The residential and commercial real estate markets are benefiting from the Capital Region’s economic boom, but a lack of vacant office space could be a hurdle in the future, Baton Rouge Area Chamber President and CEO Adam Knapp told those at BRAC’s annual presentation of its regional economic outlook this morning.
“It’s an ideal time to invest in building office space,” Knapp said.
But BRAC Executive Director of Business Development Iain Vasey said that investors are not putting up the cash for a reason. They aren’t building, he said, because lease rates don’t quickly make a return on the price of land and construction costs. The vacancy rate for functional office space is 7% and could drop to as low as 3% in the next two years, Knapp said. Vasey added that the current inventory of available office space may not be desirable.
“Think about where companies are moving and the change in office space over the last 10 years. People want more open spaces,” Vasey said.
Companies also prefer to have surface parking rather than paying to lease or maintain a parking garage, Vasey said. Lafayette and New Orleans office space markets are stepping in to fill the void in Baton Rouge’s market, he added.
There’s currently a total of roughly 6.2 million square feet of Class A and Class B office space in the Capital Region. Of that, only slightly more than 729,000 square feet—about 11.7%—is available for lease or purchase, BRAC says. Only 36 buildings are available in the Capital Region with 10,000 square feet or more of vacant space. And only 17 of those aren’t obsolete or inadequate, according to this morning’s presentation. The overall vacancy rate is expected to decrease to about 7% next year. But as Knapp pointed out in his presentation, the vacancy rate on what’s considered to be functional office space will be closer to 3%.
There’s also evidence the economic boom is already boosting home sales in the Capital Region. Home sales have increased almost 2% this year over last, and the average price of homes is up 3.7%. Permits for new construction have also increased in both commercial and residential markets. Residential permits were up 11% in the third quarter of 2014 compared to the same quarter the year before, while commercial permits were up 14% in that same time frame. See the complete BRAC economic outlook. —Kelly Connelly
