Tenants reassess their needs in the East Metairie office market
East Metairie reported an overall office space rental rate of 86.5% in 2021, relatively the same as its 86.48% rental rate in 2020, but a decrease of 3.2% from 89, 35% in 2019, before COVID.
The average rental rate listed is $21.82, compared to $21.70 in 2020 and $22.23 in 2019. That’s according to an April report from Corporate Realty, which shows metro area performance and of its various sub-markets.
The largest new leases in 2021 were entered into by tenants who moved from non-Class A buildings to Class A buildings, as in the case of Two Lakeway Center at 3850 North Causeway Blvd. Enterprise Rent-A-Car leased 23,000 square feet at Two Lakeway, MS Benbow & Associates leased 14,000 square feet, and Mediterranean Shipping Company leased 11,000 square feet, doubling the size of its offices. At 449,309 square feet, Two Lakeway is 83.55% rented with 73,909 square feet available.
East Metairie’s five Class A office buildings reported rental rates in the 80s. They include Heritage Plaza (353,003 sq. ft.), at 111 Veterans Blvd., reporting 89.76% leased with 36,131 sq. ft. squares available; Galleria (465,985 square feet) at One Galleria Blvd., reporting 87.29% rented with 59,213 square feet available; Three Lakeway Center (471,745 square feet) reporting 80.39% leased with 92,510 square feet available; and One Lakeway Center (300,816 square feet) reporting 80.01% leased with 60,145 square feet available.
East Metairie’s office market continued to see tenants reassess their office needs. Companies have reworked and modernized spaces to be more efficient and attractive for employees to return to the office. For example, 65% of new square footage leased at the Lakeway Center in 2021 was due to companies upgrading their office spaces.
Renovations and construction could come to a halt in 2022 due to increased insurance costs, labor costs, operating costs, and the effects of inflation on materials.
The biggest change in 2021 compared to the previous year has been the willingness of tenants to commit to longer-term leases. With rising construction costs, tenants are considering longer term rental commitments to meet higher construction costs. 2020 mainly saw lease terms of three to five years; in 2021, lease terms of seven to 10 years were not uncommon for large tenants moving.
“Even though most of the workforce has not returned to the five-day work week and some companies have adopted work from home and hybrid policy models, we have not seen this loss. mass of businesses giving up their office space,” said Richard Juge, CEO/President of RE/MAX Commercial Brokers, Inc. in New Orleans and NOMAR 2022 Director and President of the Louisiana Commercial Database. “Companies are mostly keeping these spaces available for employees when they need to get to work, allocating desks for employees who are there regularly and wish to socially distance, and in some cases only cutting about 10% of their office space if they wish to reduce their physical operations.
There are 18 non-Class A office buildings in East Metairie with an occupancy rate above 90%.
Six reported 100% rental rates, including the Favrot & Shane Building (44,992 square feet), at 3925 North I-10 Service Road; 3616 South I-10 Service Road (40,000 square feet); 3,200 Ridgelake Building (40,000 square feet); 3939 North Causeway Blvd. (40,000 square feet); Jefferson Financial Business Plaza (32,755 square feet) at 4141 Veterans Blvd.; and 2900 Ridgelake Drive (30,000 square feet).
The 12 properties with rental rates above 90% include Severn Place (85,828 square feet) at 2450 Severn Ave. – 96.86% leased with 2,699 square feet available; The Boy Scouts Building (31,947 square feet) at 4200 South I-10 Service Road – 96.61% leased with 1,084 square feet available; Causeway Plaza I (108,718 square feet) at 3510 North Causeway Blvd. – 96.36% leased with 3,953 square feet available; Causeway Plaza III (108,718 square feet) at 3330 West Esplanade Ave. – 96.32% leased with 3,997 square feet available; 3636 South I-10 Service Road (60,000 square feet) – 93.9% leased with 3,658 square feet available; Burns and Wilcox Center (123,360 square feet) at 2121 Airline Drive – 93.61% leased with 7,884 square feet available; Executive Tower (188,420 square feet) at 3500 North Causeway Blvd. – 93.27% leased with 12,682 square feet available; 3131 North I-10 Service Road (48,250 square feet) – 92.66% leased with 3,542 square feet available; FGS Building (25,026 square feet) at 4300 South I-10 Service Road – 92.61% leased with 1,849 square feet available; 3501 North Causeway Blvd. (112,741 square feet) – 92.45% leased with 8,510 square feet available; Tour Metairie (94,083 square feet) at 433 Metairie Road – 91.65% leased with 7,860 square feet available; and 110 Veterans Building (129,407 square feet) – 91.3% leased with 11,259 square feet available.
Non-Class A office properties in the 80% rental rates include 3421 North Causeway Blvd. (124,371 square feet) – 89.39% leased with 13,191 square feet available; Coldwell Banker Building (40,000 square feet) at 4051 Veterans Blvd. – 88.5% leased with 4,600 square feet available; This latter Center West (96,979 square feet) at 2800 Veterans Blvd. – $86.38 rented with 13,210 square feet available; NY-II office building (30,114 square feet) at 2750 Lake Villa Drive – 84.32% leased with 4,721 square feet available; Metairie Center (90,657 square feet) at 2424 Edenborn Ave. – 81.81% leased with 16,490 square feet available; and Causeway West (40,000 square feet) at 3229 36th St. – 80% leased with 5,000 square feet available.
Rounding out non-Class A office buildings is Causeway Plaza II (108,718 square feet) at 3300 West Esplanade Ave. – 78.16% leased with 23,746 square feet available; 3445 North Causeway Blvd. (127,887 square feet) – 77.37% leased with 28,942 square feet available; Crutcher-Tufts Building (30,940 square feet) at 3545 North I-10 Service Road – 68.17% leased with 9,848 square feet available; and Regions Bank Building (127,927 square feet) at 3525 North Causeway Blvd. – 65.76% leased with 43,800 square feet available.
A unique addition to the East Metairie market in the coming years will be Ochsner Health’s “super clinic” in the former Sears department store in the Clearview Mall. The $120 million project began construction in August 2021 and will offer primary and specialty care clinics, outpatient surgery, physical therapy, pain management center, drive-through pharmacy, endoscopy suites , a Medi-Spa, behavioral health services, and cardiology and catheterization. laboratory. The clinic will include a micro-hospital to accommodate overnight stays and equipped with telemedicine technology.
The Ochsner project is an example of “MetTail,” where healthcare services are located in a retail environment, said Kirsten Early, director of retail and partner at SRSA Commercial Real Estate, when she spoke at the Dr. Ivan Miestchovich Economic Outlook & Real Estate Forecast held at the University of New Orleans on April 7.
“We will continue to see more and more examples of this trend playing out in the retail sector,” Early said.
During the decade
Over the past 10 years in the Metairie office market, one Class A building and six non-Class A buildings have been traded, with the price per square foot ranging from $87 to $112 per square foot. The largest office property sale was Lakeway Center, a 1.2 million square foot Class A building sold to the Feil organization by Equity Office. Building 2121 Airline, a non-Class A office building, was owned and occupied by Cox and sold to an investor user who converted it to a multi-tenant office building and renamed it Burns and Wilcox Center.
“East Metairie is home to many regional and national companies with offices in this market due to its central location between the North Shore, New Orleans Louis Armstrong International Airport and the New Orleans CBD,” said Bruce Sossaman, leasing manager of Corporate Realty. and Associate Broker, which oversees the leasing of 2.5 million square feet of office space in Metairie and New Orleans, including Lakeway Center and Hancock Whitney Center.