Partner Margaret Glass recently attended the 2022 Dr. Ivan Miestchovich Economic Outlook & Real Estate Forecast Seminar. Louis David of New Orleans Business Alliance, Michael Sawaya of the Ernest N. Morial Convention Center and Trey Burvant of Second Line Stages were among the presenters who discussed the Regional Economy. Overall, everyone was optimistic about the future of the economy, business and the real estate market in New Orleans.
Opportunities in Technology, Trade and Logistics and Food and Beverage
Louis David of New Orleans Business Alliance noted that our region has opportunities in technology, trade and logistics and food and beverage, among other industries.
- Acquisitions in 2021 including Lucid, Levelset, Big Easy Bucha, and TurboSquid demonstrate that you can build successful tech companies in New Orleans. Technology payroll and development incentives are working well to encourage growth and investment in this area.
- Trade and logistics business has also increased along with demand for distribution and warehouse space due to online shopping. The Port of New Orleans, which supports these industries, has been ranked among the top three ports.
- Food and beverage has a rich history in Louisiana with companies like Folgers, Zatarain’s and Tabasco along with new companies like El Guapo and Tangerine Kitchen. Tourism also provides exposure to these industries.
- Greater New Orleans is the 47th largest metro in the U.S. and sits in the top 10 for tourism. New projects are expected to spur growth in our area. For example, Bayou Phoenix will redevelop Jazz Land into a distribution center, youth sports complex and entertainment/retail. At Propel Park in Michaud, IRG is leasing 50 acres for warehouse/distribution which should create 500-1000 jobs. The Caesar Superdome and Casino will also boost tourism and incentivize other companies to locate here.
Michael Sawaya of the Ernest N. Morial Convention Center
Michael Sawaya of the Ernest N. Morial Convention Center discussed strides at the Convention Center, which created $2.4 billion in economic impact in 2018 and is estimated to provide 24,000 jobs.
- The Convention Center has recently invested $557 million for a new pedestrian park, memorial wall, restroom renovation, exhibit hall lighting, digital signage, tech upgrades and HVAC. For the future, they are planning meeting room renovations, public area modernization, building infrastructure and roof updates along with immersive interventions and public art.
- 39 acres remain for expansion of the Convention Center, but they have decided to instead create a mixed use development with retail, residential (including affordable and market rate housing), dining, entertainment and river access. They hope to begin this work by the end of 2022.
Trey Burvant of Second Line Stages discussed the benefits the film industry brings to Louisiana, including $350 million in earnings for Louisiana residents, who make up 80% of film crews operating in Louisiana.
- The industry is estimated to create $1 billion in sales annually.
- $1 of film tax credits results in $6.12 in sales to local businesses along with $2.55 in earnings for Louisiana residents. In addition, $2.5 billion in tourism revenue is estimated to be inspired by films shot or based in Louisiana.
Single Family Real Estate Market
GiGi Burk of Burk Brokerage Real Estate discussed the single family real estate market.
She reassured the audience that she believes residential sales will continue to grow for at least 2 more years. She noted that affordability is determined by interest rates, economic pressure and real estate costs. Rates are still historically low but going up, which should improve affordability. However, this is tempered by competition, supply chain issues and the Ukraine war.
In any event, positive growth is expected to continue at least until 2025. Inventory is the lowest it has been since 2000 and demand remains very high with the result that houses continue to sell quickly and over the asking price. It will take years for inventory to catch up, and therefore, the bidding wars are expected to continue. Currently, there is a 1.5 month absorption rate when the normal rate is 6-8 months. New Orleans is also unique because it does not have surrounding land to sprawl like Houston and other similar cities.
New Orleans has been a seller’s market since mid-2020 and this is expected to continue into 2024. Burk believes people have and will continue to adjust to increased interest rates. Even though prices are high and rising interest rates are increasing the cost of mortgages, there is abundant capital due to economic prosperity. Secondary homes are also very popular nationwide which is leading to low inventory even in the French Quarter, which was a weaker area.
Insurance Impacts on the Real Estate Industry
Charles Fontenelle of Fontenell & Goodreau Insurance, LLC discussed insurance impacts on the real estate industry.
Fontenelle began his presentation by asking the audience to contact their legislators because the Louisiana insurance market is in turmoil due to Risk Rating 2.0 for flood insurance. This new flood risk determination program is based on a number of factors including proximity to water, construction type, elevation and rebuilding cost, which causes the rate for each property to be different and unpredictable. This is a permanent change which will require legislation to address.
Property insurance rate increases due to recent major hurricanes are likely to be temporary. 4-5 Louisiana insurance companies are now in receivership in the wake of the recent hurricanes, and this will likely cause rates to go up and underwriting to be more restrictive. However, bills are currently pending in the legislature to protect insureds, such as Senate Bill 362, which prohibits cancellation if there is existing damage.
Commercial Office Market
Daniel Marse of NAI/Latter & Blum discussed the commercial office market.
Marse began by recognizing that the traditional office is just one of three office options: the traditional office, the home office and the third space office (such as a coffee shop). This concept was already in existence, but the move towards increased use of the various office types was accelerated by COVID.
The office market in New Orleans has been stable, particularly in the Class A market. Available square footage is going up while occupancy and rates are going down slightly, but not significantly. Class B properties in the CBD have been moving more toward redevelopment for other uses.
Hybrid work is driving the new office footprint. Employers want to keep an in-office option but reduce their footprint. Some companies will likely consolidate in one smaller space with a work from home option while others will open satellite offices in suburban areas to provide more convenience.
56% of executives expect an increase in demand for space, but they want a different style of space that is more collaborative. 52% of businesses offer a hybrid work model in the US. Around 70% of businesses offer this model in Europe. Therefore, we are definately moving toward more hybrid work. However, fully remote work is not favored by employers or employees.