Baton Rouge Industrial Market Insights
The industrial sector continues to be a bright spot in the Baton Rouge commercial real estate landscape, despite concerns around rising interest rates, surging inflation, and economic uncertainty. Key fundamentals are strong, including low vacancy rates, rising market rent rates, and decreasing cap rates.
Today’s sky-rocketing e-commerce sales, coupled with recent supply chain issues, have significantly increased the demand for warehouse and distribution facilities across the country. However, like most markets, the Baton Rouge area does not have an abundance of industrial space available for sale or lease. Scarcity is driving demand for these properties up, as well as transactional sale prices. Inventory is increasing, but not fast enough to meet demand. Here’s a more in-depth look at what’s happening in the Baton Rouge Industrial Market.
INDUSTRIAL MARKET DEMAND
Vacancy Rates:
- Vacancy rates for industrial space in the Baton Rouge market are typically lower than the national average and have consistently decreased since early last year.
- This low vacancy rate can be attributed to supply not keeping pace with demand. Historically, we haven’t had much speculative development in our market—any new construction is usually build-to-suit.
- In that trend, specific-use industrial properties are currently being built by national developers, and I believe this could cause an increase in vacancy over time. For instance, distribution space, which has not historically been a high-profile property type in our industrial market, has gained in popularity across the country, and we’re starting to see more distribution space come online here.
INDUSTRIAL MARKET SUPPLY
Inventory:
- The total square footage of inventory for industrial space in Baton Rouge is slowly increasing, though we are building more space relative to inventory than nationally.
- However, most of the new inventory coming online is earmarked—we do not see any speculative space for startups or new companies entering our market. So, inventory is increasing, but not fast enough to meet the demand.
Market Rent:
- Market rents per square foot for industrial space in Baton Rouge are steadily increasing, and our rental rates are rising faster than nationally. According to a recent report by the National Association of REALTORS (NAR), in the first quarter of 2022, market rent growth increased 11.7% from the previous year.
- The most significant factor driving up rental rates is the surge in construction costs. The cost of construction is, on average, 30% higher than it has been over the last couple of years, and I don’t see any sign of that coming down anytime soon.
- Moving forward, I think we will see a continued trend of rental rates increasing for a short period until the supply chain issues get resolved. Then we’ll see some stabilization.
INDUSTRIAL MARKET SALES TRANSACTIONS
Prices:
- Transaction sale prices per square foot for industrial space in Baton Rouge have been increasing over the past year and rising faster than the national average.
- One reason we’re seeing this record pricing—and it depends if we’re talking about vacant owner-occupied versus investment industrial properties—is the national demand for investment properties as a hedge against inflation. The other reason is simply a lack of supply.
- Also, money was cheap up until recently, so tenants became buyers. They were willing to pay more because of a lack of supply and took whatever space they could get. So, I think that’s a significant factor in why we see price increases.
- Looking ahead, I think we’ll see some stabilization in pricing. I don’t think it will continue to increase as we’ve seen. Interest rates have much to do with that, and banks’ willingness to lend money pushed prices up over the past year.
Cap Rates:
- According to NAR data, cap rates for industrial space in Baton Rouge have been inching up over the past year, and our cap rates are consistently higher than nationally.
- If you look at the data, rates have reportedly increased from 8.3% to 8.5% over the past year, so it’s a modest increase. However, in my opinion, this data does not reflect what’s really playing out in our market. If anything, we’ve seen a reduction in cap rates, not an increase.
- If you are accounting for every transaction and including every industrial property type, perhaps it might reflect an increase, but for the most part, the cap rates I’ve seen have been in the low eights or high sevens. For higher-quality industrial properties, I’ve seen cap rates from 6% to as low as 5.75%. It could simply be when this snapshot was taken that higher quality properties were not selling, or maybe the older and functionally obsolete properties that sold during this time are pulling the average market cap rate up.
- I think a bit of the exuberance of out-of-state investors will subside, and rising interest rates will affect that. But there’s still a lot of money out there, a lot of transactions going on, and a lot of people that wanted to defer doing exchanges. So, the days of the nine and ten percent cap rates are long gone.
For more information on the Baton Rouge industrial market or commercial real estate in the area, feel free to reach out to one of our experienced advisors or me.
Download the entire Baton Rouge Industrial Market Report
(Sources of data used: CoStar®, US Census Bureau, US Bureau of Labor Statistics, and US Bureau of Economic Analysis.)
Steve Legendre, CCIM
Regional Vice President
(225) 329-0295 / slegendre@stirlingprop.com
Learn more about Steve Legendre, CCIM
Stirling Properties Mobile Office Market Survey 2018
Stirling Properties is pleased to release our
Mobile Office Market Survey for 2018.
The assessment—compiled by Jill Meeks and Jack Conger, Sales & Leasing Executives with Stirling Properties—reiterates the continued growth rate of the Mobile area, particularly among the industrial sector. The office segment remains stable, with office investment activity for both the Central Business District (CBD) and West Mobile attracting attention. However, many new prospects are eyeing our region, and we anticipate a considerable increase in occupancy over the coming years.
Additionally, we are seeing the conversion of numerous historic buildings into new uses, such as retail and office space, which is another strong indicator of increased occupancy. Although many existing office buildings in Mobile are mature properties, owners who update or consider innovative uses for their assets may experience increased leasing activity and improved tenant retention.
These are exciting times for Mobile indeed! Companies, business leaders, and individuals with vision, who embrace the ability to adapt to changing times, will help to keep this momentum going! We say, “Let the good times roll!” Happy New Year and Happy Mardi Gras to all!
Click here to view and download the complete 2018 Mobile Office Market Survey.
Please contact Stirling Properties or one of our team members for any questions or comments.
We appreciate the information provided by all of the various property owners, leasing agents and other individuals that makes this survey possible. Thank you.
Retail Market Survey: Shreveport-Bossier City, LA
Stirling Properties releases its Shreveport-Bossier City Retail Market Survey for mid-year 2018.
According to the assessment—compiled by Stacy Odom and Karen McElroy, Broker Associates with Stirling Properties—the Shreveport–Bossier City retail sector is currently in the midst of a recovery phase. After experiencing a period of increased retail vacancy, the area is seeing the entry of new discount retailers, new-to-market retailers and food concepts, as well as multi-store operators gobbling up available inventory of second-generation space. Without notable new development in the market, this aids in decreasing vacancy rates, particularly among neighborhood shopping centers.
The retail market survey identified a total of fifty-seven (57) multi-tenant retail centers with a minimum of twenty thousand (20,000) square feet in Shreveport-Bossier City with 90% total occupancy as of mid-year 2018.
Looking to the future, the emergence of healthcare facilities in retail settings and the potential for mixed-use redevelopment projects backfilling big-box stores are both noteworthy national trends expected to influence the Shreveport-Bossier City market, possibly having an additional impact on retail space moving forward.
Click here to view and download the complete Shreveport-Bossier City Retail Market Survey.
This report is intended to give the reader a broad understanding of the market as well as specific information about the available square footage, occupancy and rental rates of each retail center greater than twenty thousand (20,000) square feet. It was created to be a resource for agents as well as tenants, landlords, developers, lenders, fellow brokers and anyone else looking for information about the Shreveport-Bossier City retail market.
2017 Office Market Survey: Mobile CBD & West Mobile, AL
Stirling Properties is pleased to present the 2017 year-end Mobile Office Market Survey. This report, compiled by Jack Conger and Jill Meeks, Sales & Leasing Executives in our Mobile office, is intended to track average rental rates, occupancy rates, and average absorption rates for West Mobile and the downtown Central Business District (CBD) on office buildings greater than 20,000 square feet. It was created to be a resource for agents, as well as tenants, landlords, developers, lenders, fellow brokers and anyone else looking for information about the Mobile office market.
All information provided in this report would not be possible without the cooperation of our staff and colleagues and we would like to thank all of those who contributed.
Here’s an excerpt from the Mobile Office Market Survey:
The last two quarters of 2017 saw an increase in investment activity in the area with many notable transactions, redevelopments and sales.
In leasing news, Armbrecht Jackson, LLP has subleased a portion of the Regions Bank space at RSA Battle House Tower and will be vacating the top two floors of Riverview Plaza. The CBD occupancy rates had a slight increase from 68.3% to 70.2%, average rental rate of $17.28, and an absorption rate of .25%.
There were also many exciting economic announcements for Mobile, such as the partnership of Airbus and Bombardier that could bring a second aircraft assembly line to the market, and the decision of steelmaker SSAB Americas to move the headquarters of its American division from Chicago to Mobile. Rest assured, there are more to follow in the coming months and years!
Please click here to view and download the PDF of the Mobile Office Market Survey.
Shreveport-Bossier City Retail Market Survey Mid-Year 2017
Stirling Properties is pleased to present the Shreveport-Bossier City Retail Market Survey for the Mid-Year of 2017.
This report, compiled by Stacy Odom and Karen McElroy, Broker Associates of our Shreveport office, is intended to give the reader a broad understanding of the market as well as specific information about the available square footage, occupancy and rental rates of each retail center greater than twenty thousand (20,000) square feet. It was created to be a resource for agents as well as tenants, landlords, developers, lenders, fellow brokers and anyone else looking for information about the Shreveport-Bossier City retail market.
Retail Market Assessment
Recent years have brought a new level of grocery competition with the opening of two (2) Kroger Marketplaces, Whole Foods, and a number of Walmart Neighborhood Markets to the Shreveport-Bossier City area. Also notable for 2017 has been the addition of two (2), new home goods retailers, At Home and HomeGoods. The location of these two (2) additional soft goods stores continues to solidify the importance of Youree Drive, Shreveport’s major retail corridor. Also, T.J.Maxx has opened its second location in the MSA along Bossier City’s major retail corridor, Airline Drive. There continues to be an influx of new food concepts entering the Shreveport–Bossier City MSA. So far this year, our market has seen new openings of Chicken Salad Chick, la Madeleine, First Watch, The Halal Guys, Pita Pit and Larry’s Pizza. FD’s Grillhouse, Pizza Rev, and CC’s Coffee House stores are under construction. Additionally, the openings of locally run restaurants are on the rise and occupying available, second generation spaces.
Shreveport-Bossier City Retail Market Survey July 2017
Stirling Properties is pleased to present the semi annual Shreveport-Bossier City Retail Market Survey. This report, compiled by Stacy Odom and Karen McElroy, of our Shreveport office, is intended to give the reader a broad understanding of the market as well as specific information about the available square footage, occupancy and rental rates of each retail center greater than twenty thousand (20,000) square feet. It was created to be a resource for agents as well as tenants, landlords, developers, lenders, fellow brokers and anyone else looking for information about the Shreveport-Bossier City retail market.
Retail Market Assessment
Shreveport-Bossier City’s retail sector grew by eight percent (8%) since 2015 with the opening of three (3) grocery anchored community shopping centers – two (2) Kroger Marketplace anchored centers in Shreveport and Bossier City and a Whole Foods anchored center in Shreveport. The retail market is healthy as evidenced by the Community Shopping Center category which shows an increase of approximately 580,000 square feet with their occupancy rate remaining stable at 92%. Although the Neighborhood Shopping Centers experienced a large drop of occupancy to 77% due to the closures of Rite Aid and K-Mart, this vacancy was offset by occupancy increases in Specialty Shopping Centers and Regional Malls. With the addition of over 580,000 square feet of new construction and the proposed demolition of approximately 25,000 square feet at Bayou Walk Shopping Center in Shreveport, year-end 2016 net absorption was approximately 417,000 square feet for our retail market. Shreveport-Bossier City’s overall retail occupancy rate has remained relatively stable at 88% at year-end 2016.
