CATCHING THEIR BREATH Despite the downturn, many local real estate professionals remain optimistic, saying the Lafayette area is experiencing a much-needed correction.

by Christiaan Mader

Construction is underway on the FedEx distribution facility on SE Evangeline Thruway.
Photos by Robin May

It’s not often that a mixed message could be considered a good thing. Given the economic gloominess that has dogged Greater Lafayette since 2015, assessments at this year’s Acadiana Commercial Outlook, held in early April at LITE, show a commercial real estate market feeling short-term pressure but with little discomfort. Their message: The nearly decade-long bubble Acadiana developers enjoyed during times of $100 oil barrels didn’t exactly burst; it just let out some air.

Looking at metrics for residential, industrial, office, multi-family and retail real estate, it’s clear that builders, owners and developers are feeling a crunch. There’s more vacancy, fewer outright sales, leasing rates are falling and new construction is stalling.

Building stock is up across the board thanks to years of ascendant oil prices. While the rest of the country shuffled through the Great Recession, Acadiana went gang busters with new developments in all sectors. When the price of oil began its collapse in 2014 — trading slightly up of late in the $50 per barrel range — new construction was still struggling to keep up with voracious demand. Existing stock was swallowed up by booming development. New buildings couldn’t go up fast enough.

Combine the end of a period of furious construction with rising unemployment and shuttered business and the result is a renter’s market.

Presenters at this year’s ACO have argued that the 2015 correction — as some experts have called the recent dip — is a healthy return to earth from years spent in orbit. More building supply means lower leasing rates and space on immediate demand, while lower office and industrial occupancy affords more opportunity for developers to complete long-overdue upgrades to aging properties. A wiser, more diverse economy has kept Acadiana resilient, with historically low debt on commercial properties and new jobs in health and technology offsetting some of the losses in the energy sector. Meanwhile, some are predicting that the worst is over with national rig counts slowly climbing and barrel prices inching their way back to a sober but healthy $60 price point. If sustained, local real estate professionals are predicting that 2016 will be stable.

We spoke to several ACO presenters to catch a pulse of what’s happening in Acadiana’s commercial real estate market. The prognosis is positive but measured — oil prices may never sniff $100 per barrel again. But sometimes it’s OK to catch your breath.


Ryan Pécot of Stirling Properties

Retail properties by and large were the best performers in 2015 of the five sectors assessed at the Acadiana Commercial Outlook symposium. Naturally, much of that top-of-the-class success was due to the mammoth impact of the Costco-anchored Ambassador Town Center that opened in April. Between $90 million and $100 million of the $127 million in commercial permits issued in 2015 were locked up in the Costco development, with most of the slated properties opening for business in 2016. While we can’t count on a Costco opening up every year, the general outlook on the retail market is relatively positive.

Ryan Pécot, Stirling Properties’ senior retail leasing and development executive, tells ABiz that 2015 marked the first time, maybe in Lafayette’s history, that lease prices were up in every trade area measured in the parish. While taxable sales were down $400 million from 2014 to just over $6 billion, Lafayette-area retailers performed well when assessed against trends over the last decade. Acadiana’s current economic dip looks less imposing when considered in the context of several years of runaway growth.

“For a while we didn’t realize how good we had it,” Stirling Properties' Ryan Pécot says. “It doesn’t happen over night. Cycles happen in real estate. If you don’t think they do, you’re fooling yourself.”

Occupancy is generally strong in the retail sector with marginal increases already emerging in early 2016. The current market average for occupancies, combining vacancy measurables for small shops, junior anchors and anchor retailers, is up to 89 percent. That uptick is due in large part to the spate of move-ins at the Costco development. Controlling for that development, area occupancy is still well above 80 percent, according to Pécot’s figures.

The last few years of national chain arrivals buttressed a strong retail development market that Pécot anticipates will flatten for the next few of years. Lafayette locations of national franchises (like Academy and Walmart) have performed well for years, attracting more and more big boxes into the market thanks to “proof of concept” mechanics. As soon as a Whole Foods moves in, Costcos aren’t long to follow. But even given stubbornly healthy retail numbers, Pécot says the next rung of national retail development may not happen for several years.

That means developers are looking to rehab and redevelop obsolete or largely abandoned properties that can be had at lower cost with more upside. This year Stirling Properties will begin work on an overhaul of the aging and largely vacant Grand Marché shopping center on Johnston Street.

Even with slowing numbers, Pécot says developers have plenty of work to do thanks to Lafayette’s generally voracious consumption habits.

“Shopping is too much of what we do,” says Pécot. “Eating and drinking is too much of what we do. We won’t fall in a hole.”


Brothers Todd and Chad Trahan are the developers behind a new office complex at 325 Settlers Trace Boulevard, near the Springhill Suites hotel in River Ranch. The Class A office building will house their company, Trahan Real Estate Group, and other undisclosed tenants.

Digging into office space data for 2015, there are two stories to tell. On the one hand, occupancy is down from previous years, showing a market average of 86 percent. If you break down occupancies by class, however, a dramatic shift is evident in market trends toward newer spaces with premium amenities. Last year saw a gulf in performance metrics between new high-end office facilities and older buildings.

Data provided by Todd Trahan, president of real estate at Trahan Real Estate Group, shows Class A office space held strong in 2015 at 96 percent occupancy. Meanwhile, renters in Class B and C either shuttered in a down market or fled for newer and updated spaces in places like River Ranch. The result was a precarious 83 percent combined occupancy in Class B and C buildings with rental rates around $15 per square foot.

Rental rates were up from 2014 in all classes, despite more widely available supply. Residual health in the office realty market was buoyed by non-energy-related commerce. Trahan highlighted several property acquisitions and constructions in his Acadiana Commercial Outlook presentation — like the crisp and contemporary building rehab for Lafayette General Medical Center’s new administrative offices in the Oil Center — much of which originated in the medical industry.

Trahan sees the trend as a matter of consumer choice. More and more businesses are leaving obsolete and outdated spaces for newer developments offered by companies like S.L. Shaw & Associates, which has built several new medical office complexes in Lafayette’s burgeoning, health-heavy south side. Even in cases where businesses are looking to downsize office space, they typically seek out newer facilities with premium features and updated aesthetics.

According to Trahan, that means owners of currently less desirable buildings ought to turn their attention to upgrading their facilities to meet consumer specifications and needs. He believes investment in remodeling is the real remedy for Class B and C owners looking to avoid hitting 80 percent occupancy.

“No landlord is comfortable at 80 percent,” Trahan tells ABiz. “You’re in the real estate business to be above 90 percent. A lot of the B and C properties need to upgrade their facilities. You got to spend a little money.”


David Gleason of Van Eaton & Romero

While Acadiana is no doubt more economically diversified than it was during the historic oil crash of the 1980s, the health of the industrial real estate market is still intimately tied to the trading price of a barrel of oil. Industrial owners are indeed hurting, as reflected by aggressively priced leases in 2015, but they aren’t yet panicking. Building sale prices have remained hold on to vacant buildings, opting to stable as most owners have chosen to wait out the downturn. Thankfully, due to historically low debt on commercial properties, owners have little reason to hurry a sale.

“The story is not as bleak as what people would think,” says Van Eaton & Romero industrial broker David Gleason. “There’s not a whole lot of debt in any of these buildings. Smart owners have been paying down their debt during profitable years.”

Gleason, who delivered the ACO’s industrial market assessment, says declining lease prices are a hangover from years spent trying to catch up with bursting demand. As recently as 2014, industrial companies moving into the Acadiana market were forced to break new ground to open up shop. There simply wasn’t enough available stock to accommodate incoming business, leading to historically high numbers of build-to-suit projects.

Now, occupancy rates are reaching 85 percent. Like in other real estate sectors, that number is not ideal but it’s not yet unhealthy. Bank loan pro formas are typically written with a 10 to 15 percent occupancy rate in mind. Owners are typically able stay above water so long as rentors take advantage of the lowered cost to lease workspace.

Gleason has reason to believe that occupancy has bottomed out, however, as oil prices climbed above $50 per barrel in June for the first time since hitting a low of $26 per barrel back in February.

The average number of monthly active listings jumped to 92 in 2015, a 21 percent increase over active listings in 2014. The monthly average earlier in the first quarter of 2016 was 81, demonstrating a short term reaction to the lower-priced leases and improved occupancy. Meanwhile, only six building permits were issued for industrial projects in 2015, generating just under $22 million in sales.

Gleason expects that pattern will hold until confidence in oil prices is reflected in new building activity. He notes that election years tend to see more conservative behavior as developers and builders wait to see what the political climate will be for future projects. So long as the market remains in stasis, Gleason predicts that leasing prices will continue to be favorable to companies shopping for existing space.


Beau Bourque of Van Eaton & Romero

Nationally, more and more people are moving into apartments. In 2015, 306,000 apartment units were completed in the United States, the most since 1989. Most researchers will tell you that bulge in urban density is due to millennials recalibrating the American dream to exclude home ownership. We’re replacing picket fences with fullservice apartment developments in the thick of city action.

Agent Beau Bourque of Van Eaton & Romero says the Acadiana market followed the national trend over several years of growth, creating what he calls a “perfect storm” of increased supply and lowered demand once the general economy compressed in 2014 and 2015.

“We’ve experienced the same demand in our market that’s been true on a macro level,” Bourque tells ABiz. “We’ve been able to create a strong labor market and have retained our millennial population.”

Years of boom spurred a glut of apartment supply via speculative construction, much of that in Lafayette proper.

While new construction will slow, we’re still experiencing momentum growth from projects begun during boom years.

In 2015, 476 units were permitted for completion in the area by 2016. Another 650 units will be completed by 2017.

Consistent with trends in other real estate sectors, increasing unemployment and declining wages and profits contributed to occupancy rates around 90 percent. For the past few years, owners have enjoyed occupancies north of 95 percent, which realtors consider a full house. According to Bourque, building owners don’t start sweating empty apartments until vacancy gets closer to 20 percent.

Still, leasing rates have dropped for both Class A and Class B type complexes in all configurations. A slight increase in lease prices for three bedroom, Class B apartments points to the real-life impact of layoffs in the energy sector, as families are forced to downsize from single family homes.

On a positive note, lower debt across the board means most owners are capitalized well enough to weather the current downturn. In some cases, years of good leasing has left enough in the coffers to upgrade dated complex stock to suit more affluent tastes. Should the general economy turn around, Class B units can yield almost $300 more per door if remodeled with Class A amenities and features.

Bourque expects vacancy to increase going into 2017 as unemployment either plateaus or rises. Near term, that’s not ideal for owners as prices will likely continue to fall. But with recent climbs in the price of oil and a more diverse job market, he remains optimistic about Lafayette’s long-term outlook.


Monty Warren of Beau Box

Even though Acadiana is growing, it’s still not a large market.

Lafayette Parish accounts for approximately 235,000 people with the nine-parish Acadiana region approaching 700,000. For residential realty, that means year-to-year changes can be unreliable metrics for market health.

In 2015, new home construction dipped everywhere in Lafayette Parish — save Carencro where the completion of the Couret Farms subdivision accounted for most of a 150 percent increase, according to Beau Box Real Estate Vice President Monty Warren, this year’s Acadiana Commercial Outlook symposium chairman who delivered a brief report on the residential sector.

Compared to record-setting years for new home sales in 2013 and 2014, the 2015 numbers didn’t look good. But a glance at a five- to 10-year sample shows that sales of new and existing homes were still strong last year, with new home sales dipping against the backdrop of years of record-breaking upward movement. In fact, when all was said and done, 2015 actually increased a paltry .64 percent from 2014 thanks to a small uptick in existing home sales that offset the 3 percent decline in new home purchases.

That’s not likely to be the case this year, as closed sales in the parish are off about 10 percent through May. But once again, more existing homes are leaving the market and setting a higher median price.

It’s tempting to approach any decline in new home sales with pessimism, but if you keep in mind that 2014 was a peak year for new construction, that decline does not seem statistically alarming — at least for the time being. Sales of new homes increased rapidly each year since 2010 and hit a market apex of 1,117 new homes sold in 2014, an increase of 46 percent over the four-year period.

Much of that growth was fueled by rosy speculation across the parish over the past few years. Layoffs and declining parish-wide profits in 2015 have no doubt contributed to a cool off, but overall the market is still relatively robust when compared to 2010.

Troy Hebert of Van Eaton & Romero

“We’re outperforming 2010, 2011 and 2012,” says Troy Hebert, general manager of Van Eaton & Romero. “We’re slightly behind [banner years in] 2013 and 2014 and about 10 percent behind where we were last year,” he adds, emphasizing a widely held opinion that the sector could be much worse considering the oil price slide. “I think it’s hanging on a lot better than I would have expected,” he continues. “I’d sure rather be living in Lafayette Parish right now than Houma.”

Despite the economic challenges taking a toll on the residential sector, inventory in the $300,000 range and below is being absorbed in less than six months, Hebert notes, which is considered a balanced housing marketplace. In fact, the most recent data for May show that almost 59 percent of homes being sold are in the $150,000 to $299,000 price range. Problematic, however, is the growing inventory of homes in the higher price ranges. Those priced from $300,000 to $1 million — likely some of the ones hitting the market because their owners were laid off from oilfield jobs — are sitting on the market for an average of 11.6 months.

Also bolstering some of Hebert’s optimism is May 2016 sales in Lafayette Parish, which had a surprisingly strong showing. While the 290 closed sales represent a 7.3 percent decline when compared to May 2015, the number of closed transactions jumped 14.6 percent from April to May this year (253 v. 290), and the dollar value likewise increased 13 percent ($58 million to $66 million). The same held true when Hebert combined the surrounding areas with Lafayette Parish’s numbers, revealing a 12 percent uptick in closed sales. “May has actually been the best month so far this year,” Hebert says. “Now are we going to maintain that? I don’t know.”

Beau Box’s Warren says the sobriety in the market is significant, but what’s remarkable is the resiliency the broader market has shown in tough times.

“From a real estate perspective it’s not as wild and crazy as it was four years ago,” Warren tells ABiz. “We’ve seen some correction, but it’s not alarming.” — Additional reporting by Leslie Turk