CBD Office Market: Poydras Street Corridor Remains Stable During Pandemic
Office leasing in downtown New Orleans has been down a bit in recent years, but buildings along Poydras Street have shown the most stability since the pandemic began.
That’s according to an April report by Corporate Realty, which shows the performance of the metro area and its various submarkets.
The Central Business District recorded an overall office space rental rate of 82.45% in 2021, a decrease of 1.7% from 83.9% in 2020 and a decrease of 3.1% from 85.11% in 2019. The average rental rate offered is $19.23, compared to $19.11 in 2020 and $19.34 in 2019.
Six out of 15 Class A office buildings in the CBD have rental rates above 90%. Two properties report 100% rental rates: Benson Tower (540,208 square feet) at 1450 Poydras St. and Benson Tower Annex (115,000 square feet) at 1400 Poydras St.
Energy Center (761,500 square feet) at 1100 Poydras St. reports 92.03% leased with 60,724 square feet available, and First Bank and Trust Tower (545,157 square feet) at 909 Poydras St. reports 90.25% leased with 53,129 square feet available. The Entergy Corporation building (526,041 square feet) at 639 Loyola Avenue is reporting a rental rate of 97.47% with 13,287 square feet available. 1,615 Poydras (509,565 square feet) is 94.21% leased with 29,047 square feet available, but Freeport-McMoRan recently announced it will exit the New Orleans market in 2022, leaving an additional 130,000 square feet available in this building.
The 1250 Poydras Building (422,899 square feet) is 89.47% rented with 44,512 square feet available, and Poydras Center (453,256 square feet), at 650 Poydras St., is 86.66% rented with 60,455 square feet available.
“Everything along the Poydras Street Corridor from Block 400 to Block 1,500 seems to have done the best since COVID,” said Richard Juge, CEO/President of RE/MAX Commercial Brokers, Inc. at the New Orleans, and director and president of NOMAR 2022. the LACDB (Louisiana Business Database).
“I believe the recovery in the oil and gas market will have a ripple effect on the city, and businesses will remain healthy, grow and even expand operations to further help our commercial market in 2022 and 2023,” Judge said.
Of 2021 major leases within the CBD, Pan-American Life Insurance Group renewed 84,014 square feet in the Pan-American Life Center at 601 Poydras St. Pan-American reports a lease rate of 82.51% with 117 535 square feet available. Fishman Haygood renewed 25,368 square feet and NFE Management renewed 24,633 square feet, both at Place St. Charles at 201 St. Charles Ave. Renewals helped Place St. Charles post an 85.77% rental rate with 142,945 square feet available.
“During the year, building populations increased and tenants returned to the market in search of office space as they re-considered their needs,” said Bennett Davis, Associate Corporate Real Estate Broker and leasing manager at Place Saint-Charles.
Gieger Laborde & Laperouse LLC has renewed 23,607 square feet at the Hancock Whitney Center at 701 Poydras St. Hancock Whitney is reporting a rental rate of 88.24% with 147,856 square feet available. Regions Bank renewed 18,441 square feet at 400 Poydras Tower; the building reported 88.4% rented with 70,583 square feet available.
At One Canal Place, Livingston International renewed its 15,768 square feet, while SHMR, LLC purchased 12,749 square feet of new space. One Canal reports a rental rate of 76.37% with 149,015 square feet available.
1515 Poydras announced plans in 2021 to convert approximately 300,000 square feet of office space to multifamily, and Tulane University signed a lease for approximately 300,000 square feet in the former Charity Hospital. 1555 Poydras completes Class A office properties with a rental rate of 63.65% and 169,995 available square feet.
In terms of total available area in the CBD, Class A saw a slight increase from 1.3 million square feet in 2020 to 1.4 million square feet of leasable area in 2021. Class B increased from approximately 400,000 square feet to 200,000 square feet of available space.
Non-Class A buildings in the CBD were led by 864 South Peters Street (39,815 square feet) with a 100% rental rate. The Federal Reserve Bank of Atlanta (100,000 square feet) at 525 St. Charles Ave. reports 96.57% leased with 3,430 square feet available, followed by four sites in the 80% range. 300 Lafayette Building (20,000 square feet) is 89.14% with 2,172 square feet available; IP building (83,974 square feet) at 643 Magazine St. – 87.81% with 10,238 square feet available; K&B Plaza (70,000 square feet) at 1055 St. Charles Ave. – 85% leased with 10,501 square feet available; and Emeril’s Homebase Building (43,403 square feet) at 839 St. Charles Ave. – 80.26% leased with 8,569 square feet available.
Rounding out the CBD, non-Class A buildings are Exchange Center (355,274 square feet) at 935 Gravier Street – 75.11% leased with 88,418 square feet available; Tour d’Orléans (378,895 square feet) at 1340 Poydras Street – 74.23% leased with 97,641 square feet available; 701 Loyola Ave. (234,067 square feet) – 65.01% leased with 81,900 square feet available; and 615 Baronne St. (25,096 square feet) – 49.07% leased with 12,782 square feet available.
Latter & Blum commercial sales and leasing agent Daniel Marse said Class B office space in the CBD has outperformed Class A space since the height of the pandemic. Marse spoke at Dr. Ivan Miestchovich’s Economic Outlook and Real Estate Forecast Lecture held at the University of New Orleans on April 7.
Marse said one of the reasons for the dwindling vacancies in the Class B CBD is that some of these buildings have either been taken off the market or turned into adaptive reuse projects, outliving their usefulness as office space.
“COVID did not cause any of these changes. The changes we see today are being accelerated by COVID,” he said. Marse also pointed to the fact that many brokers and landlords have lowered rental rates to retain tenants over the past two years.
Marse said 27 transactions took place on 20,000 square feet in 2021 for a total of 457,318 square feet, with 74% of those transactions being renewals and 52% of those transactions involving law firms.
During the decade
The CBD has seen phenomenal growth in hospitality and multi-family housing over the past 10 years, bringing even more vitality to the area.
Class A CBD occupancy has remained stable between 87% and 90% from 2012 to 2019, while rates have increased by approximately 1% per year. In 2020 and 2021, occupations decreased in total by almost 2.5%.
The non-Class A market has lost more than 1 million square feet of inventory over the past 10 years as office buildings have been converted to other uses. Demand for non-Class A office space remained weak, with occupancy rates just over 70% and average rates just over $16 per square foot.
Mike Siegel, President and Chief Leasing Officer of Corporate Realty, said in the coming years there will likely be more conversions of Class A office space to other uses such as hotels and apartments. At the same time, rented spaces that are not occupied will expire, leaving additional vacancies on the market.
Office market demand, however, is expected to stabilize as tenants will have shifted to post-COVID work strategies, he said.
CityBusiness staff contributed to this report.
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