a low price of natural gas than oil.
The same economic conditions are also benefiting the retail and restaurant sectors, says Charlie Colvin, also with Beau Box Real Estate.
“The retail sector certainly is affected by that, but it cuts in two different ways,” Colvin says. “Lower prices at the pump put more dollars in pockets … and that benefits retail.”
At the same time, retail and restaurants are dependent on a good housing market and employment growth, Colvin says. As long as employment numbers continues to climb with demand for housing, the retail and restaurant sectors will remain strong, he says. —Kelly Connelly
