It is a great time to be an industrial real estate landlord in the Capital Region, according to Evan Scroggs with Lee and Associates Commercial Real Estate Services.
Lee and Associates’ newly released report on the Baton Rouge metropolitan area’s industrial market shows that many longer-term trends remained constant throughout the second quarter of 2024.
Such 36-month trends include limited new construction starts, minimal new deliveries, increasing asking rental rates ($9.75 per square foot), and a persistent low vacancy rate (1.99%). The Baton Rouge area had not experienced a vacancy rate below 2% since the first quarter of 2023.
“The space market is tight,” Scroggs says. “Being sub 2% on a vacancy rate is great for landlords but not good for tenants and it makes it a challenge for any occupier of warehouse space to either grow their presence in the market or locate into the market.”
Interest rates and high costs have affected new construction in the industrial space, but Scroggs also points to the role of financial institutions in the construction process.
“I think you’ve got a limited number of local financial institutions that can supply the debt for projects needed to meet the space requirements of these tenants with the larger square footage profiles,” he says. “Because we’re a tertiary market and we don’t have institutional capital chasing deals in our market, we’re really limited to the appetite of local and community banks to finance these projects, and that’s the challenge.”
Nearly half of the total vacant building count (22) and 69.26% of the total vacancy square footage (518,315 square feet) is in the north Baton Rouge submarket. That submarket has the highest concentration of older warehouse facilities with functional challenges. For example, the 139,737-square-foot facility on the former Louisiana Creamery property on Monroe Avenue has been on the market for 1,762 days, according to the market report. The property alone accounts for 20% of the total market vacancy.
Scroggs says the lack of new construction is a continuing factor in the market being undersupplied.
The average asking rental rate is expected to increase to over $10 per square foot in late 2024 or early 2025.
“I think all of this is being driven by the economic development and the big petrochemical projects taking place along the Mississippi River between Baton Rouge and New Orleans,” Scroggs says. “I don’t see where the demand for this product type goes away anytime soon, based on the economic development in our region.”
