2012 Real Estate Report

Stable but flat

The Capital Region's retail market isn't suffering from overbuilding, but it isn't exactly growing, either.

For the second year in a row, vacancy rates declined in the Capital Region's retail market last year, and for the first time in several years they're comfortably in the single digits.

While that's encouraging, also down were average rental rates, suggesting that the market remains far from robust. Indeed, realtors say activity is relatively flat, with certain exceptions, and that redevelopment is still more prevalent than construction for new projects coming into the market.

“It we were a stock, we would be a hold,” says Jonathan Walker at Maestri & Murrell. “We're stable and we don't have much volatility. We haven't overbuilt, but we don't see many new ground-up developments either.”

On the plus side, vacancy rates decreased in every shopping center category except for neighborhood shopping centers, which noted a slight increase. The highest vacancies were noted in the unanchored convenience centers, which are those small strip centers of 30,000 square feet or less. Regional centers—large centers of 250,000 square feet or more—continue to have very low vacancy rates.

Similarly, older centers—those built before 1985—and those in Zachary and north Baton Rouge had the highest vacancy rates and lowest average rents, while new centers and those south of interstates 10 and 12 and west of Airline Highway had the lowest vacancy rates and highest average rental rates.

While there are pockets of demand, however, low rental rates continue to give tenants the upper hand in negotiating deals.

“Tenants are realizing it is still a tenant's market,” says Walker. “They're negotiating and sometimes threatening relocation if they can't work out a deal with the landlord that suits them.”

One trend realtors have noted is a request by landlords for sales reports from their tenants. It's a way of getting more information on the table on the front end of a negotiation, which comes in handy particularly when tenants start asking for rent reductions.

Another notable trend is a decline in small to medium-sized independent retailer tenants.

“The one guy we've lost in Baton Rouge is the 1,500- to 2,500-square-foot retailer,” says Justin Langlois at Mike Falgoust & Associates. “There just aren't a lot of them anymore.”

Looking forward, realtors don't expect much change in that dynamic or in the market in general, at least not for the remainder of 2012. For now, they expect the status quo to persist.

“I think a lot of people are sitting tight and are just going to ride out this election season before they decide to do anything,” says Langlois. “Complacency is really the big thing to watch.”

5 THINGS TO WATCH

ACADIAN VILLAGE
This much-anticipated mixed-use development has been on the radar of local realtors for several years, but in the next six to 12 months many expect construction on the planned 100,000-square-foot site to actually begin. Earlier this year, an IberiaBank branch opened on an outparcel site, and Galatoire's has broken ground on a new free-standing restaurant next to Acme Oyster House that will open in December. Still, the real catalyst for development will be the new upscale supermarket long promised for the center. In April, Commercial Properties signed a letter of intent with a specialty grocery store chain, rumored to be the California-based Trader Joe's, to build a 15,000-square-foot store in the center. Realtors familiar with the deal say, unlike previous attempts, this time a lease really will materialize. Not everyone is counting on it. Predicts Justin Langlois at Mike Falgoust & Associates: “Next year at this time we'll still be talking about that grocery store.”

AIRLINE HIGHWAY CORRIDOR
Once Woman's Hospital relocates to its new digs on Airline Highway later this summer, it's only inevitable that retail development will follow, say local realtors, who predict the 497,000-square-foot facility will be a boon to the area. The only question is how long it will take. So far, CVS has acquired a corner site near the new hospital, and a local bank has another corner under contract for a new branch. Look for the rest of the area to gradually fill in, first with medical office complexes, followed by retail.

CENTRAL, ZACHARY, BAKER
There aren't any major retail developments in any of the three satellite cities of the Capital Region. But small strip centers continue to pop up in Baker, and especially, Central and Zachary, which are starting to see their share of restaurants and the occasional retail outlet. “For now, the outlying areas of Baton Rouge are where we're seeing the most activity,” says Langlois.

TOWNE CENTER/CORPORATE BOULEVARD
For the past three years, Towne Center has remained at about 97% occupancy, an impressive rate. Still, the center is rumored to be for sale, and many anticipate it will change hands within the next 12 months. Whether that actually happens, more retail development is expected along Corporate Boulevard, particularly down toward the west end of the busy thoroughfare as it nears College Drive. A Cottonport Bank branch is currently under contract, and local realtors predict more development to follow.

PERKINS ROWE
It's been three years since lenders initiated foreclosure proceedings against developer Tommy Spinosa on his mixed-use project Perkins Rowe, and though the courts cleared the way last year for Key Bank to take back the project, several legal issues have to be resolved first. While that is ongoing, sources familiar with the situation say several interested buyers have their eye on the development, which has thrived under the management of Jones Lang LaSalle, the court-appointed receiver in the case. Should a sale take place, tenants likely won't notice much change. Notes Jonathan Walker at Maestri & Murrell: “The last thing someone wants when they take over a property is to affect the tenant mix.”

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