Listen to this articleSince the COVID pandemic, the Greater New Orleans office market has survived the changing dynamics of hybrid/remote work negatively impacting occupancy rates. That resilience continued into 2024 as a local report shows occupancy rates have remained stable. However, there are other emerging trends, such as rising operating and insurance costs, and therefore an anticipated increase of rental rates, that could impact local office space over the next few years.
Corporate Realty has published the “2024 Greater New Orleans Office Market Report” – an annual overview of the office market from Orleans, Jefferson, and St. Charles parishes. It also includes narratives about the market, as well as specific information about occupancy and rental rates for each office building that contains at least 20,000 rentable square feet (rsf).
“2024 saw very little movement in the New Orleans office market. With a couple of rare exceptions, overall occupancy rates and rental rates in each of New Orleans’s major office submarkets remained almost identical to their 2023 levels,” wrote Michael J. Siegel, President & Director of Office Leasing for Corporate Realty.
The Northshore Class A market shows a 95.04% occupancy of its 874,785 total rsf. The average rental rate on the Northshore for Class A is $27.12 per square foot. Eight Class A office buildings on the North Shore report 100% occupancy, including the Chevron Building, Cypress Bend Office Building, Northpark Corporate II, Gray Insurance Building, River Chase II, Bodet Place I, Offices at River Chase, and the Greengate Two Office Building.
In the New Orleans Central Business District – comprised of mainly downtown office buildings – Class A occupancy saw a slight Y-o-Y decrease, from 79.67% in 2023 to 79.35% in 2024. The average rental rate increased from $20.26 in 2023 to $20.36 in 2024. The top two highest percent leased CBD buildings are the Benson Tower (1450 Poydras St.), which has 99.11% leased of its 540,208 rsf, and Benson Tower Annex (1400 Poydras St.), which has 100% leased of its 115,000 rsf. The lowest percent leased is 1515 Poydras, which shows 22.62% leased of its 409,728 rsf.
Notable CBD buildings, such as Hancock Whitney Center (701 Poydras St.), Place St. Charles (201 St. Charles Ave.), and Energy Centre (1100 Poydras St.), all report occupancy and percent-leased levels in the 80’s, with rents between $19-$21 per square foot on average.
Occupancy in East Metairie Class A dropped from 84.06% in 2023 to 81.70% in 2024. All five East Metairie Class A office buildings – Three Lakeway Center, Galleria, Two Lakeway Center, Heritage Plaza, and One Lakeway Center – all show occupancy rates in the 80 percent-leased levels. Rates increased from $25.06 in 2023, to $25.17 in 2024.
The non-Class A market in Metairie experienced minimal change, with occupancy at 88.28% in 2024, compared to 88.45% in 2023. Rental rates increased from $20.09 to $20.41 in non-Class A Metairie office buildings.
“At first glance, the numbers suggest a stable and largely unchanged market, as occupancy and rental rates across major submarkets remained mostly flat compared to the previous year,” writes Siegel. “However, beneath the surface level stability, meaningful shifts are underway.”
Those meaningful shifts could come from the rising costs to lease, operate, finance, and own office buildings, along with rising insurance costs, all leading to the anticipated rise of rental rates trickling down to tenants.
“Beginning with COVID in 2020 and accelerating in the last year or so, we have predicted significant changes in our largely stagnant office market. These include both subtle changes – rental rate increases – and more substantial changes, most notably more changes in major office building ownership,” writes Siegel. “2024 saw the beginning of the realization of these trends with an expectation that the next two to three years, including 2025, will see a greater acceleration in these and other changes in our office market.”
In the report, Siegel wrote that he is confident that “we will see $2 to $3 to $4 per square foot increases over the next few years.”
“Very simply, with the cost of insurance, salaries, and tenant improvements continuing to increase, rental rates must increase to make any office building ownership economically feasible,” wrote Siegel. “These factors are further exacerbated by the cost of capital, which does not seem to be going down, and the overall lack of interest by the capital markets in investing in office buildings.”
Siegel did point out that despite these emerging trends and anticipated rate increases, “New Orleans will remain one of the more affordable office markets in the country,” as the average national asking rate is $36.31 per square foot, according to CBRE Research.
The other emerging trend in local corporate real estate, writes Siegel, is the possibility that the New Orleans office market will see more changes in ownership. In 2023, 1615 Poydras was sold, followed by the transfer of Energy Centre to new ownership in 2024.
“As CMBS loans and other debt instruments mature and as we continue to experience turmoil on the political front and in the capital markets, both macro issues and micro issues will result in office building owners either being forced to sell or being foreclosed on,” writes Siegel. “It would not surprise me to see at least two to three office buildings transfers in 2025 and the same amount in 2026.”
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