Max J. Derbes, Inc. Releases Commercial Real Estate Report
NEW ORLEANS – James K. M. Newton, IV, CCIM with Max J. Derbes, Inc. contributed the following:
Market momentum generated in the latter part of 2016 and early 2017 has continued to spread optimism throughout the first half of the year. The impact of Hancock-Whitney taking on seven floors in the former One Shell Square and making a long term commitment to downtown cannot be understated with regards to overall stability in our market for Class A office space.
Further out, overall market activity has continued to improve in Metairie since April with the return of 1,500 – 4,000 SF tenant activity and a few larger tenants coming to market.
Vacancy in Metairie continued its upward trend during the second quarter in both the Class A and B markets, while Elmwood vacancy dipped eight percentage points by backfilling 28,000 SF of the former Stewart Enterprises building. Metairie continues to experience an escalating trend in sales prices, especially for owner-occupied opportunities along the Causeway corridor.
Currently, only two buildings between 5,000 -15,000 SF are being actively marketed for sale in the Causeway corridor that could accommodate an owner looking to occupy at least 6,000 SF.
Conversely, Class B/C lease offerings between 5,000 – 15,000 SF in Metairie have stacked up to 22 buildings (multiple suites in some buildings), 13 of which have been on the market for over a year. The impact of this backlog of lease offerings on overall suburban market rates has not been fully realized to date. However, the natural progression is landlords becoming more aggressive to win deals in this size range, ultimately forcing downward pressure on rental rates.
Downtown vacancy increased slightly in both the Class A and B markets during the second quarter, with the latter experiencing the higher increase. Hospitality and residential conversions of office space continue to dictate the static nature of this submarket by removing inventory. Additional hotel players are currently looking to convert a significant amount of downtown office inventory and another very large tenant has been lurking downtown the first half of this year, which bodes well for continued stability.
Total available sublease space at the end of the second quarter was 72,048 SF in Metairie and 111,214 SF downtown. Historically, these sublease numbers are still considered high but most of the offerings have brief terms remaining, while being offered by sublessors unwilling to provide aggressive concessions or drastically reduce asking rates, thus minimizing competition with direct lease offerings.