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In the early days of the COVID-19 pandemic, companies of all sizes rushed to figure out how to keep employees safe and productive at the same time. Many observers predicted the death of the nine-to-five office day, and with it, the end of businesses leasing office space.

But data suggests those predictions haven’t come true in the New Orleans market. Throughout 2022, the prevailing workplace trend saw employees returning to their workspaces in some format, Corporate Realty president Michael J. Siegel said.

“I think the big takeaway from this is this is not a hard stop and a hard start, where there’s an event, it’s over, and you go back to wherever you were,” Siegel said. “What’s going on with the office market on a really macro basis, and COVID is a factor in the office market, is a work in progress.”

Corporate Realty recently released its 2022 Greater New Orleans office market report. The report, now in its 11th edition, looks at occupancy and rental rates for every office building that contains at least 20,000 rentable square feet.

As the authors of the report point out, no new office towers have been built in the Greater New Orleans market since the 1980s. This limited availability has led some landlords to invest in upgrades and enhancements to make aging properties more attractive to modern businesses.

In addition to adding things like more shared kitchen spaces and meeting areas, landlords are turning to spec suites more often, Siegel said. That shift to renting out pre-furnished office space also brings with it rental contracts with a lot more variability in favor of the renter, Siegel said.

“It’s by necessity,” he said. “It’s not inexpensive, and it’s not without thought, and it’s not across the board. What’s good for a 40,000-square-foot office building on the Service Road in Metairie probably isn’t going to be the same approach as a 500,000-square-foot office building in downtown New Orleans. You can’t kind of take these strategies and say it applies to every building. It depends on if it’s downtown or in the suburbs, it depends on the square footage, how well they’re capitalized, it depends on the kind of tenants they attract, it depends on the bones of the building to start with.”

A set number of available office space, combined with a lack of demand for the creation of more, has led to a mostly stagnant, but stable, office market. Overall, the stressors in the market are lining up on the landlord’s side of the equation, Siegel said.

“From a landlord’s standpoint, I think things have changed, because it is tough to be a landlord,” he said. “Cost has increased much greater than rent has increased. Interest rates, construction costs, operating costs, insurance, the availability of capital for loans – it is tough. This isn’t just on office buildings. I think rent is going to have to go up.”

Ordinarily, rising demand for a product drives price increases, but that’s not the case for office space in the New Orleans market, Siegel said.

“This isn’t a case of supply and demand,” he said. “It’s the cost of the product. It just costs more to own and maintain and operate office space. You’ve got to charge a little bit more. I’m not talking stratospheric increases, but some meaningful increases so people can continue to own and operate these buildings and continue to provide first-class office space. If it’s not a first-class office, nobody wants to be there anyway.”

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