While occupancy rates of traditional Class A and B office buildings continue to decline, the Baton Rouge market, say local real estate experts, are betting on rising demand for Class A garden offices.
Multistory office building occupancy fell 1.25 percentage points last year, to 80.95%—a decline NAI Latter & Blum’s Ty Gose attributes to a combination of 120,000 square feet of remaining Class A sub-lease space from 2016 and 2017 being released back to the market as well as some national trends downsizing trends.
“When there’s high unemployment, our vacancies usually rise,” says Gose, who discussed office trends at this morning’s annual Trends in Real Estate Seminar. “We’re at historically low unemployment rates, but we’re not seeing that translate to occupancy. We need to be competitive with the Tennessees and Texases of the country.”
Multistory office leasing activity in the Acadian/College corridor saw a 5.5% decline last year, the largest dip in the MSA. The Florida/Airline corridor—which does not have any Class A buildings—saw a nearly 10% drop in occupancy to just over 60%. However, the Sherwood Forest and Essen/Bluebonnet submarkets saw increases, while downtown remained the same.
Class A occupancy (85.6%) held steady, with spaces averaging $22.34 per square foot.
New construction on multistory units has also experienced slow absorption rates, which Gose says is likely because their asking rental rates are a net $5- to $6-per-foot higher than garden offices. They’re also more expensive to modify as tenant leases roll over.
Meanwhile, construction of garden offices is on the upswing, growing by 4.5%. In 2018, garden offices comprised about 18% of the total market, increasing the Greater Baton Rouge Association of Realtor’s data set by some 22%. Currently, there’s nearly 200,000 feet of planned or announced new condo construction within the Jefferson and Bluebonnet corridors alone.
Occupancy for the small condos dropped a few percentage points to 88%, mostly because of the “explosion” of new construction in the pipeline.