When Jones Walker last decided to renew its lease in downtown St. Charles Place, New Orleans was only a year away from Hurricane Katrina and a cloud was hanging over the future of the city. town.
As fate would have it, the law firm recently found itself having to make a decision about its presence in the city at a critical time. A global pandemic has many wondering about the future of office work, and the city is grappling with a violent crime wave and an image problem.
But for managing partner Bill Hines and other senior executives, the response this time was the same as the last, with the company announcing it would extend its lease on the 151,000 square feet of space it has at the top six floors of the 52-story building
Hines admitted the company had to consider whether it was time to change course, given the pandemic and questions about the city’s overall health. But he said the choice was clear.
“A lot of our revenue is driven by the success of New Orleans,” he said. “Why would you move away from the field that makes the existence of your law firm? We have every interest in seeing New Orleans – and downtown New Orleans – succeed.
The decision Jones Walker had to make is one faced by many companies weighing their future as their leases come in or changes need to be made. Local commercial brokers say that despite dire forecasts of how the coronavirus pandemic could wipe out the office market, rents and occupancy have remained fairly stable as employees continue to return.
For Jones Walker, which has 13 offices across the region and in Washington DC and Arizona, changes to the work model weren’t going to be a major factor.
Hines said that, like many businesses, the company is now allowing employees to work from home from time to time.
But, he said, personal connections and relationship building are critical to the company’s mission, and no matter what technology makes possible, “you need to be (working) in person more than other”.
“The point (of being in the office) isn’t to type up your legal file or your sales contract, it’s to create that personal connection,” he said.
A bigger problem was the direction of the city. With a shortage of police officers and certain categories of violent crime, not to mention an increase in ramshackle and dilapidated infrastructure, it is not uncommon for local and off-site business leaders to wonder if now is the right time to invest in New Orleans.
Even visitors, he said, “walk around downtown and say, ‘What’s been going on in the last two or three years?'”
Hines said he looked at the condemned buildings and graffiti and understood the sentiment. Place Saint-Charles is “a bit of an oasis,” he said, but “I won’t deny it, when I walk a block and a half…things seem pretty rough.”
However, Hines said he and the board ultimately decided that “civically, it’s incumbent upon all of us to get the city out of this rut.”
He has seen the fortunes of New Orleans rise and fall, with Katrina as the low point. But when it comes to crime and the economy, Hines said he viewed the 1990s as worse, when the city’s murder rate soared and its economy suffered as many oil and gas companies.
Corporate Reality, which markets Place Saint-Charles and its roughly one million square foot space, said Jones Walker’s move was a strong endorsement of downtown.
“At a time when everyone is worried about what will happen with office space and working from home, here is a tenant who has been committed to all of his office space for a long time,” said Bennett Davis, who manages Place Saint-Charles. rental for Corporate Realty.
Terms of the lease were not made available, although he said the deal ran into the 2030s.
“I think what’s important about it is that they made that kind of commitment, not just to the building, but to the city,” Davis said.
Space still needed
The return to the office began last summer but has not been without disruption, including the surge of the omicron variant of COVID earlier this year. Occupancy rates have fallen somewhat over the past two years, but we are far from the fears born of the first months of the pandemic.
According to Corporate Realty’s First Quarter Industry Report:
• The 8.9 million square feet of Class A rental office space downtown was 82% occupied, compared to 86% in the first quarter of 2019. The 818,143 square feet of Class B space was occupied at 78%, compared to 66% in 2019.
• Metairie’s two million square feet of Class A space was 83% occupied, up from 87% in the first quarter of 2019, while 89% of its 1.5 million square feet of Class B space was rented, compared to 87% in 2019.
• On the West Shore, 83% of the 431,688 square feet were occupied, compared to 90% at the same time in 2019.
• At Kenner/West Metairie, 73% of the 223,203 square feet of office space was occupied, compared to 80% in the first quarter of 2019.
• In Elmwood, 68% of the 241,322 square feet of office space was occupied, down from 72% for the same period in 2019.
The number of workers in the office had fallen to around 30% at its low point at the start of the pandemic, but has rebounded to around 80%, estimated Scott Graf, an agent for Corporate Realty who represents downtown Entergy and a million square foot portfolio in the Galleria, Causeway Plaza and on North Causeway Boulevard.
At Place Saint-Charles, Davis said that based on how full the parking lots are, he estimates about two-thirds of workers — more than 1,500 people — are back in the office. The building is 86% occupied, down slightly from 90% before the pandemic.
But it’s hard to say how many workers are back downtown overall, he said. Some days the rush hour traffic feels like 2019, while some days it’s much lighter.
Even companies that have converted to a hybrid model with employees working from home two or three days a week still have to accommodate them.
“If everyone has to come in, you still have to provide space for them,” Bennett said.
A mixed bag
Daniel Marse, a commercial agent at NAI/Latter & Blum who leases the Latter Center West on Veterans Memorial Boulevard, among other office buildings in Metairie, said that while some national companies pull out, “local tenants stay in place or thrive because they’re going to be here no matter what.
Graff agreed that while there is still some uncertainty, local and regional businesses remain committed to staying where they are, even those adopting a hybrid model.
“I think there’s a general optimism now that maybe we didn’t see six to eight months ago,” he said, noting that many have expressed interest in finding the intangibles. to have employees working together in the same space.
Graf said he had one tenant in the Entergy Center expanding to more than double its space, while another was trying to figure out how to raze 10,000 square feet.
Similar to how predictions of a massive downsizing didn’t come to fruition, there were no major changes to workspace configurations either. “We’re still doing a lot of open offices,” he said.
Marse said part of that uncertainty is reflected in tenants asking for shorter leases, though they don’t always get them.
Another major aspect of the office market is renovations that are paid for by landlords, and these are also changing due to the high cost of materials, Marse and Graf said.
Marse said that with hard-to-obtain and expensive materials, builds for tenants take longer and cost more. Many are interested in off-the-shelf spaces and using the space “as is”.
Graf said where possible, tenants are signing up for longer terms to get more concessions from landlords on builds.
These changes in the duration of leases and building concessions have helped keep rents relatively stable.
Graf, however, said rates may soon increase due to costs and material shortages.
“These owners are getting pinched and they won’t have a choice,” he said. “For the first time in many years, we are going to see (rental) rates start to rise.”