Industrial real estate is outperforming every other type of commercial real estate in Louisiana so far this year, with an average increase in price of 4.3% compared to a decline of 4% for retail, a decline of 3.1% for office and a decline of 12.5% for multifamily.
Looking just in the New Orleans market, industrial sale asking prices are up 7.5%, but are still below their 2007 highs. Looking across the state, the average industrial property is asking $43 per square foot, but in New Orleans where the market is tighter the average asking sale price is $54 per square foot. This market is highly fragmented with Elmwood commanding the highest prices and New Orleans East bringing the lowest at $20 per square foot.
Asking prices for renting industrial property have been flat since 2010 across the state but have declined 10% in the New Orleans city area so far this year. The average industrial property in Louisiana is asking $5.85 per square foot but in New Orleans the asking price is $4.80 per square foot. The anomaly is that the asking sale price is higher but the asking rental price is lower in New Orleans compared to the rest of the state. You can deduce that the supply of industrial property for sale in New Orleans is less and the supply of industrial properties for lease is greater.
Asking sale prices for retail property in New Orleans have declined dramatically since 2008, down from a peak of $175 per square foot in 2008 to $120 per square-a drop of 31%. In 2012, asking retail sale prices in the city have dropped 1.6%, compared to a drop of 4% across the state.
Retail asking rent rates have been on a long downturn since 2006, two years before the start of the 2008 recession that dried up financing and caused consumers to cut back on spending. The “Wealth Effect” of the average consumer’s fall in the value of their home coupled with the fall in the value of their savings and retirement balances caused consumers to withdraw spending at the mall. Unfortunately the Federal Reserve’s solution of reducing interest rates to their lowest levels in 200 years has not caused consumers to regain their confidence and increase spending, leading retailers to adjust inventory and adapt to flat growth in sales and revenues, resulting in a highly elastic pricing curve for rental rates and little pricing power for retail landlords.
Asking sale prices for office property in New Orleans is down 18.7% so far in 2012, compared to a fall of 3.1% across the state.
The average asking lease rate for office property in New Orleans is $16.58 per square foot, about the same as the state average of $15.35 per square foot, which has been trending up since 2006.
Research shows that actual sale prices for industrial property occur at approximately a 15% discount to the asking price, but there is a wide variation in discounts based on location which influences demand. A 15% discount is considered acceptable and is a result of accurate initial pricing by the seller and their commercial real estate agent.
copyright 2012. Louisiana Commercial Realty, LLC
New Orleans Commercial Real Estate