Over the last 4 years, available office space for sale in the New Orleans area has plummeted to one third of its previous supply, due to a lack of new office space construction. The result is a strengthening of sale prices in the office market. This article examines the supply and demand of office space and the trend for the future.
Just 4 years ago, there was just as much office space for sale as there was for lease: around 1.9 million square feet. Each month, on average, there have been approximately 322 properties for lease at an average of $16.30 per square foot and 34 for sale at an average of $58 per square foot. Sale prices averaged 8 percent below the list price and the average property was on the market 354 days.
Today; however, tells a different story. Even though the supply of office space for lease has increased slightly from 1.9 million square feet, the amount of office space for sale has dropped by two-thirds to only 622,000 square feet.
Chart of New Orleans Office Space For Sale and For Lease Since 2010
Economics 101: Supply and Demand
Basic economic theory says, given all other variables unchanged, a decrease in supply leads to an increase in price. That theory can be seen in practice in the chart below which compares the prices over the last 4 years of office property for lease and for sale. The result is that with the strength in supply in office space for lease, prices declined approximately 8%, while prices of office property for sale have increased 20%.
Chart of New Orleans Office Space Prices Since 2010
Equilibrium in prices is not reached until the supply approximates demand, so the future for office space is that lease prices will continue to fall since the amount of office space for lease appears to increase slightly. Sale prices will continue to rise, causing a new wave of sellers of office properties to enter the market and take advantage of higher prices. This will eventually stabilize the prices of office space for sale.
Sources: Louisiana Commercial Database, LoopNet
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