Development - June 2008

Commercial Matters
Commercial real estate owners, investors and managers rely on market information when faced with decisions regarding their real estate leasehold or ownership interests, which is why access to everything from market pricing and inventory levels to financing vehicles, investment valuation, and considerations of purchase or lease is critical to maximizing commercial real estate decisions. These decisions affect profitability, and sometimes, financial viability of our community’s businesses, thereby impacting our local economies. A centralized commercial database that would include this information and more does not exist in our local market. But that may soon change, thanks to a collaborative effort that would involve commercial real estate professionals across Acadiana.

Here’s a snapshot at what’s driving this effort: Significant inventory and pricing level changes for commercial properties occurred over the past 32 months post the Katrina and Rita. Population and industry growth brought increased demand for product into the then-low vacancy office and industrial market. Federal incentives, including favorable financing and bonus depreciation for qualified new construction and renovations, fueled heightened acquisition, construction and renovation activity in all commercial sectors. Land acquisition activity soared for several new retail centers, industrial parks, office garden complexes, office buildings, hotels, apartment complexes, and multi-family developments.

For more than a decade, office market rental rates were relatively flat, averaging $12 per square foot. The increased demand in a high occupancy market, coupled with soaring construction costs for new product, resulted in increased rental rates for all commercial sectors. As new leases and renewals are executed, the rates are increasing by $1 to $3 per square foot on older properties. Existing office rental rates are increasing to the $13 to $16 range, and to justify new construction, office rental rates must be $16 to $25 per square foot. Rates vary depending upon size, age, amenities and location of property. Retail rental rates, which were $12 to $14, are now reaching $16 to $25. Industrial rental rates, which hovered at $3.50 to $5 for existing space, have inched up to the $5 to $7.50. New construction industrial rates have jumped to $8 to $10.

Inspired by the difficulties of getting comprehensive commercial real estate information and the desire provide knowledgeable client service, Realtor Hammy Davis of Coldwell Banker Pelican Real Estate planned and organized Acadiana’s first commercial caravan on Wednesday, May 14, with Rayne State Bank providing transportation and Ciao Bella in Youngsville serving up a fabulous Italian feast at the culmination of the tour. The wheels of progress rolled local commercial Realtors, office building owner representatives, the Lafayette Economic Development Authority staff, and members of the banking industry on the three hour visit to commercial inventory currently on the market for sale or lease.

Dawn Fournier of Van Eaton & Romero addressed the group members as they traveled, discussing the benefits of an organized commercial investment division or organization. As the needs of commercial practitioners differ from their residential counterparts, such an organization would offer services tailored to the office, retail, and industrial and commercial land specialties of this group. Successful commercial investor groups network with each other and other organizations such as universities, economic development agencies and Realtor community affiliate chapters to enhance communication and services. Such an organized group setting would facilitate educational opportunities and a means to address legislative issues that affect commercial practitioners and their clients. New Orleans, Baton Rouge and Shreveport already have such groups in place, and Lafayette has resources to do same.

The connectivity with commercial practitioners sharing inventory information and walking through new and existing product allows for exchange of information on market shifts in product pricing and product type. The benefits include enhanced understanding of the current commercial market; awareness of driving factors for commercial growth corridors; and establishment of valuable business relationships with peers to facilitate interdependent nature of the industry (Realtors, economic development officials, banking, other professionals). Most of all, it’s an opportunity to share experiences and ideas that impact the future development of commercial landscapes, allowing for collaboration on positive community impact.

Our first commercial caravan marks the cornerstone of activity for what may become an ambitious team building effort to provide and promote effective communication venues for the collection and distribution of comprehensive commercial real estate data. We encourage community participation and hope you share in the excitement of the community benefits that lie ahead.
Flo Guidry Meadows is a CPA with 12 years of experience in commercial real estate, currently working as a Realtor with Coldwell Banker Pelican Real Estate._