Petrochemical boom lifts real estate outlook Petrochemical boom lifts real estate outlook BY CHAD CALDER| Advocate business writer April 24, 2013 Comments A booming petrochemical industry fueled by low natural gas prices is good news for all sectors of the local real estate business, presenters at an annual real estate conference said Thursday. This year’s Real Estate Trends seminar was notably more upbeat than it was a few years ago when one presenter put up a slide labeled “new projects” that was completely blank. The change in mood is largely due to the petrochemical resurgence. Still, no one is predicting a real estate boom just yet, saying instead that the expansions and new projects are going to start filling existing warehouse and office space, and the resulting job growth will help fuel retail, multi-family and single-family development. Industry’s expansion “will fuel a lot of engineering and construction jobs, which will create demand for office space,” said Branon Pesnell, of Beau Box Commercial Real Estate. Pesnell said the office market started to pick back up in the last quarter of 2012 and is back to pre-Hurricane Katrina levels. His outlook is one of slow growth for the next several quarters, a welcome trend after the financial crisis and recession. Pesnell said the amount of subleased space — space tenants lease out to other tenants because they’ve shrunk and aren’t using it — is now a negligible 20,000 square feet, a sign of a stronger market. Scot Guidry, of Mike Falgoust & Associates Commercial Real Estate, noted Methanex’s plan to completely dismantle a South American plant and rebuild it in south Louisiana. “When was the last time something like that happened?” he said. Guidry said the vacancy rate for industrial space at the end of last year was 11.6 percent, compared with 14.4 percent a year earlier. That could fall to as low as 9 percent by the end of this year. He said there still hasn’t been much speculative building, but his team’s research noted this could start to change later this year. Wesley Moore, of Cook Moore & Associates, said the $4.5 billion in industrial expansions in the last year bodes well for the apartment market, where jobs drive growth. He said the roughly 6,314 units constructed here since Katrina is virtually identical to what the demand would be based on the population growth for the metro area. He said that while credit for single-family homes is loosening up somewhat, it is still slowing the natural transition of people from renting to buying. He said 2,062 units are planned or underway — 1,002 of them conventional, 457 upscale student housing and 603 affordable or a combination of affordable and market rate units. Moore said rental rates increased 2 percent in the past year, which is in line with the underlying economics. He said the vacancy rate of 5.5 percent among developments surveyed last year and this year is “great.” Tom Cook, also of Cook Moore & Associates, said the single-family segment had a strong year, with metro area home sales increasing 15 percent to 7,693 homes sold in the 12 months ending in February. Cook noted, however, that the sales have not translated into a significant increase in average sale price, though he added he expects some modest improvement this year. Cook said that a lot of the land sales for new home construction have been bulk lot purchases, primarily by major players Rabalais Homes, DSLD and D.R. Horton. Brian Andrews, assistant director of LSU’s Real Estate Research Institute, said financing for commercial and residential development is starting to loosen up and lenders are increasing their budgets. He noted that apartments, warehouse and industrial space, grocery-anchored retail and offices in central business districts are most preferred by lenders. He said lenders will consider unanchored and big-box centers, suburban office, restaurants and self-storage facilities, though those are a tougher sell. Jonathan Walker, a broker with Maestri-Murrell Inc., said several national trends are playing out in the local retail scene. One is the strength of malls, where spending rose 5 percent last year. Walker said the Mall of Louisiana’s growth tracked the national average, but he noted its $608 per-square-foot per-year average is much higher than the $448 national average. The mall, he noted, has an impressive occupancy rate of 97 percent. As for Cortana Mall, Walker said its 350,000 square feet of interior space was 54 percent occupied when Las Vegas-based Moonbeam Capital Investments bought it last month. He said that the low purchase price of about $20 per square foot means the deal may make sense. The Lowe’s, Sam’s Club and Wal-Mart near the mall draw plenty of traffic, though he said Cortana might in the next year lose some anchors, which Moonbeam does not own. The second national trend is food warehouses like Sam’s Club and Costco grabbing a bigger share of the market. The recession, Walker said, fueled sales at the bulk discounters and those habits have stuck. Walker shed further light on the pending deal Costco has for the former Coca-Cola bottling plant at Airline Highway and Interstate 12. He said the food club warehouse operator would take the northern 20 acres of the property and Celtic Media, a film studio, will buy about six acres on the southern end. Celtic, which sits next to the vacant bottling plant, was first mentioned in relation to the property last week when the Mayor’s Office outlined its proposed economic development district there. An administration official had said the district would include Celtic tenant Pixomondo, but wouldn’t provide any specifics on how Celtic figured into the deal.