Thanks to the Realtors' Commercial Alliance and numerous corporate sponsors, Acadiana now has its own commercial symposium, which means local commercial brokers are no longer forced to travel to Baton Rouge or New Orleans to listen to industry prognosticators.
Local experts build up Lafayette's industrial, office, retail and multi-family sectors.
Thanks to the Realtors' Commercial Alliance and numerous corporate sponsors, Acadiana now has its own commercial symposium, which means local commercial brokers are no longer forced to travel to Baton Rouge or New Orleans to listen to industry prognosticators. In addition to industry experts, the 2nd annual Acadiana Commercial Outlook, held March 14 at LITE, boasted quality guest speakers like Jay Dardenne, Joey Durel, Gregg Gothreaux, Steve Oubre, Dr. Joe Savoie and Rusty Cloutier. Although I typically review recent commercial transactions and tie them to market trends that I believe are impacting Acadiana's commercial real estate market, this month I'll give an overview of four commercial property types in Lafayette, citing the opinions given by four of my colleagues at the event.
Before reviewing the property types, it is critical to understand that Lafayette is incredibly fortunate and is a leading economy on a national scale. If you don't believe me, ask LEDA's Gregg Gothreaux. The statistics, articles and citings to support this position are too numerous to fully list here, but below are a few highlights:
1. Lafayette Parish has seen retail sales tax collections consistently climb since 2008 and we had a record month in February.
2. Lafayette has the sixth fastest growing middle class in the U.S., according to USA Today.
3. According to The Bureau of Economic Analysis, Lafayette ranks sixth in the country for fastest economic growth.
4. Relocate America named Lafayette in the top 100 places to live for 2011.
5. Southern Living and Rand McNally both recognized Lafayette with top awards for its culinary offerings.
These accomplishments are impressive and all contribute to Lafayette's solid commercial market.
Here are snapshots of the states of fitness for industrial, office, retail and multi-family product types:
The industrial market is very solid and a great place to be if you are a landlord. Hammy Davis of Coldwell Banker presented the industrial market at ACO and is very bullish on this product type. Occupancy rates have remained very high and rental rates are very erratic. Tied largely to property amenities (cranes, stabilized yards, clear heights), we are seeing record high rental rates and a burgeoning flight to quality. Many businesses have constructed new higher quality facilities and, surprisingly, vacancy has remained minimal throughout the recession. This bodes well for new development. With Pride's Crossing, Sugarland Park and an unannounced redevelopment on Cameron Street coming on line this year, I expect to see these new developments fill up very quickly. As a service market, Davis notes that Lafayette has truly become an international player and will continue to strengthen as activity in the Gulf grows and particularly if natural gas prices rise substantially.
Lafayette's office market is stable and trending nicely. Jeff Landry of MPW Properties presented statistics for this product type and notes that occupancy rates have been fairly consistent throughout the recession, and rental rates have been fairly solid as well. The Schumacher Group absorbed 65,000-square-feet of newly renovated Class B space in the past six months to accommodate employees until their new campus is constructed. The trend Landry notes that I find most telling is that Class A space is being absorbed as well. With rate disparity of at least $6 per square foot from its Class B counterparts (30 percent-plus rent premium), Class A absorption means that businesses are willing to pay more for higher quality locations and amenities. With a typical lease commitment of at least three to five years, this trend gives us a good idea of local business leaders' outlook for the next five years. To evidence Landry's point, there will be a new Class A office development breaking ground this year in River Ranch, but it is mostly pre-leased.
Ryan Pécot of Stirling Properties presented on the health of the retail sector. Notable from Pécot's presentation is that all of the submarkets are absorbing space, and new development is happening in Upper Lafayette (Super 1 Foods/Evangeline Place), along Ambassador Caffery (Burlington Coat/Conn's and a soon to be announced project closer to Kaliste Saloom). Secondly, there have been significant store closings, store relocations and new store openings. Landlords in other markets are envious.
Circuit City shuttered its doors, and Michael's elected to vacate its longtime 20,000-square-foot space down the street and backfilled Circuit City's old spot. Conn's, which shuttered five Texas and Oklahoma stores in January 2012, outgrew its 30,000 square feet of space at Ambassador Row and moved into 50,000 next to the new Burlington Coat Factory. The former Conn's space was leased in early February by KW Smith Furniture (one of my clients) and should be open for business by June 1. Pécot notes that retailers are scrambling to secure quality spaces in top locations and often have strong competing interest on these locations. Also significant are new market entries by large players like Burlington and Rooms To Go. These signal strength and resilience in the Lafayette economy.
The multi-family market also continues to thrive. Jeremy Harson with Beau Box Commercial Real Estate presented this portion of the conference. On a national level, multi-family has been the belle of the ball throughout the recession, and Harson notes that Lafayette is no different. Apartments generally fare well in weak economic periods because fewer people are able to buy homes. Lafayette apartment owners have enjoyed low vacancy and high values during good and bad times. I was shocked to hear that the lowest occupancy rate we have seen since 2004 was 89 percent, which predictably occurred in 2009 and quickly recovered to its current rate of 94 percent. Harson notes that Class A product is being readily absorbed, a trend that is likely to continue with the slow mortgage industry recovery.
Consider two other factors: The local economy is strong and expanding, which requires affordable housing for its workforce. UL continues to increase enrollment and the size of its campus, which means more students, staff and faculty will generate new demand for apartments.
The experts who spoke March 14 all believe the future looks bright for commercial real estate in Acadiana. I share their optimism but also believe we need to remember that there is always potential for foundation shaking events. Remember the mid-80s when U-Haul was one of the few companies making money? Thankfully, Lafayette learned its lesson in the 1980s and diversified its economy. When the financial meltdown and recession took hold of this country in 2008, Lafayette was better prepared. Although business was very slow for my industry in 2008, 2009 and much of 2010, owners of commercial real estate in Acadiana generally fared well. Even in the face of the BP disaster and ensuing drilling moratorium in the Gulf, commercial real estate has held its value.
We'll know at the 3rd annual ACO next spring whether the 2012 predictions hold true.
Monty Warren is vice president and partner of Beau Box Commercial Real Estate, which has offices in Baton Rouge, Lafayette and New Orleans. Warren, based in the Lafayette office, has two decades of commercial real estate experience.